Home Value Psychology

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Home Value Trends in Honolulu

Quarterly Home Value Reports | Zillow Real Estate

Here are the stats for the month of April.

Please let me know if  I can be of any assistance in your marketing efforts.

During April, sales of 256 single-family homes and 384 condominiums were reported through the Board’s MLS, decreases of 25.1 percent for single-family homes and 27.1 percent for condominiums, compared to the same month last year. This brings total single family home sales on Oahu to 929 for the first four months of 2008, a decrease of 23.0 percent over the same time period one year ago. Total condominium sales through April were 1,421, a 24.7 percent decrease from last year. The median prices paid for Oahu properties in the first four months of 2008 were $625,000 and $329,000, respectively, a decrease of 0.8 percent for single-family homes from the same time period in 2007 and an increase of 2.2 percent for condominiums. The total dollar sales volume generated in the housing market for the first four months of this year was $1.311 billion, a decrease of 21.2 percent, or $352 million, compared to the $1.663 billion produced one year ago.

There is 3.9% decrease in Single Family Homes Median Sales Price from last year, while a 0.6% increase in
Condominium Median Sales Price in April 2008 compared to the same month last year.

There is a 25.1% decrease in Single Family Homes Sales Volume from last year; and, a 27.1% decrease in Condominium Sales Volume in April 2008 compared to the same month last year.

“Median prices are holding pretty firm in the current Oahu housing market, at $639,000 and $327,000, in April,” sad Dana Chandler, President of the Honolulu Board of REALTORS®. “This contrasts with the significant losses of home values in Mainland cities tied mostly to the continuing credit crunch. We continue to be fortunate that this is still a stable environment for both buyers and sellers.”

“April’s data shows that there is enough demand, albeit lower than last year, to maintain our residential price levels,” added Harvey Shapiro, Research Economist at the Board of REALTORS®. “The U.S. Federal Reserve cut overnight interest rates this week by only 25 basis points, but this is seen as a positive move for the housing industry.”

*Source: The Honolulu Board of REALTORS®

Honolulu second lowest nationally in foreclosures

Honolulu had the second-lowest foreclosure rate of the 100 largest metropolitan areas in the first quarter of 2008, according to a survey by the real estate firm RealtyTrac.

There were 155 foreclosures in Honolulu during the first quarter of this year, or one foreclosure for every 2,147 households, RealtyTrac found. Honolulu's first-quarter foreclosure rate was a 1.31 percent increase over the fourth quarter of 2007 and a 51.96 percent increase over the first quarter of 2007.

Only the Allentown/Bethlehem/Easton Philadelphia region had a smaller foreclosure footprint, at one foreclosure for 12,328 households, according to the company, an online marketplace for foreclosure properties.

The worst metropolitan area for foreclosures was Stockton, Calif., where there were 7,560 foreclosures, or one for every 30 households. It was followed by Riverside/ San Bernardino, Calif., and Las Vegas.

Nationally, RealtyTrac reported that 649,917 properties were foreclosed on during the first quarter, which represented a 23 percent increase from the previous quarter and a 112 percent increase from the first quarter of 2007.

The report indicates that one in every 194 U.S. households received a foreclosure filing during the quarter.

"Foreclosure activity in the first quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation's 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures," said James J. Saccacio, chief executive officer of RealtyTrac.

By state, Hawaii's foreclosure rate ranked 44th, similar to its recent rankings in RealtyTrac's monthly data. Hawaii had 371 foreclosures during the quarter, or one for every 1,348 households, the company said.

Nevada, California, Arizona, Colorado and Florida posted the top state foreclosure rates during the first quarter.

Honolulu second lowest nationally in foreclosures | starbulletin.com | Business | /2008/04/29/

I am pleased to announce the arrival of Luxury Home Magazine of Hawaii™ Luxury Home Magazine will showcase the most prestigious homes Hawaii has to offer. Its large format and high quality are designed to give you the greatest exposure to your potential clientele. This publication conveys an aura of sophistication and class equal to the homes it represents. Pacific Luxury Living™ is printed in the center of each Luxury Home Magazine™. This portion highlights various aspects of Hawaiian luxury living in our area. These products and services are a lifestyle compliment to the exceptional properties found in the book. Luxury Home Magazine™ is published six times annually and is delivered directly to the target clientele for your advertised homes. It will also be found in select upscale venues and distributed to the top tiered real estate offices. Because so many people find it a pleasure to read, the magazine is also available for purchase via our web site.

