market trends

Real Estate Market Analysis

Today’s real estate investors have the opportunity to help local communities and economies plagued with distressed properties recover by bringing dollars into the marketplace.

Lyons Realty’s agents evaluate investment properties, rate properties by highest potential overall return, provide research tools, and connect investors to real estate service providers who can help them perform the proper due diligence  (pre-acquisition) and maintain the property (post-acquisition). As a result, we help individuals and families make sound investment decisions for their future.

According to the Mortgage Bankers Association (MBA), home ownership will remain a dominant goal of the US population, however, various data sources show an upward trend in investor activity in certain U.S. housing markets, especially in the coastal areas where home price appreciation has been outsized, attracting investment capital. While rising interest rates could depress the growth of the investor market, 59% of investment buyers paid cash in 2010.

Stability (Stocks vs. Real Estate)

Historically most Americans have chosen to participate in the stock market for investment income and retirement growth thus spurring many online stock investing platforms such as E*TRADE, Scottrade, and TD Ameritrade.

Real estate, however, provides comparable returns, more cash flow, and better tax advantages than stocks. In the past forty years homes have appreciated annually at an average rate of 5.32%. Furthermore, real estate investors’ benefit from monthly cash flow, leverage, and the tax benefits of depreciation, expenses and 1031 exchanges.

Investing in real estate has been fairly stable over time in comparison to other investments. The worst yearly loss for the S&P 500 was -37% in 2008. In contrast, the worst loss in median home price was -9.5% from 2008-2009. Over the long run, real estate might appreciate at a lower rate than some stocks, however because real estate is less liquid it is exposed to less volatility than the stock market.

It is important for buyer to remember that real estate investing is a non-emotional event and always comes down to just math.

Cash flow

Acquiring real estate assets not only provides security and stability, but also yields monthly cash flow. The basic need for shelter along with the recent housing crash have caused an increasing number (32%) of Americans to rent and depend upon real estate investors to provide them with housing.

International Investing

Can investing internationally in places such as Dubai Real Estate, Argentina, Panama and Vietnam make sense? Americans have recently been deterred from investing internationally in places such as the UK or Euro zone but other countries may make sense – especially those with a lot of fertile land. All this talk of “end of the world” has spurred some to invest in farmable land with water and other natural resources. We have seen Asian, Canadian, and Euro buyers purchasing in the US utilizing geographic currency arbitrage.

The Pending Home Sales Indicator Offers Opportunity for Buyers

Pending home sales is a great indicator for the strength and growth of real estate. “Pending” home sales are based on the number of escrows opened.

Escrows can be opened one of two ways:

  1. When a traditional sales contract is dually executed by both buyer and seller, or
  2. When a bank approves a short sale.

The index rose 5.1% nationwide in March (but is still 11.4% below March 2010)

The western region of the index (which includes San Diego) rose 3.1% (but is still 4.1% below last year – mainly due to the tax credit).

The hardline negotiators at Lyons Realty suggest that it is a good idea to create your own tax credit by requesting a credit from the seller in your offer.

Bill Lyons, founder and broker of Lyons Realty in La Jolla, CA said “Affordable prices, job creation and low mortgage rates have created very favorable climate for San Diego home buyers. The Pending Homes Sales Index is another indicator reflecting opportunities for today’s buyers”

Existing detached home sales in March for San Diego county were up 43% (but only .4% change from last year – mainly due to a seasonal jump coming out of the holidays).

It is important to note that Coronado and La Jolla were down 28% and 21% respectively while areas like Downtown and Mission Hills were up 29% and  37%.

Lawrence Yun, NAR’s chief economist, said “…existing-home sales should rise around 5 to 10 percent this year with sales growth of lower priced homes likely to outperform high-end homes. That means the price trend will reflect more homes sold in the lower price ranges”

All and all these stats are great news for San Diego home purchasers and we look forward to working with you toward the American dream!

Real Estate Investing Market Trends

Low prices, increased rental rates, and low mortgage rates have created a very favorable climate for real estate investors. Since the real estate crash in 2007, average rent rates have increased 12.1% from $1,757 to $1,999 for a three bedroom property in San Diego County.[1] Investors are now paying less for property while earning higher rental incomes thus providing greater potential for cash flow.

The National Association of Realtors (NAR) projects 5.27 million existing homes will be sold in 2011, a 7.4% increase from 2010. The median existing home sales price in 2010 of $172,900 is projected to drop by 1% in 2011 and increase by 3.1% in 2012 to $176,500.According to NAR’s 2011 Investment and Vacation Home Buyers Survey, vacation-home sales accounted for 10% of transactions last year while the portion of investment sales was 17%, totaling 27% of new and existing home sales – both unchanged from 2009. Nearly all (94%) of vacation home buyers say they do plan to rent their property within the next 12 months to either long-term or short-term renters or a combination of the two, and 60 percent of buyers believe they’ll make enough rental income to cover at least half of their mortgage. Vacation homes account for 1 in 10 real estate purchases. Nearly half (47%) of real estate investors and 31% of vacation home owners said they are likely to purchase another property in next 2 Years.[2] Buyers purchasing property as their primary residence typically purchase once every seven years.

