Should You Invest in California or outside California? Part 4

Demand, supply and appreciation have been analyzed. Now look at the income portion, or the rents.

CALIFORNIA	0-BR	1-BR	2-BR	3-BR	4-BR	Median Price
San Jose-Sunnyvale-Santa Clara	$961	$1,113	$1,338	$1,924	$2,118	$450.0K
San Francisco-Oakland-Fremont	$1,078	$1,325	$1,658	$2,213	$2,339	$402.0K
San Diego-Carlsbad-San Marcos	$1,024	$1,168	$1,418	$2,067	$2,493	$323.2K
Los Angeles-Long Beach-Santa Ana	$904	$1,090	$1,361	$1,828	$2,199	$303.5K
Riverside-San Bernardino-Ontario	$867	$954	$1,125	$1,583	$1,846	$172.5K
Sacramento-Arden-Arcade-Roseville	$737	$838	$1,022	$1,475	$1,690	$169.3K

TEXAS	0-BR	1-BR	2-BR	3-BR	4-BR	Median Price
Austin-Round Rock	$658	$749	$912	$1,228	$1,398	$182.3K
Dallas-Fort Worth-Arlington	$670	$746	$905	$1,201	$1,455	$135.7K
Houston-Sugar Land-Baytown	$642	$714	$866	$1,154	$1,451	$138.5K
San Antonio	$577	$642	$792	$1,022	$1,241	$148.3K

FLORIDA	0-BR	1-BR	2-BR	3-BR	4-BR	Median Price
Miami-Fort Lauderdale-Pompano Beach	$842	$953	$1,156	$1,479	$1,728	$206.0K
Orlando-Kissimmee	$793	$862	$985	$1,233	$1,452	$154.8K
Tampa-St. Petersburg-Clearwater	$705	$782	$946	$1,199	$1,447	$135.3K
Jacksonville	$685	$779	$907	$1,138	$1,304	$154.1K

ARIZONA	0-BR	1-BR	2-BR	3-BR	4-BR	Median Price
Phoenix-Mesa-Scottsdale	$624	$727	$877	$1,277	$1,495	$129.2K

NEVADA	0-BR	1-BR	2-BR	3-BR	4-BR	Median Price
Las Vegas-Paradise	$731	$861	$1,013	$1,408	$1,695	$155.3K

GEORGIA	0-BR	1-BR	2-BR	3-BR	4-BR	Median Price
Atlanta-Sandy Springs-Marietta	$729	$789	$878	$1,069	$1,166	$115.6K

Source: HUD 2009 Fair Market Rents, NAR 1st Quarter 2009 Median Price

So, which area would you pick to invest? Feel free to drop a comment.

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Should You Invest in California or outside California? Part 3

Let’s compare the property value and appreciation between California and states outside California.





Here, I put nine states into three groups:
1) Group 1: California, Arizona, Florida and Nevada. These are states with high population growth. Properties here have potential of high appreciation. Speculators love these states.
2) Group 2: New York, Utah. States with modest growth. The characteristics are between Group 1 and Group 3.
3) Group 3: Georgia, North Carolina, Texas. Property values in these states are more stable, it goes up slowly, and are more resistant to the up and down of the economy. Conservative investors will look for cash flow here.

The next graphs will show you annual growth rates, 5-year growth rates and 10-year growth rates for the three groups.





Look at the annual growth rates graphs above. While real estate in California, Florida, Nevada and Arizona are able to yield more than 20% annual appreciation, during troubled economy, properties are also possible to shrink in value up to 20% annually. On the other side, real estate in Texas, North Carolina and Georgia, will not increase as much in value during the boom, they also will not drop in value as much as the hot states.

Timing is very critical for speculators in states located in Group 1. You are either extremely lucky and make instant fortune, or you are screwed if you are wrong. For investors looking for cash flow, properties in Group 3 will always be an opportunity and timing is not as critical here.







Look at the 5-year & 10-year growth rates graphs above. Properties in Group 1 reached the peak in late 2006. If you bought property during the peak, you may have to wait for a long time for the value to get back to previous peak. The history taught us that California reached the peak in late 1990, and it took 8 years to go back to the value in late 1990.

Properties located in more stable states in Group 3 have more predictable growth rates. There was energy crisis and banks failure in Texas during 1980s. According to one of FDIC economist, in 1988 and 1989, failed banks in Texas comprised over 80% of total US failed-bank assets. However, it seems that Texas has learned its lesson well.