Between 2000 and mid-2007, the median home price soared 64.9% to $229,200. The median income, meantime, rose just 16.6%. For would-be buyers, the math doesn't work.

One of the worst things about today's real estate market is that there doesn't seem to be any silver lining in that big black cloud.

Normally, you'd think dramatically falling prices would make homeownership possible for more moderate-income families.

But even with homes more affordable, the median price in many markets is still out of reach for a median-income family, according to "Paycheck to Paycheck: Wages and the Cost of Housing in America," a study by the Center for Housing Policy, or CHP, in Washington, D.C.

Comparing housing costs in 210 metropolitan areas with the wages earned by workers in 60 occupations, the study found that homeownership is often unaffordable for workers in each of the five-fastest growing occupations -- registered nurses, retail salespeople, customer-service representatives, food-preparation workers and office clerks. Registered nurses, who typically have high salaries, were unable to purchase a median-priced home in 108 of the markets.

"Even with the housing downturn, the drop in prices still just isn't enough for many workers in traditional backbone occupations to afford houses," says Rebecca Cohen, a CHP research associate.

In many parts of the country, housing increases have outpaced wage growth for almost a decade. Census data released in 2006 revealed that between 2000 and 2005, the burden of housing costs grew sharply.

The Housing Affordability Index measures the cost of housing against median family income. The National Association of Realtors, or NAR, which calculates the index, considers that the typical family makes enough money to buy the typical used home, assuming a 20% down payment and a traditional 30-year mortgage.

In 2000, the NAR pegged the index at 129.2, meaning the typical family had 129% of the income necessary to pay for the typical used house. That figure dropped to 104.9 in June 2007, even though the 2000 median family income of $50,732 rose to $59,157 during the period.

That's because the median price of a home in 2000 was $139,000, but by June 2007 prices peaked at a whopping $229,200. In those seven years, the median price of homes increased 64.9%, while median incomes rose just 16.6%.

Average Joe still can't afford a home - MSN Money

Key Changes in This Forecast from the authors: We have downgraded our forecast for 2008 U.S. real GDP growth by a full percentage point to 1.2%. The U.S. economy is now in recession. Our 2008 forecast for visitor arrivals growth has been reduced from 0.3% to -1.9%, because of weaker U.S. economic conditions and the exit of the Pride of Aloha. Visitor arrivals recovery will not begin until 2010. We have reduced our forecast for 2008 real income growth from 1.9% to 0.3%. We now expect zero growth for payroll jobs this year and a 0.4% contraction in employment.

The Hawaii economy that powered its way through much of this decade slowed to a standstill in 2007. The drag from a weakening visitor industry and an unwinding construction cycle spread to the broader economy. A U.S. recession is now underway. The mainland slump, national credit market problems, and soft local fundamentals mean there will be little growth in Hawai'i for the next two years. Some sectors will see net job losses. Moderate growth is not expected to resume until 2010.

• The U.S. economy has slowed dramatically since the middle of last year and is now in recession. Output growth will be negative for the first part of the year before a modest recovery begins. Real GDP will expand by only 1.2% in 2008, before strengthening to 2.6% in 2009. Employment growth will be flat this year, with very limited growth in 2009; this will cause the unemployment rate to rise to 5.5% by next year. This forecast implies a relatively mild recession by historical standards, but with a similarly restrained pace of economic recovery.

• Japan's economy has struggled to regain strength since passing through a very slow period mid-year. We expect a continuation of growth for the Japanese economy, but at unspectacular rates. Real GDP will expand by 1.9% in 2008 and 2009. Because of projected declines in the labor force as population aging intensifies, output growth will decelerate thereafter. The U.S. recession represents a downside risk for Japan.

