It is no surprise to anyone that demand in all segments has been hampered in this economy. There is significantly less capacity in the credit markets, so the growing supply of properties on the market cannot be easily absorbed.
At the same time, this supply-demand picture presented some great opportunity for buyers to find properties at levels of affordability not seen in a long time. So with banks strapped for lending capacity, how was the typical buyer able to capitalize on this market?
The answer for many clients in 2009 came through a combination of the structure of the property for sale, and government guarantee loans.
One successful sales strategy for sellers of larger multi-tenant buildings has been to convert the building to commercial condos. Restructuring the building as condos has done a couple of things for these sellers. First, it provides an incremental exit strategy for those owners who don’t want or need to sell the entire building.
Second, it greatly expands the market of potential buyers. This area’s economy is centered on a lot of small businesses. Many of these business owners would like to own their own space but find a limited supply of buildings small enough to fit their needs.
At the same time many lenders in the region are challenged with too much real estate in their lending portfolios. As they look to reduce exposure in this area, they become selective in the types of real estate loans being made.
As a general proposition, lending on properties held for investment is less available than loans for owner-occupants. Lenders have more capacity to loan on owner-occupied space than property held for speculative investment because it is seen as less risky. So a building that has condos for sale will be able to pull in interest from these types of borrowers.
Owner-occupied lending can also be coupled with a government loan guarantee, which is the second factor helping move this area of the market.
We saw a great many loans processed for owner-occupied buyers using guarantees from the Small Business Administration (SBA) and Department of Agriculture (USDA). Area lenders work with these government agencies to help reduce the bank’s exposure while providing the source of money to allow commerce to keep churning.
We reported throughout last year that these programs have some nice features for small business owners, such as lower down payments and the ability to wrap in costs for renovations, machinery and equipment. In a time where businesses want to preserve cash reserves, those were huge selling points to our many clients who put the loan program to work.
If you or someone you know wants to explore wealth creation by owning a building, give us a call. We’d be happy to put you with some great lenders who can show you how attainable that goal might be.
Tuesday, February 16, 2010
Friday, February 12, 2010
Commercial Market News
As we start 2010, we reflect on the challenges and opportunities that exist in our marketplace. Under any type of market condition it is necessary to adapt to the current and impending challenges to find creative solutions. In so doing, buyers and sellers, landlords and tenants can find opportunity. During the past year, and throughout this year, we take great pride in helping our clients do just that.
The economic conditions at the beginning of last year were certainly reflected in the local commercial real estate market. After an abnormally high run-up in prices during the seller’s market from 2003-2006 market balance continued shifting back in 2009. Vacancy rates in most property types were up, while lease rates were down. This brought prices and yields back in line with historical levels of price gains.
During the seller’s market, the biggest driver of value – location - flattened in importance. During this market, location has become a big factor again. While no property was immune from the downturn, properties with the best locations faired far better than those in less desirable locations.
2009 continued to see tenants looking to shave occupancy costs. Rates in vacant spaces around the county offered tenants a chance to get into space at a rate manageable in this economy. And proactive property owners, looking to lock-in tenants to fill negative-cash-flow, empty space, were offering attractive rates. However, we advised owners to stay shorter on lease term, so as not be locked on below market rates when the market swings up again.
Even as the economy is starting to improve, after two quarters of positive GDP growth and stronger corporate earnings, we are still seeing the need to stay competitive on pricing. Until more of the inventory is absorbed, there remains a supply-demand imbalance that will keep a lid on appreciation for much of the year. However, we are starting to see renewed interest among tenants and buyers for well-priced properties as they recognize the opportunities that exist in today’s market.
The economic conditions at the beginning of last year were certainly reflected in the local commercial real estate market. After an abnormally high run-up in prices during the seller’s market from 2003-2006 market balance continued shifting back in 2009. Vacancy rates in most property types were up, while lease rates were down. This brought prices and yields back in line with historical levels of price gains.
