Tag Archives: investors

homes

Prices Up, Foreclosures Down, Investors Losing Interest

Phoenix-area home prices are back on their way up again, after a short drop in January. The latest housing report from the W. P. Carey School of Business at Arizona State University shows soaring prices, dropping foreclosures and waning interest from investors looking at Maricopa and Pinal counties, as of February.

* The median single-family home price shot up more than 4 percent in just one month — January to February.
* The median single-family home price went up 36.5 percent from February 2012 to February 2013.
* Foreclosures have resumed their downward trend, after a brief post-holiday bump, and they are likely to fall below the “normal,” long-term level by the end of next year.

Phoenix-area home prices have risen sharply since hitting a low point in September 2011. The median single-family home price went up 4.3 percent from January to February. It went up 36.5 percent – $124,500 to $170,000 – from last February to this February. Realtors will note the average price per square foot rose 30.9 percent year-over-year. The median townhouse/condo price increased 39.4 percent – from $77,500 to $108,000.

“These substantial increases were predicted in our last report and are almost certain to continue in March,” says the report’s author, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business at Arizona State University. “Pricing typically strengthens during the peak buying season from February to June each year.”

Orr adds the market is still dealing with a chronic shortage of homes available for sale. The number of active single-family-home listings (without an existing contract) in the greater Phoenix area fell about 5 percent just from February 1 to March 1. Also, 79 percent of the available supply is priced above $150,000, creating a real problem in the lower range.

“The shortage continues to get more severe among the most affordable housing sectors,” says Orr. “Overall, ‘distressed,’ bargain supply is down 32 percent from last February, since we’re seeing fewer foreclosures and short sales. First-time home buyers face tough competition from investors and other bidders for the relatively small number of properties available in their target price range.”

Thanks to the tight inventory, the amount of single-family-home sales activity was down 10 percent this February from last February. Things don’t appear to be getting better.

“Higher prices would normally encourage more ordinary home sellers to enter the market, but it seems many potential sellers are either locked in by negative equity and/or staying on the sidelines, waiting for prices to rise further,” explains Orr. “At some point, we will reach a pricing level where resale supply will free up, but we are not there yet.”

While high-end, luxury-home resales are picking up some steam, many frustrated home buyers in the lower price range have been turning to new-home construction. As a result, new-home sales were up an incredible 67 percent from last February to this February. New-home sales have almost doubled their market share from 6 percent to 11 percent over the last 12 months. Still, Orr says new-home sales have a long way to go to recover their normal percentage of the market.

He adds, “New homes are not being built in sufficient quantity to match the population growth in the Phoenix area. The construction industry remembers overbuilding from 2003 to 2007, contributing to the disaster in 2008 that resulted in layoffs and bankruptcies for some developers. For now, it looks like they will probably build fewer than half the homes needed to keep pace with current population trends.”

Investor interest also continues to wane in the Phoenix area. The percentage of homes bought by investors from 2011 to mid-2012 was way up, but it declined in Maricopa County from 37 percent last February to 29.7 percent this February. Many investors are looking at other areas of the nation where prices haven’t recovered as much and more bargains are available. Orr labels it a “significant down trend” here.

Foreclosures and foreclosure starts (homeowners receiving notice their lenders may foreclose in 90 days) are both back on a downward trend, too, after a short post-holiday bump. Completed foreclosures on single-family homes and townhome/condos fell 25 percent from January to February alone. They were down 52 percent from last February. Foreclosure starts were down 61 percent from last February. Orr predicts foreclosure-notice rates may be down to “below long-term averages” by the end of 2014. Meantime, the lack of cheap foreclosed homes continues to help push prices up.

“The significant annual price increase over the last 12 months has now spread to all areas of greater Phoenix,” says Orr.

Orr’s full report, including statistics, charts and a breakdown by different areas of the Valley, can be viewed at http://wpcarey.asu.edu/finance/real-estate/upload/Full-Report-201303.pdf. A podcast with more analysis from Orr is also available from knowWPCarey, the business school’s online resource and newsletter, at http://knowwpcarey.com/index.cfm?cid=13.

Phoenix-Area Housing Market

How to Survive the Phoenix-area Housing Market

The Phoenix-area housing market is especially difficult for home buyers to navigate right now. They face rising prices, competition from investors and other bidders, and a short supply of available homes for sale. That’s why The Arizona Republic and the ASU Real Estate Council at the W. P. Carey School of Business are hosting a free event to help people sort through the complications.

“We keep hearing from potential home buyers how tough it is to deal with current conditions in the Valley housing market,” says Catherine Reagor, who covers the real estate market for The Arizona Republic and azcentral.com. “This is one way to help.”

The event called “Phoenix Housing Market Explained” will be held Saturday, April 6, starting at 9:30 a.m. at Arizona State University’s Tempe campus.

