Jason Wade

I don’t know of anything that’ll get a person in trouble faster than overpaying. In the mid and early 2000s, that nailed a lot of developers, builders, real estate investors and individuals who chased real estate at insanely high prices fed by easy credit and lax lending standards.

Any seasoned real estate investor will tell you that you make your money when you buy the property. And for the people who bought at the wrong prices, the music stopped. Credit dried up in the crash of 2007, and those who’d gotten carried away were under water on their mortgages. Foreclosures followed by the thousands, and at John Dixon Associates, we’ve been selling those properties ever since – at a fraction of the previous prices.

Now I think we’re looking at the flip side of this cycle. Foreclosures have dried up to a trickle, and those inventories of bank-owned properties are shrinking fast. That means a window of opportunity is beginning to close for developers, builders and individuals alike.

It’s a double-sided opportunity, really. Just as the supply of foreclosed property is beginning to diminish, demand is set to surge. Unemployment has dropped from its 2009 peak of 10 percent all the way to 7.3 as of the August numbers. When people have jobs, they start wanting houses, and we’re seeing just that: Sales of existing homes in August were at their highest level since … 2007.

Aah, 2007. The Crash. Even now, almost every headline about the economy includes the words “since 2007.” Highest home sales … since 2007. Strongest stock prices … since 2007. You get the idea.

We’re still haunted by it. And that’s not an entirely bad thing, as long as we learn the right lesson: Buy at the right price. A price you can afford. One that gives you some “headroom” to make money. A price at which you’ll still be OK if interest rates blip up, or if the market hits an unexpected snag.

There’s still good property available at the right price. Homebuilders are confident – but not dangerously so. The National Association of Home Builders/Wells Fargo builder sentiment is at 58 (anything over 50 is positive), and it’s been steady at that level for about a year.

Meanwhile, interest rates keep ticking up. But they’re still extremely low by historical standards.

Conditions are good, and improving. Prices are still a fraction of what they were … before 2007. But it’s easy to see a time coming when the supplies will get short again, just as more families are ready to build or buy. When that day comes – and I suspect it’s not so far off – folks will be wishing they’d loaded up at today’s prices.

We’ll be selling scores of home sites, as well as other residential and commercial properties in Georgia and North Carolina, in our Oct. 9 in Gainesville, Ga. Then on Oct. 22-23 we’ll have about 100 offerings in Alabama, Florida, and Georgia.

As auctioneers, we’ll be trying to get the highest prices we can for these properties, but I expect the properties will still sell at levels that will put the buyers in a good position to make future income and profits in the near future.

There are a lot of reasons to sell real estate. During the last few years, we’ve sold thousands of homes, restaurants, stores, subdivision lots and other properties for banks who acquired them either through foreclosure or through mergers and other transactions with other institutions.

For lenders, it’s generally an easy decision to sell, because they’re not in the business of owning properties in the first place. For other institutions, including hedge funds, pension funds and Real Estate Investment Trusts, the answer isn’t quite as simple.

To deal in the quantities required to be a meaningful part of their portfolios, these large investors often acquire entire portfolios or groups of properties, so not everything they end up owning was hand-picked to suit their investment objectives. Over time, they face the challenge of selling the assets that don’t fit. That can be slow, expensive and time-consuming.

The auction process provides the liquidity that is so critical to the management of an institutional portfolio, and a the options are endless. Properties can be sold one at a time, or dozens at a time. The auction can be online or live, or a combination. The marketing can be aimed at individuals, small investors or other institutions. The focus can be local, regional, nationwide or international, depending on the asset.

We have experience with every conceivable type of real estate, in all sorts of situations.

I usually advise portfolio managers to begin with an open mind. Tell us what you need to sell, and what your expectations are. That way, we can recommend a strategy based on our vast experience.

Here’s the top-line news: U.S. home prices gained 10.2 percent during the year that ended in the first quarter of 2013. That number, as measured by the widely followed S&P/Case-Shiller index, is good news for a lot of folks — especially homeowners, banks, investors and real estate professionals.

A lot of factors are contributing to the stronger home prices. Mortgage rates remain near record lows. The National Association of Realtors reports that the number of previously owned homes on the market is the lowest it’s been since March 2000.

