Who Pushed the "Flush" Button?

By Bill Swift
Wiest Realty & Mortgage Co., Inc.

    Closing numbers are in the toilet. Here are the figures as of September 30, 2007.


   We’ve noted that prices went up faster than rents. Couple that with over-leveraged/negative cash flow deals, credit tightening, and mortgage resets, and we have a general oversupply leading to the downward trends shown here.

   The following charts depict average 2 to 4 unit prices in Apple Valley, Hesperia, and Victorville. The data omits properties in commercial zones and 2 to 4 unit sales on lots over 1.75 acres. It also omits sales between related parties and single family homes with “granny flats”.

   The low number of sales in each municipality tend to diminish the reliability of the data. A great man once said, there are three kinds of lies, “lies, damned lies and statistics”. Third quarter stats appear to be lagging indicators given the fact that many properties are available with list prices per unit below those indicated by closed data. Also, keep in mind that closed data can contain seller paid closing costs and other concessions that aren’t reflected in the prices listed in public records.

Average Price Per Unit (Gross Sales/Total Units) Period Apple Valley Hesperia Victorville 1Q '05 $106,419 $114,476 $109,548 2Q '05 $111,219 $113,354 $104,947 3Q '05 $124,963 $125,152 $107,167 4Q '05 $136,574 $122,676 $100,200 1Q '06 $140,790 $126,979 $119,844 2Q '06 $146,207 $144,941 $107,580 3Q '06 $141,643 $140,556 $140,996 4Q '06 $155,542 $151,941 $127,417 1Q '07 $141,508 $165,000 $135,694 2Q '07 $131,833 N/A $118,429 3Q '07 $138,471 $133,421 $88,000 3rd quarter prices per bedroom (BR) are shown below followed by square foot price trends.

Average Price/BR (Gross Sales/Total # of BR's) Period Apple Valley Hesperia Victorville 1Q '05 $50,754 $51,149 $54,774 2Q '05 $57,086 $61,400 $56,971 3Q '05 $63,353 $61,642 $64,300 4Q '05 $69,471 $61,338 $60,120 1Q '06 $66,219 $66,978 $63,917 2Q '06 $74,704 $74,667 $76,843 3Q '06 $73,993 $69,000 $70,498 4Q '06 $73,196 $73,800 $67,061 1Q '07 $67,770 $55,000 $69,786 2Q '07 $65,917 N/A $59,214 3Q '07 $61,947 $74,599 $48,000

Average Price/Sq. Ft. (Gross Sales/Total Sq. Ft.) Period Apple Valley Hesperia Victorville 1Q '05 $113.89 $118.05 $111.80 2Q '05 $126.34 $142.03 $124.00 3Q '05 $139.41 $139.51 $135.69 4Q '05 $158.93 $122.76 $133.03 1Q '06 $148.22 $156.25 $142.79 2Q '06 $156.04 $185.65 $155.43 3Q '06 $164.32 $161.90 $151.42 4Q '06 $161.09 $176.86 $156.71 1Q '07 $149.56 $162.72 $165.91 2Q '07 $152.09 N/A $134.91 3Q '07 $143.09 $150.04 $119.35

   Apartment sales trends (5 units or more) aren’t anything to write home about either. Here are the numbers for Apple Valley, Adelanto, Hesperia, and Victorville as a group.


   Note below how sale prices per unit are lagging behind 2006 sales based on average unit size.


   List prices based on GIM's (Gross Income Multipliers) are still high relative to actual sold price GIM figures.

City	3Q'06	4Q'06	1Q'07	2Q'07	3Q'07
Adelanto	10.90	10.90	11.86	10.91	11.27
Apple Valley	13.19	12.74	13.22	13.47	13.47
Hesperia	14.37	14.26	14.20	12.66	12.66
Victorville	13.84	14.02	13.17	12.49	11.95

The Bad News: Prices have declined. More properties are for sale. Competition for buyers is stiff. Many “stated Income” and high LTV programs are gone thereby eliminating many buyers who were once considered “qualified”. The perception that the “greater fool theory” would prevail and prices would go up indefinitely has finally been squashed and should probably be buried in a time capsule.

The Good News: Fundamentals are back. Consider adding to your portfolio with lower priced units. Better cash flows are now available. Rates are still low. As of the writing of this newsletter, many lenders were offering rates in the low to mid 6% range for nonowner 2 to 4 unit projects. Even 5+ unit projects can get various financing plans in this range Rents are strong. Remember those sub-prime borrowers? Well, most of them are now only qualified to be renters. Supply is favorable for landlords. Very few rental units are being added to the local housing supply.

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