Archive for July, 2008

What about Builder Financing?

Thursday, July 31st, 2008

     In Tucson, when a potential buyer goes to a new home subdivision, that buyer will be asked to what is called, “sign in”.  Sometimes the buyer is told the builder likes to know who comes and goes into the subdivision.  Being polite, most people comply with the request. 

       In small letters is a sign someplace in the site agent’s office, stating,  “If this is your first visit to our community, your Realtor must accompany you”.  Most people never see that sign.  What does this mean to you the buyer and how does it relate to builder financing? 

     Upon signing in, you, the buyer, give up your right to representation.  The site agent has a fiduciary responsibility to the builder, not to the buyer.  If there is a problem, the buyer has no representation. Arizona Agency Law prevails.  Most new home site agents never tell consumers upfront, if they do not use a real estate agent, they, the consumer, have no representation. 

    And so, during the frezy of 2004, 2005 and a bit of 2006, buyers swamed to new home subdivisions, gave up their rights unwittingly, and felt that the site agent was representing their interests.  The duty of the site agent is to sell homes and as part of that, site agents refer potential clients to the builder’s financing and often tied incentives for the home to using the builder’s lender.

     Each builder had it’s own “lender”, often a big name lender who went by another name.  KB Homes used Countrywide and called it KB Mortgage, US Homes had its mortgage company, Pulte had theirs. 

    The emotions of purchasing a new home are high.  When a buyer signs many contract documents, the agency disclosure if often overlooked and not explained fully.  Typically it is buried in the package of documents buyers sign when purchasing a new home.

     Many people, now in foreclosure or teetering on the edge, were people who purchased homes in new home subdivisions without the benefit of representation.  They did not have someone to explain the costs of a loan, what an 80/20 loan is, and how will an 80/20 loan impact them with an adjustable interest rate.

    These are important considerations a buyer must face.  A loan of $300,000 with 80% down fixed is $240,000 fixed rate mortgage.  The 20% adjustable which often begins at a teaser rate, is $60,000.  The fixed rate at 6% on the $240,000 is $1438. and the teaser rate at 4% on the $60,000 is $286.45.  The combined loan, both amortized over 30 years is $1724.  When the adjustable jumps to 8.75%, the new cost on the second is $472 bumping the total payment to more than $1910.  In many instances rates for the second more than doubled.

    Although the lender is “independent”, that lender tacitly is working with the builder to sell more homes and bank more loans.  

     A good real estate agent will explain various methods of financing to a buyer.  In some instances, it is better not to use the builder’s lender.  Most people do not understand financing, they rely upon professionals to help them, just as I rely upon my mechanic to fix my car. 

    People purchasing a new home especially should rely upon a Realtor who will sign in the buyer and follow the transaction closely.

Building in Pima County – the “outskirts” of Tucson

Wednesday, July 30th, 2008

    The New York Times in the magzine article, “The Boomtown Mirage”, written by Samantha M. Shapiro about Maricopa, Arizona, certainly painted a dismal picture.

   This picture is not Tucson, Arizona.  Maricopa is a bleak situation in which builders, lenders, buyers, and real estate agents,  allegedly were complicit in trying to build a sleepy desert town into a booming suburban area.

    Although it appears that Arizona has an abundance of land, approximately 82% of all land in the state is owned by some type of governmental agency.   That leaves a mere 18% of land as a tax base and for development.  Land was and is at a premium price and therefore developers optioned property in seemingly remote areas where land was cheaper than urban areas.   (Developers have let some of those options expire because of the downturn in the market.)

     Developers also sought counties and towns which did not have stringent development regulations relative to other areas.  They looked for places where impact fees are low or non-existent which helped developers keep the price of housing lower.

     In Tucson, master planned communities have sprung up on the outskirts of town in Pima County.  Two story homes on small lots dot the landscape.  Two story homes were uncommon in Tucson prior to this wave of development.  Builders realized they could erect a 3600 square foot home on a lot which could previously sustain only an 1800 square foot one story home because of zoning and density changes.

     Much of the builder profit margin comes from the upgrades buyers put into the homes, so it is cost efficient and more profitable to build larger homes on less land.

     Large tracts of land were subdivided and various builders contracted for sections of the tract on which to build homes.  Perhaps 5,000 or so homes could be built on what was formerly cotton fields, desert raw land, or larger tracts 20 to 45 minutes from Tucson proper.

   This is not unlike Robson’s concept years ago in purchasing property more than 20 miles from the city to build Saddlebrook, a large master planned retirement community.  Activities for seniors, now called “active adults”,  were the lure for Robson.  Now water parks, golf courses, and “conservation” land (often unbuildable arroyos) are the lure other builders use to attract buyers.

     www.nytimes.com/pages/realestate/key/index.html

     Tomorrow – Builder Financing

A Note of Apology and then…More Numbers!

Tuesday, July 29th, 2008

     It must be evident to whomever read yesterday’s blog that I am new to this game.  I apologize for the table spill over to the second column.  I will get the jist of this eventually.  I didn’t realize this faux pas until I had published.  Just goes to show there is always something new to learn!