• The Hawai'i tourism industry turned down in 2007, with losses in both U.S. and Japanese markets. We expect an even weaker year in 2008. The departure of two of three NCL cruise ships by May 2008 will cause a noticeable drop in visitor arrivals. Extremely weak conditions in the U.S., particularly in California, will contribute to further visitor losses. We do not expect a return to positive visitor arrivals until 2010. Visitor arrivals by air will fall 1.9% this year, visitor days by a similar 2.1%. Arrivals are expected to be flat in 2009 and return to moderate growth in 2010.

• Overall visitor spending was flat in nominal terms last year and down significantly in real (inflation-adjusted) terms. Expenditure weakness will continue, in part because of the decline in visitor days but also because of high fuel costs, stagnant mainland jobs and income and reduced household wealth. Expenditures are expected to expand by 0.2% in nominal terms this year, or -3.9% in constant dollars.

• The Hawai'i labor market softened considerably last year. Because of continuing construction slowing and very weak external conditions, we expect job and employment growth to remain very anemic for the next several years. Non-farm payroll job growth will be flat this year and expand by 0.7% next year, before recovering to the roughly 1% level consistent with normal growth. Employment, which has already contracted over the past year, will decline in 2008 and will not see any significant growth until 2010. The annual unemployment rate will rise to 3.5% this year and 3.9% in 2009.

• Coming off the recent period of broad-based growth, some sectors will see small net job losses over the next few years and most will see much slower growth than in recent history. Trade, transportation & utilities, finance, insurance & real estate, and the accommodations & food service sectors will all lose jobs in 2008. The only areas for which we expect moderate job growth over the next three years are health care & social assistance and the broad "other services" category.

• Compared with the national cycle, construction in Hawai'i has remained relatively healthy and is likely to experience a fairly soft landing over the next several years. We expect construction jobs to top out this year and experience only modest job losses over the next few years.

• The gradual retreat of Honolulu inflation from 5.8% in 2006 to 4.9% last year will continue. We expect 4.3% inflation in 2008 slowing to 2.5% in 2009. The housing cost component will decline in importance during this time period, allowing the rate of inflation to fall toward trend. This year, inflation will continue to be relatively high because of the recent sharp spike in oil prices and high food prices which will take some time to recede.

• The recent inflation surge and the gradual slowing of nominal income growth created an abrupt slowing of real (inflation-adjusted) income. Real income managed less than 1% growth in 2006, and we estimate that real income growth for 2007 was 1.3%. Because of labor market weakness, we expect only a minimal 0.3% expansion of real income this year. The federal tax rebates due to arrive in May will help keep 2008 real income above the water line and support a modest recovery of growth in 2009.

• Heading into challenging economic times, Hawai'i can take comfort in a healthier construction sector than the U.S. as a whole, the stabilizing influence of a large military, and limited direct exposure to the sub-prime mortgage crisis. On the down side, the visitor industry is extremely vulnerable to surging energy prices and the possibility of a sharper drop in American travel spending, depending on the length and depth of the mainland recession and credit crunch.

Hawaii Reporter

Hawaii hits Top 10 list of income

State’s personal income remains steady

Hawaii's per-capita income growth rate remained steady last year, but nonetheless rose into the top 10 states, according to preliminary statistics from the U.S. Bureau of Economic Analysis.

Hawaii was No. 10 in the U.S., with a per capita income growth rate of 6.0 percent, behind Iowa, Massachusetts and Utah.

Louisiana's per capita income growth rate topped the nation at 9.2 percent, due to a boost by government subsidies in the wake of Hurricane Katrina. New York ranked second, with a per capita income growth rate of 7.6 percent, followed by Mississippi, at 6.7 percent.

Nationally, U.S. personal income grew 6.2 percent in 2007, down from 6.7 percent in 2006. Personal income on average has grown 6.2 percent in the last four years.

That was well ahead of inflation nationwide, which slowed to 2.6 percent in 2007 from 2.8 percent in 2006, according to separate data from the U.S. Bureau of Labor Statistics.

Although inflation in Honolulu also declined, it remained much higher than the national average: 4.8 percent in 2007, versus 5.9 percent in 2006.