It will feature:

* Catherine Reagor, senior real estate reporter for The Arizona Republic
* Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business
* Mark Stapp, the Fred E. Taylor Professor in Real Estate and director of the Master of Real Estate Development (MRED) program at the W. P. Carey School of Business

The three will participate in a panel discussion and then take questions from the audience. Reagor will offer insight into what she’s seeing as buyers and sellers negotiate ever-changing market conditions…and prospective buyers try to secure a mortgage.

Orr, a prominent real estate expert whose monthly reports on the Phoenix-area housing market are often covered by the national media, will talk about many factors that could affect prospective home buyers right now.

“Everything from investors to rising prices and the short supply of houses are coming into play for people who want to own a new home,” says Orr. “It can be frustrating to bid repeatedly for properties and still come up dry. I’ll go over some of the latest data that could help provide an edge.”

Stapp, an established real estate developer himself, will moderate the discussion and explain current trends in new-home building.

The event will be held in the Business Administration C-Wing Building, or BAC, at 400 E. Lemon St. at ASU in Tempe. Parking is available just across the street at the intersection of Apache Boulevard and Normal Avenue. Signage will direct participants from the garage to room BAC 116 on the first floor of the BAC building.

Because space is limited, registration is encouraged at conversations.azcentral.com. More information about the event can be found at www.money.azcentral.com, www.wpcarey.asu.edu, or by calling (602) 444-4931.

More information about the Valley real estate market is available in the W. P. Carey School’s monthly reports at http://wpcarey.asu.edu/finance/real-estate/market-reports.cfm.

89524671

Financial Awareness Gap Still High for LGBT Investors

LGBT investors indicate high levels of post-election optimism about the political and economic direction of the country, as well as confidence about their own financial future, according to a recent Wells Fargo nationwide survey.  LGBT investors also show a great deal of optimism around the future of same-sex marriage and civil unions.  The picture is not entirely rosy, however.  Despite steps toward retirement preparation, LGBT investors remain concerned about saving enough for retirement, and there continues to be underlying confusion about transfer rights and benefits for same-sex couples.

Two-thirds (66%) of LGBT investors are optimistic about the political direction of the country, compared with 43% of the overall population.  Three in four expect a stronger U.S. economy over the next two years, much higher than the general population of 47%.  And two-thirds (65%) anticipate stronger local economies over the next two years, compared to 45% overall.

LGBT investors are more positive regarding their current financial situation than the general public.  Three in five (59%) report they feel financially comfortable, compared to 51% of all U.S. adults.  Two-thirds (66%) are confident in their financial future versus 52% of U.S. adults.  LGBT adults are also more likely to report being better off financially then they were three years ago (65%), compared to 51% of all adults.  And two thirds (66%) feel secure in their current job situation, higher than U.S. adults (55%).

“While optimism and confidence among LGBT investors remain high, there is clearly an awareness gap related to the very complex financial issues facing same-sex couples,” said Kyle Young, Financial Advisor and Vice-President, Investment Officer for Wells Fargo Advisors.  “Lack of Federal recognition of same-sex couples adds many layers of challenges to retirement and estate planning for all LGBT couples.  Proper analysis and planning that comes with a financial advisor who understands the landscape of today’s differing state-by-state approaches is essential.”

LGBT adults appear to be taking more steps to better save and prepare for retirement. On average, non-retired and retired LGBT adults report higher median net savings than the overall population. Over half of LGBT non-retirees (55%) report having a detailed retirement savings plan in place, compared to 42% of all adults.  These LGBT respondents are more likely to have developed plans with a paid financial advisor (42%) while an additional 22% used web-based tools and calculators to assist in the process.

Nevertheless, concerns remain.  Many LGBT respondents are concerned about saving enough for retirement (53%), and only 55% are confident they will be able to afford their current lifestyles in retirement.  In a list of financial concerns, “saving for retirement” was the top concern for pre-retired LGBT respondents at 38%, followed by healthcare costs (18%) and paying monthly bills (16%).

LGBT adults with children consistently report more financial challenges, including preparing for retirement, than LGBT adults without children.  LGBT with children feel less financially comfortable than those without (42% vs. 61%), and reported less confident in their financial future (40% with children vs. 68% without).  LGBT with children are also twice as likely to report that high living expenses are limiting their ability to save for the future (51% with children vs. 26% without).

Almost all LGBT adults (92%) believe that within their lifetime, federal laws on survivor rights and benefits will become the same for same-sex couples as they are for heterosexual couples.  Nearly half (43%) believe this will happen within the next three years, while 22% believe it will happen in the next four or five years.