    Our Tucson real estate market place is definitely picking up, and the numbers from January through June tell the story.  Comparing the month of January to the month of June, the total volume increase is more than 68 million dollars, and the number of active units on the market has decreased from 9168 in January to 8140 in June. New listings too have decreased by nearly 1700 from 3744 in January to 2095 in June.  Less inventory on the market is a good sign right now. 

     The average sales prices since January has decreased about $9,000 from $266,450 to $257,449 and the median price has gone from a January high of $203,500 to $200,000.  The number of days on the market now stands at 78 whereas in January, it was 83 days.  But the number of properties sold has nearly doubled from January from 594 at the beginning of the year to 1034 in June.  The market is finding balance.

     These statistics from the Tucson Multiple Listing service include all homes within that MLS area.  Charlie Kentnor, a well known Realtor based in Sonita, echoed the same sentiments in his blog,

http://www.realtown.com/ckentnor/blog/market-trends-and-statistics/sonoita-real-estate-june08-update

     By the time the press gets around to saying the market is improving, those who wanted to get on the real estate boat, will find the boat has passed them by.

Bring on the Numbers!

Monday, July 28th, 2008

     What sells newspapers, brings in dollars for TV news advertising and creates interest for magazines, is often a brand of subdued sensationalism.   And the topic of conversation has been the real estate market and the alleged looming “recession”.

     Some buyers are staying on the sidelines, and some sellers are not putting their homes on the market for fear they will “lose” too much money.  In all the news I’ve read or listened to, none talks about the extreme run up in prices which would put the present situation in perspective.

     As an exercise, I took the Tucson Multiple Listing numbers and computed the increase in average sales pricing since 1993 which was $105,193.  In 2007, the average sales price was $272,601, an increase of 159.14% or about 11.37% per year.  But what the numbers don’t tell is that more than 39% of that increase came during 2004 and 2005.

     Price increases, numbers of units, and days on the market were as follows:

Year

Av sales price

Av %

Change

list price

# units

Avg %

Units

Change

Avg # Days on Mkt

 

Av #

Days Chg Mkt

Avg %

List Price

Recd

1993

105,193

 

8815

 

67

 

96%

1994

115,265

9.57%

9023

2.36%

56

-.12%

97%

1995

118,861

3.12%

8121

-10.00%

57

.01%

97%

1996

127,526

7.29%

8386

3.26%

67

.12%

97%

1997

132,096

3.58%

8472

1.03%

78

.13%

97%

1998

137,323

3.96%

10020

18.27%

71

-.08%

97%

1999

147,180

7.18%

11244

12.22%

62

-.09%

97%

2000

155,907

5.93%

10988

-2.28%

55

-.06%

98%

2001

160,963

3.24%

12076

9.90%

48

-.06%

97%

2002

169,963

5.59%

13135

8.77%

51

.02%

97%

2003

179,354

5.53%

14351

9.26%

58

.05%

98%

2004

206,886

15.41%

16557

15.37%

54

-.03%

98%

2005

256,247

23.79%

18003

8.73%

31

-.14%

99%

2006

271,597

5.99%

15709

-12.74%

49

.10%

98%

2007

272,601

.37%

12840

-18.26%

67

.11%

96%

Numbers given and percentage increases are year over year increase.  These numbers are taken from the Tucson Multiple Listing Service and are for Tucson only. These numbers are compounded annually , whereas the number in the next paragraph are not.

                   What do these numbers tell us?  Excluding the years of 2004 and 2005, the average rate of increase in sales price is about 5.12% per year.  Indexing at 5.12% from 2003 would put the value of that house at $188,537 in 2004;  $198,190.01 in 2005; $208,337 in 2006 and $219,004 in 2007 – a difference of $53,597.

      No wonder the market needs to readjust!

      Tomorrow:  What about 2008?

Welcome!

Monday, July 28th, 2008

Welcome to my new website and blog!

In the tradition of all good books, I want to give appropriate kudos to the primary person who has been supportive, prodding, creative, and visionary! She is graphic artist and web designer, Lyn Bishop of Zama Arts. I am her proud Mother!

Lyn designed my first website in the mid 1990’s which won several awards. Now we are launching the new site which we hope users will find easy to navigate, replete with good information about Tucson, and informative for anyone who stops to browse.

Please take a peak and let us know what you think. My intent is to write about Tucson real estate, Tucson, and life in Tucson here on the blog.

If you are interested in a particular subject, please make that known. I will attempt to cover that subject in a blog post.

So grab your virtual bottle of champagne and pour yourself a glass to toast the new website and the new blog. Help us celebrate!

And to Lyn, a thousand thank yous for your patience, your imagination and inspiration, and your perseverance . Be sure and visit her portfolio or check out her fine art.

Thanks for visiting my new blog, I hope you will stop back often to learn more about Tucson and the surrounding real estate market.