Climate Change Resilience in Real Estate

 

Resilience is defined as the capacity to recover from difficulties; toughness.  As it specifically relates to social communities, resilience is the ability of a system or community to survive disruption and to anticipate, adapt, and flourish in the face of change.

Tacking onto the blog from last week about natural disasters and the cost to rebuild, it makes sense to talk about how adapt to these costly disasters in the first place.  Setting aside climate change as a politically-charged debate topic, industry leaders are building climate change into their five, 10, and 100-year plans.  It is having an impact on the housing industry accept it or not.   The hot topic is resilience and it has everything to do with property values, insurance rates, and population movement.  At its core, resilience in housing starts with location, location, location.   Not a shock; people don’t want to buy homes in locations that are more exposed to danger.   So what trends are there?  Miami continues to be a trendsetter but now the trend isn’t fun.  It’s a well known fact that high tides already flood portions of Miami, most specifically Miami Beach which is a barrier island (no longer being very effective at doing its title job).  As recently as October 5, the high tides made Miami Beach, and also inland Miami, looked like a tropical storm had come through http://www.miaminewtimes.com/news/miami-king-tides-flooding-city-like-a-hurricane-again-today-9725153.  (Though, the jury is still out on how many fish swim in the street as Obama’s famous “fish in the street” comment through up debate:  http://www.politifact.com/florida/statements/2015/dec/04/barack-obama/do-fish-swim-streets-miami-high-tide-barack-obama-/ )

Compared to national sales, property sales in Miami are down—a slow but steady trend that was occurring prior to this year’s rounds of tropical storms and hurricanes.  Investors are already moving inland and there’s a rise of gentrification of lower economic areas as what was once less desirable higher ground further into Miami is becoming more desirable than traditionally expensive oceanfront property. Hugh Gladwin, http://www.climatecentral.org/news/climate-change-us-real-estate-prices-21720

What does this mean for areas that are more adaptable and resilient?  Say, Western NC for example?  As more disaster-prone areas see more and costlier disasters such as Harvey, people will migrate to safer locations like ours.  We are less prone to tornados, less prone to flooding like tidal surges (though still prone to river flooding), and less prone to fire (though drought has seen this change a little, i.e. Fall 2016 fires throughout the mountain region).  Asheville is already a top 10 destination; can we handle a surge of population growth and increased prices?  Certainly more people means more building, more need for infrastructure, and a huge impact on the land.  The ability to handle this impact will also affect our resilience.  Time to keep a keen eye on how our institutions face this challenge.

If this topic piques your curiosity, check out at some extra articles that I ran across listed below.

https://www.theguardian.com/environment/2017/aug/31/us-risk-flooding-harvey-boston-new-york-miami-beach

https://money.usnews.com/money/personal-finance/saving-budget/articles/2017-04-14/how-climate-change-will-impact-homeowners-insurance

https://www.sciencedaily.com/releases/2017/08/170817092825.htm

I’m not sure this following list takes into account dangers other than climate change such as earthquakes and pollution: http://www.businessinsider.com/best-us-cities-escape-climate-change-2017-9/#philadelphia-pennsylvania-13

 

 

The Disasters Were Horrific: Will Rebuilding Be Worse?

When thinking about a good topic to reignite my blog it seemed obvious that as a home specialist, the effects of the recent and ongoing natural disasters on U.S. housing stock would be a good choice.  Going into the research I assumed that building material shortages would be the biggest factor in cost and speed of recovery.  Though materials are an issue, the more important shortage is labor.  Nationally we were facing a labor shortage before Harvey, Irma, Maria, and the California fires (see graphic below).  The National Mortgage News reports that shortages of labor have kept construction underperforming recently as it is. (www.nationalmortgagenews.com/news/more-hurricane-pain-fewer-homes-shortage-of-construction-workers) “In Santa Rosa alone, the fires have consumed 2,834 homes, roughly six times the number of new residential units that will be produced this year in all of Sonoma County,” reports www.sfgate.com.  (www.sfgate.com/bayarea/article/costruction-labor-shortage-will-slow-post-fire-1277178.php) The same article quotes CEO of North Coast Builders Exchange, Keith Woods, saying that contractors already weren’t able to find workers for remodels and repairs before the fire.  Replacing homes won’t be the only need; there’s the infrastructure, say telephone poles for example.  The businesses need rebuilding as well.  And this is just California, the most recent of our nation’s disasters.  Estimates are that Houston has lost over 15,000 homes with hundreds of thousands of homes and businesses damaged.  Then there’s Florida with at least 25% of homes destroyed in Key West alone.  And, worse is Puerto Rico where numerous online searches yielded specific numbers of people without power, without food, without pretty much anything, but no clear number of structures destroyed outside of the ubiquitous term “complete destruction”.

We know that material costs, lumber, sheet rock, etc., will skyrocket.  We wonder how we will pay for the repairs.  But it seems that even before these two issues are addressed, we have to figure out who is going to rebuild these homes and businesses.  I wish I had the answer; but though I don’t it will certainly be an interesting subject to watch play out in the social, political, economic, and psychological circles of our society.  I’ll try to keep you posted.