Hawaii has risen in the ranking of personal income growth due to the poorer performance of other states in the U.S.

The year before last, Hawaii did not rank among the top 10 states with the highest per capita income growth, even though its rate was the same at 6.0 percent. In 2006, Hawaii ranked No. 13.

The No. 10 rank in 2006 went to Vermont, which recorded a 6.2 percent growth rate. Vermont in 2007 fell to No. 25, with a growth rate of 5.2 percent

Hawaii did not rank among the top nor bottom 10 states for per capita income in 2007, which has remained consistent from 2006.

Connecticut last year led the nation with a per capita income of $54,117, which is 40 percent above the national average. Mississippi had the lowest per capita income of all states, at $28,845, which is 25 percent below the national average.

Nationally, professional services, health care, government and finance contributed the most to personal income growth in both 2006 and 2007. Construction remained flat, however, while real estate earnings declined 2 percent in 2007.

Personal income is defined by the BEA as income received by all persons from all sources, including the sum of net earnings (wages and salary disbursements), place of residence, rental income, personal dividend income, personal interest income and personal current transfer receipts.

Hawaii hits Top 10 list of income | starbulletin.com | Business | /2008/03/27/

It can get even more complicated

FBI — House Stealing - Press Room - Headline Archives 03-25-08

HOUSE STEALING

The Latest Scam on the Block

What do you get when you combine two popular rackets these days—identity theft and mortgage fraud? A totally new kind of crime: house stealing. 

Here’s how it generally works:
… The con artists start by picking out a house to steal—say, YOURS. 
… Next, they assume your identity—getting a hold of your name and personal information (easy enough to do off the Internet) and using that to create fake IDs, social security cards, etc. 
… Then, they go to an office supply store and purchase forms that transfer property. 
… After forging your signature and using the fake IDs, they file these deeds with the proper authorities, and lo and behold, your house is now THEIRS. 

There are some variations on this theme…
… Con artists look for a vacant house—say, a vacation home or rental property—and do a little research to find out who owns it. Then, they steal the owner’s identity, go through the same process of transferring the deed, put the empty house on the market, and pocket the profits. 
… Or, the fraudsters steal a house a family is still living in…find a buyer (someone, say, who is satisfied with a few online photos)…and sell the house without the family even knowing. In fact, the rightful owners continue right on paying the mortgage for a house they no longer own. 

It can get even more complicated than this, as we learned in a recent case out of Los Angeles that we investigated with the IRS. Last year, a real estate business owner in southeast Los Angeles pled guilty to leading a scam that defrauded more than 100 homeowners and lenders out of some $12 million. She promised to help struggling homeowners pay their mortgages by refinancing their loans. Instead, she and her partners in crime used stolen identities or “straw buyers” (people who are paid for the illegal use of their personal information) to purchase these homes. They then pocketed the money they borrowed but never made any mortgage payments. In the process, the true owners lost the title to their homes and the banks were out the money they had loaned to fake buyers. 

So how can prevent your house from getting stolen? Not easily, we’re sorry to say. The best you can do at this point is to stay vigilant. A few suggestions:

• If you receive a payment book or information from a mortgage company that’s not yours, whether your name is on the envelope or not, don’t just throw it away. Open it, figure out what it says, and follow up with the company that sent it.
• From time to time, it’s also a good idea to check all information pertaining to your house through your county’s deeds office. If you see any paperwork you don’t recognize or any signature that is not yours, look into it. 

House-stealing is not too common at this point, but we’re keeping an eye out for any major cases or developing trends. Please contact us or your local police if you think you’ve been victimized.

