Considering real estate? Don't wait!

Why? Why indeed! The answer is and always will be the long term appreciation rate of a property. Appreciation is the increase in property value over time due to inflation and the effects of supply and demand imbalances. If the appreciation rate is high enough, about 1.75 points above the inflation rate, the value of the property increases faster than the outlay costs of taxes, insurance, maintenance and interest. This results in the experience of “living for free.”

Long term appreciation rates will mirror the general rate of inflation. If they don’t, the great leveling factor of supply and demand comes into play. A statistical review tracking repeat sales of the same homes, known as the Case-Shiller index, concluded that the price of existing homes increased by 3.4% annually from 1987 to 2009. The general rate of inflation during this period was 2.9%.

Has the bottom been tested? The awful corollary of appreciation is depreciation. This happened in the late 2000s. Has it run its course? Well some of the best returns from Wall Street for the past 12 months have been realized by real estate mutual funds. PIMCO Real Estate, PRRSX, showed a 107.41% per share increase for the 12 months ended 4/30/10. To me this is an excellent indicator of how investors and finance insiders assess the national real estate market.

Now here is my central point: There remains little undeveloped waterfront property in the Lakes Region; ergo the appreciation rate should not only keep pace with the national inflation rate but also allow a faster increase in value due to the demand exceeding supply. Low property taxes and interest rates, a growing population and the desirability of an area are other major factors, and which I have written about in earlier blog posts, that will also positively affect the value of Lakes Region Properties.

Tomes have been written, are probably being written and likely will be written about the real estate fluctuations of the past 4 years. And though I prefer to retain a sense of the undiscovered nature of our area I imagine we can expect some focused attention on the Lakes Region of New Hampshire.
Jim Ferriman    Jferriman@spencerhughes.com    603-520-5385

I thought that it might be helpful to review the market trends and underlying forces over the past 5 years as influencing factors affecting condominium versus traditional single-family ownership. It is generally understood that an aging population, central urban locations, detailed construction improvements, innovative architectural techniques, low financing rates, greater availability of credit and the changing demographic trends have been responsible for the accelerated levels of condominium ownership.

The ideal of the two-parent family with 2.2 children living in a suburban house is being supplanted by an array of arrangements, including single professionals, divorcees, active retirees and single parents. For many, an urban condo has become more luxurious and convenient than a house with a yard demanding maintenance.

I believe that the condo market reflects a truer picture as a market forecaster than any other indicator.The underlying factors for this belief are the basic observations of the differences in ownership.  Condo owners, of course, buy the walls and interior of their apartment and a percentage of the building’s common areas, which are typically managed by a condo association. With a condo, there’s no adding floor space or big improvements, if you see a price change it is purely appreciation  or depreciation. The factor of major improvements to a dwelling is absent. Therefore, condo prices show greater volatility and the condo buyer acts more like a growth stock investor and is quick to react to what they perceives is happening in the market.

Buying a condo is a lot like buying a share in a closely held-publicly traded, non-profit real estate holding corporation. But, many buyers spend more time researching a used car purchase than they  when they are buying a condo. The buyer is effect becomes a business partner with strangers in a multi-million dollar real estate development partnership. Again, NAR stats reflect that one in three homeowner associations, (HOAs) are unable to meet major repair and replacement obligations because of insufficient reserves. When a HOA can’t financially take care of itself, typically it seeks additional funds in the form special assessments. The portion of an association’s budget called the reserve fund reveals how much cash is available for upcoming obligations. If the HOA has less than 30% of the reserves then the reserves would be thought to be in a “poor” condition.

In the past, the highest and best uses of land were commercial, now this emphasis has been shifting to residential. And, within this category the most influential factor has become condo ownership for private use or investment. This ratio determines the strength of the condo market. Since the height of the market, July of 2005, the underlying condo value has declined primarily on the miscalculation of the speculator investor. The urban market is only now showing isolated signs of recovery to the high-end market niche.  Second home and vacation markets have not experienced the wide swings and in our belief whereas prices must decline on many individual units to “create a sale” the trend remains unique in the potential represented here in the Lakes Region.

I want to offer my opinion that no condo is perfect. And because of this I recommend that any buyer hire at their own expense a certified property inspector to make a detailed property inspection and attend the physical inspection of the unit. Just because as a condo buyer you only are buying the interior of the unit you still should have a clear picture of the overall quality of the construction. And with the inspector’s summary, which will include discovered flaws, you will have a stronger position for negotiations prior to closing. It is the interests of both parties to find a solution or solutions to allow the agreement to go forward.

jferriman@spencerhughes.com  (603) 520-5385 

Land investments can be made for any number of reasons; to build a home on, for weekend escapes, investment purposes, in preparation for retirement, pure enjoyment and for revenue production.

After an approximate area is selected it is a good idea to spend time getting generally familiar with the various terrain and water features and the locale in general. Approach it as a fun discovery effort. Drive around, sight see and talk to area people where you have developed an interest. I do recommend seeking the advice of a professional real estate agent who should be able to pass along important information on and existing limitations of land in that area. Their expertise may prove to be quite valuable in researching and negotiating on specific properties as well as supervising the transaction to closing.

If you are considering building it’s a good idea to speak with a local contractor or architect. They will be able to discuss with you any limitations the land may have in your future plans and bring together rough building estimates influenced by terrain and sub-surface features. Any offer of course should be dependent upon a survey.

Again, in referring to building lots; topics where you want to make sure of will be in zoning classifications, existing easements, building restrictions, fencing prohibitions, landscaping rules, height and roof considerations, availability of utilities, septic planning, unusual deed restrictions, association fees or rules as well as potential future taxes associated with outstanding views.

These are some of the important considerations prior to purchase. Land is something where an out of state buyer definitely wants to “cross all the Ts and dot all the Is”. It is also my opinion that the inherent natural resources and quality of life present in the Lakes Region of New Hampshire will only grow in their appeal to others in less well blessed and over taxed states.

jferriman@spencerhughes.com (603) 520-5385