Skilled labor graphic

 

Definition: Short Sale versus REO

This will be a short blog because I’ve found people like short, sweet info. 

A lot of real estate agents are understandably confused about the difference between the two most common distressed sales: a short sale and an REO.  The basic difference is who owns the property, whose name is on the deed.  In a short sale, the buyer contracts with the seller and the home still belongs to the seller until the transaction closes.  The role of the seller’s lender is to accept or not accept the contract price and to work out the deficiency with the seller.  Throughout the process the seller still owns the property and a good way to think of it is, at any given moment the seller could win the lottery, pay off the whole loan, remove the short sale approval contingency, and sell the house completely clear of debt. 

An REO, or real estate owned, property is one that has been foreclosed on and is now owned by a financial institution. The original owner is gone.  The offer to purchase goes directly to the financial institution and the buyer contracts with that institution.

In summary: Short sale: buyer contracts with seller and lender has to approve; REO: buyer contracts with the owning financial institution.  The difference between the two is ownership.

Hope that was short and simple enough!

Real Estate is Still a Human Business

Real estate is still a human industry, thank goodness!  And agents can and do make mistakes.  State commissions and the REALTOR and local associations can police mistakes but that doesn’t change the impact to the buyer or seller.  So, always feel free to ask about anything that is important to you or seems a little off to you throughout the transaction, whether you’re a buyer or a seller.

In my neighborhood in North Asheville, we have a couple of houses that are out of the city school district.  There isn’t any rhyme or reason other than when the county schools split from the city schools individual households could choose to stay with the county.  These households continue to pay city taxes that pay for city schools, are in the city limits, and are governed by the same zoning as their neighbors.  They just happen to be in the county district. This is such a unique and unusual situation that it wouldn’t necessarily occur to a listing agent to double check the school district.  I found out by accident—fortunately not involving representing a homeowner or buyer!  However, as any parent of school-aged kids knows, a school district makes a big difference in purchasing a home.  So, there’s absolutely no harm in double-checking the address with the county or city, just in case.

Though buyer’s agents are supposed to follow up on items that are represented by the seller and agent, some things just may not routinely occur to an agent.  Your best bet as a client is to ask the agent to go one step further and ensure the accuracy.  It can be a royal pain, but so can finding out that your new home isn’t connected to public sewer. Yep, that one happened, too.  The seller had always understood and never questioned that it was on city sewer and since they paid a city sewer bill for years what would make them think otherwise? So, when they sold their home, they said it was on city sewer.  When the new buyer did some sewer repair work, they found they were on a septic system.  Imagine their surprise!  And imagine being the listing or selling agent.  Yikes.

Selling homes in Asheville, I’ve had to track down governing bodies for roads in disrepair, sometimes finding that no state, city, or private entity took ownership…even the road that had the city water line straight down the middle!

So for caution, If anything seems out of order or just a little off, or if you’re in a border area between jurisdictions, always investigate systems one step further.  And ALWAYS feel free to ask your agent to research just a bit more.  It can save both of you some very serious pains down the line.

Dude, where’s my equity?

the Federal Reserve says that 7 trillion was lost in real estate values between 2007 and 2009.  What does that mean? If we look hard enough can we find it?  Is it between the cushions of the couch with the remote control? Unfortunately, the concept of value is a lot more complex than that and the missing word is “perceived”.

So what actually happened?  What actually vanished?  Actually, nothing “vanished” because the 7 trillion didn’t really exist; 7 trillion one dollar bills weren’t actually floating around in circulation and then yanked out and burned.  7 trillion was the sum of the perceived value of real estate held by the public and the lending institutions at that time.

So let’s say you bought your home in 2005 for $150,000 and you went to sell it a couple of years later;  in February 2008 a buyer put it under contract for $200,000 and the appraisal supported this.  But, let’s say that unfortunately, the contract fell apart and you had to go back on the market in September of 2008.  Now the only price a buyer will pay is $175,000.  Does that mean you lost 25K?  No, it means you got your home under contract as the market did a complete 180 degree change AND unless you had received that extra 25K in actual cash by selling at the peak, then that 25K was in theory only.

Home Equity is the difference between the total amount that is owed on a home and how much you can liquidate it for at the moment.  If you owe $150,000 on a home, including lines of credit and such, and you can sell it for 175K, then you have 25k in equity, cash in hand, if you sell it AT THIS MOMENT.  If you can only sell it for 125k and you owe 150K, then the perceived value is less than you actually paid and you now have negative equity AT THIS MOMENT.  Negative and positive equity are dynamic and are only realized when they are “cashed out” so to speak.

No matter what type of real estate market, we’ll always have people who paid more than the current perceived value; the difference in what happened in 2007 to 2009 is the sheer number of homes and the extremes between the high and the lows.  And those numbers and extremes have led to a loss of 7 trillion in perceived value, like the Federal Reserve said!