Despite heightened attention to same-sex marriage and civil unions, tremendous confusion remains around transfer rights and benefits for same-sex couples.  Nearly half (44%) of LGBT respondents did not know that Social Security income and benefits are not transferable to the spouse or partner in a same sex couple.  Similarly, fewer than half (41-47%) of LGBT respondents correctly answered that other assets and benefits like real estate (47%), life insurance (44%) and retirement savings (41%) may be transferable depending on the state in which the same-sex couple resides.  Only 36% of LGBT adults know that Federal taxes on survivor assets or benefits are different for the spouse/partner in a same-sex marriage than in a heterosexual marriage.

psychological impact investors

Psychological Impact On Investors Across Generations

To say the least, financial markets were gut-wrenching for investors in 2011. An earthquake and tsunami in Japan, revolutions in the Middle East and North Africa, and unparalleled challenges to the Eurozone rattled nearly all asset classes and strained investor resolve. But the market volatility we witnessed in 2011 was relatively minor compared to what occurred in late 2008. As a result of these global shakeups, and those of the preceding decade, investors are unsettled about their investment practices, and are reacting to the unwelcome effects volatility can have on their emotions and investment returns.

What has been the psychological impact on investors across multiple generations during these bouts of volatility? And, why are investment strategies and risk tolerances so different from one generation to the next?

Function of age on risk tolerance

Investor reaction to two of the worst bear markets for stocks since the Great Depression is partly explained by age, according to a recent study conducted by the Investment Company Institute (ICI) and the Federal Reserve Board. It found only 22 percent of households headed by someone younger than 35 in 2010 were willing to take above-average or substantial investment risk, compared with 30 percent of such households in 1998.

Reduction in risk appetite is generally happening across the board, but most notably in the Generation Y cohort (investors younger than 35) — just when the need for higher returns is most urgent.

Investors who are now 50 to 60 years old were part of a great bull market that lasted 20 years. They made money in the markets through stock investments that rewarded them for taking risks. We now have Generations X (generally those ages 35-50) and Y who have never been actually rewarded for taking equity risk. As a result, we may have an unintended consequence of a large group of younger, risk-averse investors moving away from stocks at a time when most need the higher returns available from a healthy exposure to stocks over the long term. Increased tendencies toward loss aversion could cause many young investors to miss out on the returns necessary to meet their long-term financial goals.

Investment options for younger investors

A potential solution, especially for younger investors who may have watched their parents’ portfolios take a hit in recent years, could be taking small steps and gradually diversifying away from heavier bond or cash holdings and into stocks. Young investors may also find that company-sponsored retirement plans ― regarded by most workers as a pillar of financial security in later life ― offer gradual immersion into potentially more rewarding assets. More importantly, investors of all ages need to establish a clear and thoughtful financial plan that matches asset allocation to their objectives, time horizon and risk tolerance. A well-designed asset allocation strategy, implemented with thoughtful rebalancing, will allow investors to benefit from volatility.

Keeping emotions in check

Investors of any age who understand volatility are more likely to manage their portfolios with confidence and make effective decisions.

Volatility causes emotional distress, and that emotion can get in the way of making effective decisions about strategic asset allocation, which is one of the most important components of investment decision-making.

So what, then, can investors do to temper their emotions? Part of the answer lies in being able to acknowledge that human behavior has many layers. There are complex psychological reasons at play.

Human nature teaches us that fear is a powerful emotion and tends to overrule our rationality. Thus, in the case of extreme market volatility, investors will move in sync away from risk and toward safety. When they perceive that it is safe to get back into the market, investors get back in together, bidding up asset classes. These up-and-down market movements continue until economic conditions return to normal, or when someone or something steps in to restore order.

The key for investors is to separate the events in their lives from how they feel about their financial situation. Without drawing this distinction, emotions may lead investors to buy at the top and sell at the bottom. A professional advisor can be instrumental in helping investors create a financial plan that will allow them to better manage the emotional stress that comes with volatility. Additionally, investors need to recognize the importance of strategic asset allocation, remaining flexible in the face of rapidly shifting markets, and thoughtfully rebalancing portfolios during periods of market stress.

Mike Sullivan, CFA is managing director and regional investment manager, Western U.S. of Harris Private Bank, a member of BMO Financial Group. The firm offers a comprehensive range of wealth management services for high-net-worth individuals and families. Offices in Arizona are located in Scottsdale, Phoenix, Carefree and Tucson. Learn more at harrisprivatebank.com. Harris Private Bank is a trade name used by various subsidiary financial service providers of BMO Financial Corp. Not all products and services are available in every state and/or location.
Attracting Investors

How Can You Make Your Business More Appealing To Potential Investors?