Resources:
- Los Angeles investigation press release
- Mortgage Fraud: General overview and statistics
- Related story

FBI — House Stealing - Press Room - Headline Archives 03-25-08

10. Washington-Arlington

-Alexandria

Median home price: $366,583

Foreclosure savings: $56,858

Foreclosure rate: 1.16%

Price change 2006-2007: 0.77%

 

9. Indianapolis, Ind.

Median home price: $112,109

Foreclosure savings: $6,695

Foreclosure rate: 2.01%

Price change 2006-2007: -0.07%

 

8. Seattle, Wash.

Median home price: $372,295

Foreclosure savings: $46,103

Foreclosure rate: 0.47%

Price change 2006-2007: 7.4%

 

7. Knoxville, Tenn.

Median home price: $125,150

Foreclosure savings: $30,696

Foreclosure rate: 0.6%

Price change 2006-2007: 3.43%

6. Albuquerque, N.M.

Median home price: $185,289

Foreclosure savings: $13,210

Foreclosure rate: 0.65%

Price change 2006-2007: 7.91%

 

5. San Antonio, Texas

Median home price: $143,545

Foreclosure savings: $9,370

Foreclosure rate: 1.06%

Price change 2006-2007: 8.24%

 

4. Oklahoma City, Okla.

Median home price: $97,856

Foreclosure savings: $34,099

Foreclosure rate: 0.8%

Price change 2006-2007: 6.4%

 

3. Nashville, Tenn.

Median home price: $139,587

Foreclosure savings: $42,145

Foreclosure rate: 0.86%

Price change 2006-2007: 3.88%

 

2. Raleigh, N.C.

Median home price: $192,474

Foreclosure savings: $35,726

Foreclosure rate: 0.98%

Price change 2006-2007: 7.73%

 

1. Charlotte, N.C.

Median home price: $147,299

Foreclosure savings: $56,874

Foreclosure rate: 1.44%

Price change 2006-2007: 7.24%

In Depth: Best Places To Buy Foreclosed Homes - Forbes.com

93 Whole Ownership Suites Sold at Average Price of $1.9 Million
LAHAINA, Hawaii, March 17 /PRNewswire/ -- S&P Destination Properties, a world leader in the resort and luxury real estate business, sold $176 Million of high-end Residential Suites at The Ritz-Carlton, Kapalua on Saturday, March 15, 2008. A total of 93 of the 107 one- and two-bedroom whole-ownership suites within a wing of the newly transformed Ritz-Carlton, Kapalua hotel were sold at an average price of $1.9 million.
The Presidential Suite was purchased by a Japanese buyer for $6.4 million, a record-breaking price for the area. Confirming a heightened interest in the Hawaii real estate market, 40% of the purchasers were international buyers coming from Japan, Western Canada, and Europe. The remaining were from Hawaii, California, and other U.S. states.

Live Search: $176 Million in Luxury Real Estate Sold in the Initial Release of the Residential Suites at The Ritz-Carlton, Kapalua

Marco Island, Fla. $1.05 million

No market is fully immune to foreclosures. Even affluent neighborhoods of Rancho Santa Fe, Calif., and Closter, N.J., are seeing foreclosure notices on front lawns. Whether it's because homeowners were stuck in a negative equity situation, or took out a bad loan, there are plenty of luxury homes on the market ripe for the picking. Listings were gathered from RealtyTrac and REOTrans, two firms specializing in foreclosure and real estate owned properties. Here is a sampling of our choices.

Rancho Santa Fe, Calif. $3.1 million

A suburb of San Diego, Rancho Santa Fe is one of the nation's most affluent communities. This two-story home, with seven bedrooms and 10 bathrooms, on almost two acres, is surrounded by palm trees, patios and a fountain, and has a detached two- bedroom guest house. It is listed by Prudential California Realty.

Annandale, Va.  $1.06 million

Just inside the Beltway, Annandale is an interior suburb of Washington D.C., not far from Arlington or Alexandria. This red-brick, four-bedroom, three-and-a-half bathroom home has 5,000 square feet of floor space, a sloping backyard that runs into the tree line and a three-car garage. It is listed through Weichert Realtors.

In Pictures: Where To Find Million-Dollar Foreclosures - Forbes.com

Tourism Downturn Creates Hawaii Real Estate and Hawaii Vacation Rentals Deals

Hawaii has been a hot destination for the last four years, with tourism increases averaging between 5% and 8% each year. In the last 12 months however that tide has seemed to be turning, notes Tori Milan, Editor of DestinationVillas.com. “The departure of NCL’s Pride of Hawaii and Pride of Aloha is a very visible indicator that tourism is down in the Hawaiian Islands. Kauai, Maui, Oahu and The Big Island all report tourism down by 3%. The real estate market has also been sluggish and prices have leveled off and even plummeted in some locations.”