The source of data is Freddie Mac’s repeat-transactions house price index for existing homes.

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Should You Invest in California or outside California? Part 2

The last article talked about the population or the demand, this article, we will talk about the supply or the land. Below are the comparison of land area and housing density for the fastest growing states.


Source: US Census Bureau

Unlike the north east region, which is running out of land for low density development, California still has room to grow. Keep in mind, not all land are available for development. The following categories of lands are not available for housing development:
• Public land such as national or state park
• Land with slope in excess of 15%
• Wetlands
• Prime and unique farmlands
• Flood zones area
• Habitat for endangered species

In 1996, California Department of Housing and Community Development tried to determine how much lands are developable within 35 California counties. The result is only 13% of lands are developable.


Source: California Department of Housing and Community Development

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Should You Invest in California or outside California? Part 1

I am often asked this question, “where should I invest in real estate, in California, or out-of-state?” There are pros and cons to either choice. In this article, I want to talk about population and its growth.

According to US Census Bureau, as of July 1st, 2008, the US population is estimated at around 304 million. California is the most populated state (36 million), followed by Texas (24 million), New York (19 million) and Florida (18 million).


Look at the pie chart above, you will notice that one of every eight Americans is Californian.

How about the growth? From April 1st, 2000 to July 1st, 2008, Texas grew by 3.4 million people, followed by California (2.8 million), Florida (2.3 million), Georgia (1.5 million), Arizona (1.3 million) and North Carolina (1.1 million).


Percentage wise, during the same period, California grew by 8.5%. Nevada has the highest percentage growth (30.1%), followed by Arizona (26.7) and Utah (22.5%).


Looking back as far as 1930, the graphics below will show you the population history for 11 different states in the US.



Source: US Census Bureau

Another interesting observation, during the period of 1988-2003, California is the number one destination for immigrants to come. According to US Department of Homeland Security, among all of the immigrants that enter US, 31% of them settle in California. That number is only from international immigration. Domestic migration into California also contributes to its growth.


Source: US Department of Homeland Security

If present trends continue, California's population will likely reach 40 million by 2010, and 45.5 million by 2020 (source: California Department of Finance). Long term perspective, based on population growth, the demand for housing in California is still strong.

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New Rules on Appraisals

In order to achieve the independence and accuracy of the appraisal process, effective May 1st, 2009, Fannie Mae and Freddie Mac have adopted the new regulations governing appraisals. The new rules, known as Home Valuation Code of Conduct (HVCC):

• Prohibits lenders from accepting appraisal report where the mortgage broker (or real estate agents) had a role in selecting, retaining, or compensating the appraiser
• Require absolute independence between in-house appraisers and loan production within lender’s organization
• Only applicable to 1-4 unit single family residential
• Government-insured loans are exempt

HVCC is not even a month old, but many people are unhappy with the execution. Yes, the purpose is good, which is to stop unethical mortgage brokers’ influence on inflating the price. Property values were over inflated during the boom, and that is one of the reasons of today’s mortgage meltdown. The new policies should give us more reliable appraisals and less fraud. In reality these are some of the unintended consequences:

• Even though ordering from Appraisal Management Company (AMC) is not required, and a lender may order appraisals directly from an individual appraiser, what most happen is, a mortgage broker orders appraisal, directed by a lender to a specifically authorized AMC.
• The existence of AMC means, consumers pay more for appraisals, while appraisers make less, because AMC retains percentage of the fees.
• The relationship long established between the ethical appraisers and brokers are gone, and inexperience appraisers from AMC may be assigned instead. This cause delay and longer escrow time, and the quality of the appraisal report may suffer.

Further detail on HVCC, can be found here.

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Foreclosures are Coming to Affluent Neighborhoods

Foreclosures are coming to affluent neighborhoods. Obviously, the riches are not immune to recession. Few of the foreclosed properties are listed below:

75 Tobin Clark Drive, Hillsborough, CA 94010
450 Middlefield Road, Atherton, CA 94027
996 Laurel Glen Drive, Palo Alto, CA 94304
151 Giffin Rd, Los Altos, CA 94022
12051 Stonebrook Drive, Los Altos Hills, CA 94022
15070 Montebello Road, Cupertino, CA 95014

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What Happens in Vegas Doesn't Stay in Vegas Anymore

Interesting video documentary from Vanguard Journalism:



Remember, there are always two sides to a coin. One side is crisis, the other side is opportunity.

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