The real estate investment market is currently made up of 1.41 million transactions and almost a quarter trillion in sales per year.

The growth of the real estate investment market has been astounding in recent years by reaching as high as $634 Billion. At the peak of the real estate boom, more than one in four transactions was an investment transaction. Most properties were purchased based on hyperbole without any real analysis. As the real estate market rebounds education, coaching, research and investment analysis are instrumental decision making tools for sound investing.

Unemployment and an overall weak economy have weighed on the real estate market and consumer confidence. However, home sales have recently risen due to low rates, greater affordability, and the first time homebuyer tax credit.

Traditionally the influences surrounding the purchase of a primary residence are relocation, formation of new households (marriage, birth), or changes in family circumstances (college, divorce, job loss, upsize, downsize).

The most important factors influencing the purchase of investment property are location, price, and local demand for rental units. Even in difficult economic times, opportunities exist – 83% of investors believe it is a good time to purchase real estate. The reason why investors purchase real estate is for cash flow, investment diversity and tax benefits. Most investors purchase existing (84%) single family residences (63%) in a suburb or subdivision (35%) within 5 miles (18%) of their primary residence using all cash (59%).[2]

The growth of the market is a regional (35% in South, 25% in West) and interest rate question. Interest rate volatility and other factors can cause higher volumes of purchasing.

Lawrence Yun, NAR’s chief economist,  said, “Despite extraordinarily tight credit conditions for purchasing a second home, the market share for vacation and investment homes held steady,” he said. “A sizeable number of buyers made deals with all-cash offerings.” Yun went on to say “The fall in home prices has opened opportunities for more families to enter the second-home market – the median income of investment buyers today is lower than it’s been in recent years,” Yun said. “Even if purchases are delayed due to economic circumstances, the underlying long-term demand – the desire for purchasing second homes – remains because people in their 30s and 40s will reach the prime age for buying and will drive the second-home market in coming decades as conditions permit,” Yun added.

Who is investing right now?
  • Most investors (50%) are under 45 years old (33 for primary residence)
  • Median income for investors was $86,700 in 2010
  • Almost half (43%) of investors made less than $75,000 per year in 2009
  • Buyers in their 30’s and 40’s will reach the prime age for buying in coming years.
  • 43.8 million people are now in the primary buying demographic of 40-49yrs old
  • 40.4 million people are 30-39yrs old and will reach prime age for buying in coming years (more and more are investing now due to current conditions)
  • Current data shows 7.9 million vacation homes & 41.6 million investment units! How many will you have?
  • 12 years is the median length investors desire to hold their properties

What do most investors need help with?

  • An alarming 28% of real estate investors don’t have an exit strategy
  • Only 49% of investors used a real estate agent/broker to purchase property in 2009 – Do you have a CIAS?
  • Only 17% of investors purchased properties at foreclosure or trustee sales in 2010 – Mostly due to the unfamiliarity
  • Only 8% of investors purchased properties from for sale by owner (FSBO) in 2009 – Have access to the non MLS data?
  • Most (27%) of investors looked for property online in 2009
  • Only 11% of investors looked online for info about the home buying process in 2009
  • Most (28%) of investors found the home they purchased on the internet in 2009
  • 83% believe it is a good time to buy real estate – Do you know how to find that next deal?

The real estate business is highly competitive and price sensitive. Investment tools need to empower clients to design their ideal lifestyle by helping them invest wisely, save money, increase assets, manage/track portfolio, leverage and use real estate as a retirement tool.

The most important indicators in real estate investing are cap rate and cash flow – appreciation is a bonus.

Whether the investment is in a home for future generations, or a home purchased to rent as a source of income, look for a company that will be your long-term partner in helping you achieve goals. Good Realtors do this by educating, advising and providing asset ratings to customers.

Good real estate investment companies attract repeat investors by providing easy-to-understand research and analysis. Relevant content  helps clients gain knowledge on real estate investing, stay current on market information and make educated investment decisions. When informing a client on something they did not know on their own or something that a competitor did not, a real estate agent can builds confidence and brand loyalty as a one stop shop for real estate investing.

Educate yourself on the above real estate investing trends and work with the right team to help you capitalize on them!

[1] U.S. Department of Housing and Urban Development, Fair Market Rents,

[2] 2010 NAR Investment and Vacation Home Buyers Survey