Part 4 – Last Post on Property Values… For Now

As we continue to get reminded on a daily basis property value is about location. Availability of capital is the other major factor of value and valuation. To conclude this serie of posts on values lets take a final look at markets behaviors and numbers. One article from Forbes, was quite interesting this week "10 Best and Worst US Housing Markets". I will not give everything up, but based on Forbes analysis the best market was New York City and the worst one was Las Vegas, NV. If you want to know about other interesting markets such as Florida or Arizona, just check out the article.

While looking at number, let me encourage you to keep in mind that it is about capital and location. The New York City market is down year over year 10%, however, on Manhattan most neighborhoods are stable or even up. In the San Francisco market the most stable neighborhood is Russian Hill with a drop of 5% while the highest drop is in the Bay View Area. Continually we private money lenders are keeping tab on the state of the market as we are lending today but want to make sure that our capital will be returned when the note is due. The inference of these numbers is that the “best” neighborhoods have up to now managed to keep their values.

What about tomorrow is really the question? As we have continued to discuss we should anticipate a new vague of price decline. As an indication of the relationship between location and capital, I was looking at values, prices and sales in the greater Sacramento CA. 18 months ago the lower market crashed and for the past 6 months investors have been buying properties at $0.25 on the dollar. 12 months ago the middle classes neighborhood got hammered and for the past three months investors are picking up properties at $0.30 to $0.35 on the dollar. Sacramento is a vibrant real estate market at very reasonable prices.

Lets address the second components to this valuation review capital. Today the funds needed to invest into real estate do not come from “conventional” lending institutions. Most bank have stopped lending and they have continued to tighten their lending criteria. Even the Federal institutions are making it more difficult to borrow. Money comes today from private funds and sources that were not exposed to real estate. New private investors and equity group have raised capital to take advantage of the low values. One limitation to these sources of funds, they are not big enough thus driving up the borrowing costs.

The silver lining is that once markets have achieved the “right” pricing they stabilize. Capital will come back in. An argument can me made that the market approach to real estate works.