During the seller’s market, the biggest driver of value – location - flattened in importance. During this market, location has become a big factor again. While no property was immune from the downturn, properties with the best locations faired far better than those in less desirable locations.
2009 continued to see tenants looking to shave occupancy costs. Rates in vacant spaces around the county offered tenants a chance to get into space at a rate manageable in this economy. And proactive property owners, looking to lock-in tenants to fill negative-cash-flow, empty space, were offering attractive rates. However, we advised owners to stay shorter on lease term, so as not be locked on below market rates when the market swings up again.
Even as the economy is starting to improve, after two quarters of positive GDP growth and stronger corporate earnings, we are still seeing the need to stay competitive on pricing. Until more of the inventory is absorbed, there remains a supply-demand imbalance that will keep a lid on appreciation for much of the year. However, we are starting to see renewed interest among tenants and buyers for well-priced properties as they recognize the opportunities that exist in today’s market.
President's Day
President’s Day is observed on Monday, February 15th, 2010.
In the 1880’s President’s Day was originally a federal holiday celebrating George Washington’s birthday. In 1968 a bill was passed which moved the observance of certain holidays to Monday. In 1971, after the bill went into effect, President’s Day became the commonly accepted name due to retailer’s using this to promote their holiday weekend sales.
If you are getting your house ready to sell or just spring cleaning, here is a helpful hint:
Disinfect the Disposal: To get rid of odors, drop in a cut-up lemon, some salt and a few ice cubes. The lemon deodorizes, and the ice and salt clean away residue
Come back next week for more helpful hints, fun facts and trivia questions.
In the 1880’s President’s Day was originally a federal holiday celebrating George Washington’s birthday. In 1968 a bill was passed which moved the observance of certain holidays to Monday. In 1971, after the bill went into effect, President’s Day became the commonly accepted name due to retailer’s using this to promote their holiday weekend sales.
If you are getting your house ready to sell or just spring cleaning, here is a helpful hint:
Disinfect the Disposal: To get rid of odors, drop in a cut-up lemon, some salt and a few ice cubes. The lemon deodorizes, and the ice and salt clean away residue
Come back next week for more helpful hints, fun facts and trivia questions.
Thursday, February 11, 2010
Buyers Are Acting While Rates are Low
Mortgage Rates Dip Below 5% – But They are Expected to Rise
The average rate on a 30-year, fixed-rate mortgage was down to 4.97% according to Freddie Mac’s latest weekly market survey. The average fees & points were 0.7% on that loan type. Rates have been pretty steady so far in 2010, but this week’s results were the lowest of the year.
The stability of rates has been created in large part by the Federal Reserve. At the beginning of 2009, it embarked on a program to purchase $1.25 trillion of mortgage-backed securities (MBS). By making a market, the Fed was helping to keep rates low and stabilize the housing market.
Homebuyers have indeed enjoyed the lowest mortgage rates since Freddie Mac started tracking rates in 1971. However, the Fed’s MBS program is coming to an end next month. Without that support, market watchers believe that rates will gradually rise through the first quarter and balance of 2010. It remains to be seen how high rates will move once the stimulus is removed. Many expect rates to remain below 6%, however.
The expiration of the MBS program means that two big deadlines for homebuyers are approaching. The homebuyer tax credits expire on April 30, 2010. Both of these programs have had an impact on housing sales.
With the end of these stimulus programs in sight a lot of buyers are out shopping right now. Last month, pending home sales logged the third best January on record.
For more on mortgage markets visit: http://www.freddiemac.com/pmms/#Historical.
To view more on the Fed’s MBS program and how it impacts the mortgage market, watch the video below.
The average rate on a 30-year, fixed-rate mortgage was down to 4.97% according to Freddie Mac’s latest weekly market survey. The average fees & points were 0.7% on that loan type. Rates have been pretty steady so far in 2010, but this week’s results were the lowest of the year.
The stability of rates has been created in large part by the Federal Reserve. At the beginning of 2009, it embarked on a program to purchase $1.25 trillion of mortgage-backed securities (MBS). By making a market, the Fed was helping to keep rates low and stabilize the housing market.
