Archive for August, 2009

Cover Sheet Similar to the report we prepare for owner-occupants, the report cover sheet contains summary information including pictures, the address, and a few identifying characteristics. The first piece of summary data is the asking price, and this is followed by the Comparable Value, and the Likely Transaction Price. There is no IHB Fundamental Value. Cashflow investors are not interested in how we may value the property, they want to know what rates of return are available, and they can decide their own price based on the cashflow. We provide the necessary data to make this determination. Capitalization Rate and Cash-On-Cash Return One key concept for Investment Value of Residential Real Estate is capitalization rate. The Capitalization (cap) Rate is…[READ MORE]

Back in April I announced that we were forming a brokerage to help people buy and sell homes. Some of the comments were less than enthusiastic. Despite the few naysayers, we believe there is a need for the service we provide, so we have been working over the last few months to ready ourselves to take on this task. In September I am going to present a series of introductory posts describing how we will operate. I chose the song Take it Easy this morning because we want to provide peace-of-mind with the process. Part of making people be at ease is providing accurate information so people can make informed decisions. To that end, we have developed proprietary Property Valuation…[READ MORE]

Psychological Stages of a Bubble Once a bubble starts to form, it will go through several identifiable stages: enthusiasm, greed, denial, fear, capitulation, and despair. Each of these stages is characterized by different speculator emotional states and different resulting behaviors. There are outside forces that also act on the market in predictable ways in each one of these stages. Most often, these outside factors serve to reinforce the market's herd behavior and exacerbate changes in price. Precipitating Factor There is often a precipitating factor causing the initial price rally that pushes prices above their supported fundamental values. A bubble rally is usually kicked off by some exogenous event, but it may occur simply because prices have been rising and investors…[READ MORE]

I have been noticing a great deal of bullishness during this spring rally, and I was planning a post to put things in perspective, but Rich beat me to it. His analysis was so well done, that I want to acknowledge it here and add my own comments. Perspective on the Home Price Rally I noted earlier in the week (and incessantly before that) that home prices have a seasonal tendency to rise in the spring and summer even during the midst of a multi-year price decline. That sounds like a good enough excuse to make a chart. Below you will find a look at San Diego home prices, as measured by the Case-Shiller index, from 1990 through 1996. These…[READ MORE]

I drive a convertible; I rarely put the top up. When my family makes weekend plans, we don't worry about the weather. The climate in Coastal California is nearly perfect, and I enjoy it every day. The narrow coastal band of properties in California have a unique and very high quality climate. Cold I grew up in Central Wisconsin. Like much of the country, there are four distinct seasons there, but in Wisconsin, the winters are particularly brutal. I remember one full week in February of 1985, the high temperature never got above zero degrees. Each day, the high would be -8 to -2, and the lows would drop down well below -20. One morning, it was -38 when I…[READ MORE]