Wow, we’re into a new decade! 2020 rolls right off the tongue…
2019 was another banner year for our local Real Estate market. Cache Valley prices rose 8.7% over 2018, ending at an average $124 per foot. The average sale price last quarter of 2019 was $279,000. There were 2% more sales in 2019 than 2018 – 1600 residential sales for the year (2nd only to 2016 at 1607 sales), and that number doesn’t include many newly built homes not listed on the MLS.
Once again high demand and quick sales kept inventory numbers low. Currently there are just 211 residential homes on the market (including townhouses and condos). That number hasn’t exceeded 325 all year. The overall average days on market (time it takes for a home to go under contract) for the year was 43 days or less. The price range with the most sales was $200-250k, and the average days on market for that price point was a mere 28 days.
The dawn of a new decade caused me to reflect on how the Logan/Cache Valley market was 10 years ago… What a difference a decade makes! In 2009 & 2010 home sellers had a pretty tough time, and buyers were skittish. Short sales & foreclosures were rampant, the average home inventory was over 600 homes, the average price per foot fluctuated between $70-$80 pretty erratically, the average home price was under $173k, and the average days on market was 100+. Only 870 homes sold in 2010, and there were very few homes being built. 2012 marked the beginning of an upward trend in our market, and it really caught fire in 2015. Home prices have risen 48% since 2015.
Now for projections on 2020….It would be folly to project what the next decade might bring, but for the coming year, the local housing market is expected to remain strong. Mortgage interest rates are extraordinarily low (below 4% on a 30 year for most loans, and some as low as 3.6%), making affordability within reach for most home buyers even with the higher home prices. Utah continues to be a very desirable place to live. The Bureau of Labor Statistics has us tied for #1 in the country in job growth (up 3% since 2018), 5th lowest in unemployment at 2.5% and 2nd fastest in population growth (Cache Valley is one of the most desirable places in Utah) in fact, two of the biggest concerns for Utah are labor shortage and housing shortage.
Please let me know if you need any further real estate information or help with your Real Estate needs.
Investing in Real Estate can make terrific sense, but as in all investment strategies – there is some inherent risk…
Here is a brief summary of things to consider when purchasing a rental property:
- Personal Finance considerations: Lenders typically require 25% down on an investment property mortgage (caveat -if part of the rental property is your primary home – as in a duplex where you live in one unit and rent the other unit out, loan programs such as FHA with as little as 3.5% down are available). Interest rates will also be higher than the rate available on a primary residential mortgage. Your credit, income, assets and debt ratios all factor in on the interest rate offered. As with all mortgages, closing costs will be associated (plan on 3% of the loan amount). It’s wise to have a large “nest egg” saved up to cover vacancy loss, improvements and repair costs. Money desperation can facilitate unwise decisions in accepting “risky” renters – leading to serious money woes.
- Personality considerations: Ask yourself, “Do I want to be a Landlord?” Landlords have to screen for tenants. Will you be able to say “No” when you need to? Will you be able to be firm about collecting rent? How do you feel about doing/ or hiring out repair work? Using a property management company is a very good option (one I recommend) if you don’t want to be a landlord. Most management companies charge around 10% of the rental income (becoming another financial consideration).
- Property considerations: Budget will dictate some things, but when evaluating properties consider the neighborhood and associated demographics. Properties near the university are in high demand (low vacancy), and often can glean higher rents (depending on the condition of the property), but also may have higher turn-over and more repair costs. A single family home near a school may provide more rental stability and lower turnover once rented but may be harder to rent initially. The age, size, condition, location and amenities (garage, laundry, yard etc…) of the property will influence potential rental income as well as the potential outlay for maintenance.
- Investment considerations: Return on investment (ROI) a profitability measure that evaluates the performance of a business by dividing net profit by net worth, cash flow Income less expenses, risk, and tax implications are all important aspects of investment considerations.
Cash flow example:
1900 sq. ft, 3BR, 2 BA single family home in North Logan
$160,000 (negotiated seller paid closing costs $4800)
25% down $40,000
Loan $120,000 @ 4.75% interest
Payments $626 + $100 per month tax & insurance = $726/mo
Potential rent $1150/mo – less 10% management fee = $1035/mo
Gross monthly cash flow: $309 ($3708 per year)
9.27% ROI, excluding vacancy loss & repairs – (an unknown)
Additional tax advantages & appreciation of the asset (Real Estate has traditionally appreciated at a rate of 3 -4% per year, although we all know this is not a fail safe assumption) May make this purchase a very desirable investment decision.