Homebuyers have indeed enjoyed the lowest mortgage rates since Freddie Mac started tracking rates in 1971. However, the Fed’s MBS program is coming to an end next month. Without that support, market watchers believe that rates will gradually rise through the first quarter and balance of 2010. It remains to be seen how high rates will move once the stimulus is removed. Many expect rates to remain below 6%, however.
The expiration of the MBS program means that two big deadlines for homebuyers are approaching. The homebuyer tax credits expire on April 30, 2010. Both of these programs have had an impact on housing sales.
With the end of these stimulus programs in sight a lot of buyers are out shopping right now. Last month, pending home sales logged the third best January on record.
For more on mortgage markets visit: http://www.freddiemac.com/pmms/#Historical.
To view more on the Fed’s MBS program and how it impacts the mortgage market, watch the video below.
Monday, February 8, 2010
Tax Credits Expire Soon
Nearly 1.8 million people took advantage of the home buyer tax credit last year. Most of those received the full amount of the credit - $8,000.
The program was extended and expanded, so that it now covers both first-time buyers and many repeat buyers. First timer buyers can receive up to $8,000 and certain repeat buyers can receive up to $6,500.
To receive the credit, eligible buyers must be under contract on a home by April 30, 2010.
That date is not that far off. According to the latest Homebuyer survey by the National Association of Realtors, the typical home buyer spends 12 weeks searching for a home. There are a little more than 11 weeks till the expiration of the tax credit.
The looming deadline has urged more buyers to get out and shop earlier in the year. Last month was Thurston County’s third highest January on record for pending home sales.
In particular, the expansion of the tax credit to cover repeat buyers is helping more repeat buyers realize their dream of moving to next home. Up to $6,500 is available to buyers who have owned a home for 5 consecutive years out of the past eight years.
There is a little more breathing room with this current tax credit deadline. Unlike the previous tax credit, where a buyer had to close on the purchase by the deadline, now the buyer must only be under contract to purchase by April 30th. The buyer then has until June 30, 2010 to close on that purchase.
It is important to remember not to overlook price when putting the tax credit to work. Many homes are affordably priced now. More than one-third of all homes sold in 2009 did so without a price reduction. That means that two-thirds of the homes did require at least one price reduction before selling.
When that perfect home is found for the right price, the available tax credits and quite low fixed-rate mortgage rates make this a great time to buy and get into that dream home.
The program was extended and expanded, so that it now covers both first-time buyers and many repeat buyers. First timer buyers can receive up to $8,000 and certain repeat buyers can receive up to $6,500.
To receive the credit, eligible buyers must be under contract on a home by April 30, 2010.
That date is not that far off. According to the latest Homebuyer survey by the National Association of Realtors, the typical home buyer spends 12 weeks searching for a home. There are a little more than 11 weeks till the expiration of the tax credit.
The looming deadline has urged more buyers to get out and shop earlier in the year. Last month was Thurston County’s third highest January on record for pending home sales.
In particular, the expansion of the tax credit to cover repeat buyers is helping more repeat buyers realize their dream of moving to next home. Up to $6,500 is available to buyers who have owned a home for 5 consecutive years out of the past eight years.
There is a little more breathing room with this current tax credit deadline. Unlike the previous tax credit, where a buyer had to close on the purchase by the deadline, now the buyer must only be under contract to purchase by April 30th. The buyer then has until June 30, 2010 to close on that purchase.
It is important to remember not to overlook price when putting the tax credit to work. Many homes are affordably priced now. More than one-third of all homes sold in 2009 did so without a price reduction. That means that two-thirds of the homes did require at least one price reduction before selling.
When that perfect home is found for the right price, the available tax credits and quite low fixed-rate mortgage rates make this a great time to buy and get into that dream home.
Thursday, February 4, 2010
Strong Pending Home Sales to Start Year
Homes sales are off to a strong start this Year. There were 293 pending sales during January. That is the third best January on record. See Chart 1.