One thing that jumped out at me was the comment by Robert Shiller, co-founder of the index. Shiller argues that prices are already at what he considers “normal” levels adjusted for inflation. (It’s worth noting that Shiller feels that the downturn in recent years just took prices to where they would have been without the real estate “bubble” that preceded the crash.)

Still, it’s impressive to see the persistence of the home price increases. The March numbers mark 12 straight months of solid increases. And while there’s a lot of variation (with properties rising 2.6 percent in New York and 22.5 percent in Phoenix), all 20 cities scored gains for the first quarter. Our headquarters city of Atlanta was particularly strong, at 19.1 percent, and we were able to clearly see the improvements in our Georgia auctions.

Is it too good to last? It’s hard to say. Certainly, we aren’t yet approaching the price levels we saw in 2005. And that means there are still a lot of homeowners who are under water.

Obviously, home prices can’t continue to rise 20 percent a year for long without creating troubles down the road. But I think the direction is obvious. It’s just a matter of how fast prices move up. For now, I think we’re at a good “buy-in” point for investors, with lots of room for growth.

And it’s worth noting that prices on commercial properties, subdivision lots and many other types of properties remain very low. Investors who buy at these levels will no doubt enjoy better returns than those who wait and buy at higher prices later. Rising demand for homes is beginning to spark a healthy rise in new construction. Investors who’ve been loading up on home sites at recent John Dixon auctions can expect some handsome profits as construction moves into full swing.

There’s a lot to be said for a little good news as we prepare to enter a new year. And we got a good dose of holiday cheer the day after Christmas, when the S&P/Case-Shiller Home Price Indices came out.

There are several things I look for when I’m trying to get a handle on economic data — especially statistics regarding real estate. Obviously, I look at the raw numbers themselves, but even more important is consistency of direction. A choppy sideways market — up one month and down the next — doesn’t tell me much. But an established trend can be useful, because it give us a better idea of where things are going. Finally, I like to see some geographic breadth. If properties in one or two areas seem to be catching fire (or going in the tank, for that matter), it may not reflect the broader market.

I was particularly glad to see the latest batch of Case-Shiller Index numbers — which cover October — because they contained good news by almost any measure:

• The annual returns for Case-Shiller’s 10-city and 20-city indices showed healthy growth (3.4% and 4.3%, respectively). So I have to be pleased with the direction.
• The trend looks good too, with the 12-month rate of change in home values rising 10 months in a row. That number has not only been positive, but improving steadily since December of last year.
•  In 19 of the 20 cities, the annual returns were higher for October than they were for September. All but two of the 20 cities showed positive annual returns. (Chicago and New York were down.) Score one for geographic breadth.

Happy New Year!

One of the frustrating things about trying to get an accurate reading on economic trends is that numbers tend to bounce around from one month to the next. So when we get a series of numbers that all point in the same direction, it’s a good idea to pay attention.

That’s the case with the S&P/Case-Shiller Index, which has become the leading measure of U.S. home prices. The national composite was up 3.6% compared to the third quarter of 2011, and 2.2% compared to the second quarter of this year.

Not that I was surprised. I’ve been saying for a while now that the real estate market was recovering, and the new numbers are convincing:

• Breadth. A recovery in one or two hotspots doesn’t mean much. But of the 20 cities tracked, 17 were above their levels from a year ago.
• Persistence. Both on a month-to-month and year-to-year basis, we’ve seen steady progress. The 10-City and 20-City Composites have risen month-over-month for six straight months.

 From the investor/buyer perspective, this is really good news. Real estate is still a great value, especially compared to the prices we saw before the credit crisis in 2007-2008, so there’s a lot of room to grow. Yet, the upward trend is well established, showing that the market has stabilized and begun to gather steam.

That means, of course, that our upcoming two-day auction of 100 properties for the FDIC in Chicago will offer some excellent possibilities. We have an especially strong lineup of residential properties, many of which are concentrated in the Cicero area. We’ll start at 11 a.m. on Saturday, Dec. 8, and 2 p.m. Sunday, Dec. 9. I look forward to seeing you there.