HOME PRICES PLUNG IN HIGH VOLITILITY STATES

Home prices declined in many of the high volatility states last month indicating another double dip in prices.  Prices in 20 key cities fell 1.3% month over month and 15% annually according to the S&P Case-Shiller index.  Atlanta, Charlotte, Miami, Portland, Seattle and Tampa were a few of the markets that hit their lowest level since the beginning of the crash in 2006 and 2007.  Most industry experts had predicted a flat market but the increase in positive economic indicators across those highly volatile markets were primarily due to tax incentives and the prolonging and dragging out of the real problem which is now presenting itself as shadow inventory owned by the banks.  In the statistics above, a lack of consideration was given to strategic defaults for homeowners that were current on their payments but did not want to ride out a $200k negative equity situation for the next 10 years or more until housing prices came back. 

With housing pricing decreasing it opens up even more opportunity.  If you can pick up property under market value right now at an all time low in the real estate cycle it's still a great buy.  If you pick up a property at 70% to 80% of the market value and values drop another 15% due to the housing collapse you still have great equity potential moving forward.  I see many investors making the mistake of trying to time the market just right when they should be buying, but buying right, to take advantage before prices start to climb again.  Many of the professional investors I know are buying as much property as they can get their hands on now.  To give you a snapshot of the foreclosure activity in the Southern California real estate market right now you just need to look at a quick picture to see what is really going on.  We pulled this chart doing a Google search for real estate foreclosures in the Los Angeles area.

Scary pictures isn't it?  You can barely see land!  This is exactly why we do not invest in Southern California or recommend our investors invest in Southern California right now.  Normally the investment play in Southern California is to flip properties to first time home buyers but with sporadic comparable sales, rapidly dropping prices, appraisers coming in all over the board, along with lenders that make you want to pull your hair out, it's just not worth the risk or the headache unless you already have a full fledged system in place and have a specific niche buying property at 65% of the current market value.  On top of all of this, the properties in Southern California do not produce positive cash flow from rental property at the same rates as other markets in the country that are much less volatile and not hugely subject to changes in economic environment in comparison.  Keep this chart in mind if you are one of those emotional investors wanting to buy in your own back yard in California without looking at other markets to invest in.

Mathew Owens, CPA

http://www.ocgproperties.com