Click image to enlarge.
The strength in sales was not uniform across all price ranges. Like last year, much of the growth in sales was at the low end of the market. Median home prices were down to $227,500 from $244,900 a year ago.
That 7% dip in median price reflects both a drop in values market wide and a drop in sales in the mid to upper price ranges. Last January, for example, there were 21 home sales priced at $400,000 and higher. This year, there were only 10 sales in that price range. Fewer sales in the upper price ranges is somewhat skewing the pricing data.
Lower prices and the $8,000 first-time home buyer tax credit are keeping the lower-end of the market moving along. Sales below $200,000 were up an astonishing 47% in 2009. Expect sales in that range to continue to be robust. Sales overall were down 4% last year.
As prices in the mid to upper end of the market come back to levels that reflect today’s values, those sellers will see more sales activity. Trade-up buyers are out there, armed with a $6,500 tax credit for repeat buyers. They are simply waiting to find value.
Buyers are looking for value, and they are acting quickly when they see it. Well-priced homes in all price ranges are selling at a record pace. Homes that did not require a price reduction were selling in an average of just 32 days (See Chart 2). That is nearly two weeks faster than at the peak of the seller’s market in 2006.
Click image to enlarge.
By the same token, overpriced homes were ignored by buyers. These homes sat on the market nearly six months longer. Remarkably, these homes sold in an average of just 29 days after the price was reduced to market value.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
Click image to enlarge.The strength in sales was not uniform across all price ranges. Like last year, much of the growth in sales was at the low end of the market. Median home prices were down to $227,500 from $244,900 a year ago.
That 7% dip in median price reflects both a drop in values market wide and a drop in sales in the mid to upper price ranges. Last January, for example, there were 21 home sales priced at $400,000 and higher. This year, there were only 10 sales in that price range. Fewer sales in the upper price ranges is somewhat skewing the pricing data.
Lower prices and the $8,000 first-time home buyer tax credit are keeping the lower-end of the market moving along. Sales below $200,000 were up an astonishing 47% in 2009. Expect sales in that range to continue to be robust. Sales overall were down 4% last year.
As prices in the mid to upper end of the market come back to levels that reflect today’s values, those sellers will see more sales activity. Trade-up buyers are out there, armed with a $6,500 tax credit for repeat buyers. They are simply waiting to find value.
Buyers are looking for value, and they are acting quickly when they see it. Well-priced homes in all price ranges are selling at a record pace. Homes that did not require a price reduction were selling in an average of just 32 days (See Chart 2). That is nearly two weeks faster than at the peak of the seller’s market in 2006.
Click image to enlarge.By the same token, overpriced homes were ignored by buyers. These homes sat on the market nearly six months longer. Remarkably, these homes sold in an average of just 29 days after the price was reduced to market value.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
Monday, February 1, 2010
2009 Finishes on a Strong Note
Regular followers of our blog will know that sales really starting picking up throughout the second half of the year, such as the huge jump in sales in November. See our December 2009 post entitled “Thurston County Home Sales Record Biggest Jump of the Year.”
It was a tough start to 2009. Through the first half of the year, home sales fell 18% compared to the same period a year earlier. See Chart 1. The broader economic conditions, including a falling stock market and rising unemployment, rattled consumer confidence at that time.
Click image to enlarge.
Throughout the year prices started to come back in line with our market’s historic levels of appreciation. With the price reductions, buyers have jumped back into the market. In the second half of the year, home sales were up 10% over 2008 levels. See Chart 2.
Click image to enlarge.
Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
It was a tough start to 2009. Through the first half of the year, home sales fell 18% compared to the same period a year earlier. See Chart 1. The broader economic conditions, including a falling stock market and rising unemployment, rattled consumer confidence at that time.
Click image to enlarge.Throughout the year prices started to come back in line with our market’s historic levels of appreciation. With the price reductions, buyers have jumped back into the market. In the second half of the year, home sales were up 10% over 2008 levels. See Chart 2.
Click image to enlarge.Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.
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