We just came back from Mexico, and it is a booming economy. There are millions of desperate people there for sure, but the amount of wealth, raw, naked wealth is much more evident than it was when I used to go there a decade or more ago. I also want to make the distinction between real wealth, and those pockets of drug money that give a little glitz to some parts of the world. Mexico, after all, now has the richest man in the world.

What really sticks out is that there is a feeling of wealth. If you own property in Mexico you can ask whatever you want, because some one may just give you the money in cash.

All cash Real Estate transactions are popular all over the world as a way to hold that cash in what is considered a safe investment. If you rent the property out here in the United States you can get a 6% return. In other places you can own the property, and just hold it while it goes up in price. It used to be that way here until our inflation rate stagnated. In Mexico there is more room for inflation.

It’s all a game, like currency trading, but much slower, and by all bets, they hope, much safer.

By now everyone with a strategy has already pulled the trigger. There won’t be any more surprises this year in terms of listings, or sales. People can go ahead, and bid up properties all they want, but in the broader market place of Seattle, and surrounding areas, we are still down in price form the peaks we saw in 2007.

What many sellers are waiting for, and I can attest to this, is that prices will close higher in the areas of hot markets, like Ballard. As more properties close, and get added to the Comparative Market Analysis pool the better the chances the pricing will stay elevated. I’ll go along with that for the rest of this year because the press is really, really pushing this housing market recovery. Very little attention is given to the economy as a whole, we are now all about the stock market, commodity prices, and housing, which are the tangible asset group. Lots of hedge fund money is headed into the rental property market, and I can just see that as making housing more affordable, which would be a post for another time. Long story short, is that more rentals, more competition for rents will stabilize what has been an escalating rental market place. When rents decline the affordability factor of taking on a thirty year mortgage gets shoved to the side, especially if we have an interest rate increase on mortgage money.

Like I said, I see this year as the time for any one who had moves to make in the housing market to have made those moves. In the coming year more attention needs to be paid to getting jobs, and getting wages to stretch further. We are a consumer economy that will have to be made stronger. I personally see many more companies, many more areas of the economy, that can take pricing lower, including the housing market, or especially the housing market, and help the consumer to have more money to spend. We shouldn’t do it all with lower monthly payments, we need real dollars chancing goods in an open market, which I consider a cash market place.

Last post was about rising home prices, and now we have a rising inventory of homes for sale. A Real Estate sales person told me we were only down 6% in inventory from historic norms, but it looks to me like we are down 40% from last year. Maybe last year we had a glut of inventory?, but I doubt that. All I know is that I have noticed more properties for sale lately, and more homes staying on the market longer.

I think some sellers recognize that this market place is as good as it’s going to get. I looked at some trend lines for a neighborhood I follow that has been going great guns this year, like in Ballard, but because of the high per cent of price increases his year next year looks like the increases will slow to 5% from the double digit increases they had this year.

For me I see 2014 as the year we will see an easing of the quantitative easing we have had. I think the Fed, and Bernanke especially, will see that we are on pretty stable ground so that the Fed can go on to other business like lowering deficit spending. I think more focus will shift to Europe.

I just think we have hit a kind of peak where we are waiting for prices to decrease, but they will remain stable for an extended period.

Prices have risen a lot in the past year. There is a claim that property prices have risen 10% so far this year. Well, that is claim based on the excessive bidding on properties in February, and March. I’ve never seen a more frenzied market place, and I’m going throw out the idea that this frenzy is internet based hype on what the future performance of assets will do.

The way I look at it the assets, housing purchases, especially by large investment groups are a way to hold cash. Commodities have become a fast return for cash, then it needs to be held some place. An investment group could buy into the stock market, which is new to me, after all these years. I last invested in the stock market in the 1980s, bought some retirement stuff in the 1990s, and was just left some Morgan Stanley portfolio that was paying 4.5% in the good times.

Real Estate has been paying investors 6% return, plus appreciation in pricing, at this 10% quoted number that makes Real Estate looking very good. Owning the property is also much better than having Mortgage Backed Securities, so Real Estate Investment Trusts are very much back in style. The more money invested in Real Estate the higher the prices go. That investment is also fueled by low interest rates. It’s a frenzy.

I’ll say again that in 2014, to 2016, everything will change, again. I see lower pricing, or a “correction” in the market place in 2014. That is a post for another time.

This article just came up on CNBC, about investors buying up the Real Estate market place  http://www.cnbc.com/id/100700113

I’ve left Real Estate alone because we have our family home for sale, but today I just want to clear out some of the thoughts I’ve had about the coming housing market.