The reality is more and more companies are competing for a limited supply of funding, so much like in the dating scene you want to appear attractive and engaging. Whether your business is seeking financial support from a bank, a private investor or a venture capitalist group, it is crucial that you make the right impression from the onset. When you are approaching bankers for funding, this includes putting together all the necessary documentation for a loan package, but when you are seeking investors the approach is slightly different.

In addition to the financial documents you’ll need to gather, there are other things you can do to make your business more appealing to potential investors.

Update the business plan

The business plan provides detailed descriptions of the way your company works. By developing instructional materials and documenting information on the “how to” for the operation, investors can get a strong sense of the company and how it operates. The creation of a company manual should include everything from detailed major operation information and key vendors to an organizational chart of employees and the small day-to-day tasks.

Gather financial figures

Investors are called investors for a reason. They are looking to invest their money in a business, not just give it away. Business owners need to make sure all financial information is up-to-date and ready share. This includes current and projected sales figures as well as what the company expects to need for operating costs and marketing.

Understand your financials

Just having the financial information isn’t enough. Be prepared to justify and explain where every penny comes from and where it goes. Investors will want to know what their investment will be going toward.

Reasonable compensation

Make sure the owner’s salary and compensation is reasonable. If the salary is too low, the investor will be concerned that a replacement will cause a serious cash flow issue. If the salary is too high, the investor will feel they are funding the owner’s lifestyle. This also goes hand-in-hand with making sure that you have the most competitive price for goods and services you are buying. You don’t want to overpay for goods that can be negotiated for a lower price.

Create a marketing plan

More often than not, simply opening the doors to your business does not drive traffic. A marketing plan will show how you plan on increasing awareness and traffic to your business. For the marketing plan, you’ll need to describe what you’re doing and the results, as well as the return on investment.

Develop a strong team

Most investors will want to meet with the key players at any organization. They will be looking to see that the management and key employees are professional, qualified and the right person for the job. This is also the time when the potential investor will get a real feel for the company, the flow of communication and the chemistry between the potential investor and the employees.

Beware of online profiles and posts

Investors will do a thorough due diligence of the owners and the key players. With the technology available, that also means researching the company on social media sites. Make sure that your company Facebook and Twitter pages are active and engaging toward the individual audiences. It is equally as important to look at the personal profiles of owners and employees. This may mean deleting inappropriate posts and comments or adjusting the privacy settings.

Go into the transaction with a realistic value of the company

If you undervalue, you will give up too much of the company for nothing. If you over value the company it can kill the deal. Hire an expert to get a real valuation — it will be worth the money spent.

Partnering with investors can be a great way to give your company the financial boost it needs. For many small companies, it may also be the best alternative to helping the business develop and succeed. Like any relationship, finding the right investor for your company can be challenging, but the better prepared you are, the greater chance for finding the best match.

For more information on how to make your business more appealing to potential investors, visit fswfunding.com.

Reaching Requirement Goals

Reaching Your Retirement Goal Requires Commitment

When it comes to investing, retirement planning, or tracking our markets, we rely on the media to get our information. It may be from the newspaper, television, magazines, the Internet, or our cell phones. Either way, we learn a lot about what to do and what not to do about investing from the media. We must remember that the information can work for us or against us depending on how we apply it. Now, how does this relate to reaching our financial goals? Knowing some of the key elements that help reach financial goals is critical. The value of time, the commitment to save, and understanding what you invest in are a few of these critical elements.

Understanding these elements will help the everyday person read through some of the information from the media and apply it to their situation. For example, many investors may spend countless hours researching a product or investment but not consider the value of time in an investment. The future value of an investment, compounding at a given return, is powerful, but factoring in the concept of time can make a huge difference in one’s nest egg. In other words, if one were to start investing the same dollar amount every year at the age of 21 rather than 35, the value of that investment may differ by the hundreds. Most of the media information we see does not account for the value of time for investing — only the investment and what trend is in place NOW!

Saving for the future is dependent on so many factors. Many of us forget that understanding our behaviors is important as it applies to our finances. The commitment of saving is the first step and is usually the hardest. For some of us, taking the actions to execute a commitment is challenging and requires others to help. A great example of this is when employers automatically sign up their employees to participate in their retirement plan. Studies have shown that when the employers take this approach they had much higher participation even when employees were given the options to opt-out. (Source: “Behavioral Economics” by Sendhil Mullainathan, MIT & NBER and Richard Thaler, University of Chicago and NBER).  Planning and committing to saving can be a complex decision, many of us avoid making this decision and committing to it.

Once we have committed to saving, we must consider our investment strategies. It varies among several factors. These factors are risk tolerance, time horizon, and financial needs for retirement. For this reason, I highly suggest using a financial professional to provide recommendations for investments that are appropriate. In addition, it is imperative to consistently review your accounts and objectives. Although we may have a plan in place, our world, economy and financial situations change, so we must be educated and prepared to make adjustments when needed.