First we have the exit from Gold, that was brought about by Cyprus first wanting to tax bank deposits, then threatening to sell off gold reserves. Cyprus was a bigger disaster than the threatened defaults in Ireland, Spain, and Greece. The sell off in gold is an exit from commodities. Commodities have been a powerful cash generator for the past five years. We are kind of stalled now. Oil also has taken a hit even though OPEC cut production. We have plenty of oil reserves, and the United States is talking about Natural Gas.

This brings us to Japan, who is experiencing a great fall in GDP: http://www.bloomberg.com/news/2012-11-12/japan-stocks-fall-as-gdp-shrinks-most-since-earthquake.html The response is to do some Quantitative Easing, which will devalue it’s currency. They tried this before in the 1990s with some disastrous results. I’ve said on many occasions we are not Japan in terms of comparing our economies so why would Japan think they could start a program we have to get to similar results?

What I’m getting to is that as all of these factors come together we will see a sell off of more assets, like Residential Housing Units by banks, and investors. Lot’s of opportunities for cash are coming up. Many places around the globe will be for sale for cheap, for cash.

I started this post about a week ago, but forgot to post it. This article compares the price per square foot of condos in metropolitan areas globally.

http://www.cnbc.com/id/100528076

It shows an average of $2000 a square foot for condos in high end metropolitan areas, like London, and Shanghai. Here in Seattle we have a few condos in that price per square foot, but readily drop to $1000 a square foot, and very closely followed by $500 to $750 a square foot.

I’m not saying that Seattle Washington is the same as San Francisco, because I would love to live there in the Bay Area, but our price per square foot looks to be about the same. I love Miami, and the condo price per square foot is about the same as ours.

I have a lot of faith in Seattle as an economic force. Our downtown seems a little desolate to me, but in the long run I think there are some condo buildings that are really worth owning a unit in. I would go so far to say that there are some bargains in condos if you really look at the package of what you get for the price you pay.

I’ll throw in that you need to look at a condo’s financials, and look at the meeting minutes of the board. You want to see that the building is financially secure, before you buy in,and that the reserves match the age, and condition of the building.

I don’t talk about the global Real Estate market place much any more, because here in Seattle we have so much trade related business it’s become normal. I forget that most parts of the country don’t have the same International attraction for home buyers.

We have buyers from across Asia, Russia, for sure, and India. We attract the best of the best who come to work at Amazon, Microsoft, University of Washington, and the intense concentration of Medical Research facilities we have.

This is a real no brainer kind of purchase for people who come here from places where the price of Real Estate has doubled, tripled, and quadrupled. They can sell property at home for more than the buy in price in the United States. Family money will also come here to buy property. Many families have anchor relatives here with the idea more relatives will follow.

Seattle is one of those places of opportunity. By comparison our prices are better than San Francisco, or New York, and for some the money to be made here is better.

I don’t talk about International buyers because we have had so many for so long that it’s just a part of our buyer mix. The International buyer however, in today’s low inventory market, can definately out bid you. I’m just mentioning this to blunt some disappointments, and also pointing out that you shouldn’t over compete.

I found this an interesting chart:

http://www.bankrate.com/finance/real-estate/total-monthly-homeownership-costs-by-city.aspx?ec_id=cmctre_02_comm_RE_image_headline

It lists from bottom to the top home owner costs by city.

We know personally that Atlanta Georgia has continued to decline in price. Detroit is headed for bankruptcy, and Phoenix is in a bubble of rental housing. San Francisco is at the top, and Seattle is below that bunched together with San Diego, Boston, and Washington D.C.

When we hear things like the price of housing is rising Nationally I really question how reliable that information is.

If we just take the list presented here there are good markets, and markets that are going down in price. The top of the price structure seems to be double, or even triple the cost of the lower end market places. Even in the lower end market places there has been significant appreciation in prices. Properties in Phoenix, as an example, sold for $50K after the crash, and now I’m told those same properties are selling for $100K.

Personally I find the price increases to be a false sense of the National Market. As we see here in Seattle, some neighborhoods do well, and place like Renton are losing value, and pricing because of foreclosures.

So when I read that prices are rising, I would consider the mix.

Just as a feeling, I think we will see better properties at better prices this year as people see the Real Estate markets coming to an equilibrium. I think sellers are realizing this year is as good as it’s going to get, and if they are going to make a move this would be the time.

Buyers are also more finicky about getting a value. For all the talk this year about multiple offers, I’ve looked at a few of those, and when the smoke cleared the sales price was pretty close to what it should be, and in another of my opinions, less than it should be because the Real Estate agent under priced the property to begin with. That’s what caused the hysteria in the first place. Other properties that were slightly over priced just sat there. Where are the low ball offers?

So I appreciate that the Real Estate market is very difficult for buyers, but I think patience is going to pay off. We have a good window of opportunity that will last through the summer, by all indications. It just looks to me as though every one is being much more sophisticated this year than in the past few years.