For vacation homebuyers, now is a great time to buy real estate in Hawaii. Prices have plummeted back to 2001 lows due to overdevelopment and speculators wanting to unload properties they had intended to flip. Have a question about the Hawaii real estate market? Ask our resident editor, Tori Milan at editor@destinationvillas.com. Owners looking to increase vacation rental income might want to look into the free vacation rental directory and services on DestinationVillas.

Hawaii Vacations. Deal or No Deal?

Hawaii's low rate of foreclosures and its stable mortgage industry suggest the state won't experience a "real estate meltdown" like on the Mainland. The State of Real Estate, released Tuesday, said Hawaii is somewhat insulated from housing troubles. The median price of an Oahu home closing in 2007 was $645,000.  The report noted the limited supply of land, universal appeal as a place to own a second home, steady influx of military personnel with housing allowances and tight mortgage lending laws have protected Hawaii from the mortgage crisis. "Currently, Hawaii has the lowest mortgage delinquency and default frequency in the U.S.," said Bank of Hawaii chief economist Paul Brewbaker. "While home sales in Hawaii have been declining since the end of 2004, home values across the Hawaiian Islands have remained more stable than mainland counterparts."

Report: Hawaii real estate won't melt down - Pacific Business News (Honolulu):

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During February, sales of 163 single-family homes and 321 condominiums were reported through the Board’s MLS, decreases of 40.1 percent for single-family homes and 20.1 percent for condominiums, compared to the same month last year. This brings total single-family home sales on Oahu to 391 for the first two months of 2008, a decrease of 26.9 percent over the same time period one year ago. Total condominium sales through February were 645, a 21.3 percent decrease from last year. The median prices paid for Oahu properties were $599,000 and $335,000, respectively, a decrease of 2.5 percent for single-family homes from the February 2007 price and an increase of 4.7 percent for condominiums. The total dollar sales volume generated in the housing market for the first two months of the year was $598.5 million, a decrease of 17.0 percent, or $122.4 million, compared to the $720.9 million produced one year ago.

There is 2.5% decrease in Single Family Homes Median Sales Price from last year, while a 4.7% increase in Condominium Median Sales Price in February 2008 compared to the same month last year.

There is a 40.1% decrease in Single Family Homes Sales Volume from last year; and, a 22.1% decrease in Condominium Sales Volume in February 2008 compared to the same month last year.

"While everything has slowed – from the number of new listings being put on the market to the quantity of sales transactions and even the number of properties going into escrow – the inventory hasn’t ballooned like in past post-boom periods and this should be taken as a positive sign," said Dana Chandler, President of the Honolulu Board of REALTORS®.

"The median sales price for Honolulu single-family homes dipped below the $600,000 mark for the first time in almost three years, but the condominium price tied its all-time record high," added Harvey Shapiro, Research Economist at the Board of REALTORS®. "The prices being paid demonstrate the stability of our residential markets compared to the downturn in the housing markets on the Mainland."

Source: Honolulu Board of Realtors

Jeff H. Hassannia bought his first investment property when he was 18: a tiny $50,000 two-bedroom house outside of Portland, Ore. That investment led to a lucrative side career as a landlord. Over the next 15 years Hassannia, who is also an engineer, bought and sold six homes, ending up with a $1.2 million portfolio.

But three years ago Hassannia noticed housing prices were going up faster than rental income. His call was a bit early, but his instinct was right: This was trouble. "I decided to get out," he says.

Not out of real estate, just the housing end of it. He moved into the commercial market. Hassannia put $227,000 down on a $650,000 2.3-acre junkyard in Redmond, Ore. that had an auto-wrecking shop on the property. While this might not be a glamorous holding, his tenant faithfully sends him a check each month for $3,500, more than enough to cover his mortgage. The land is in a growing part of Redmond; a Wal-Mart (nyse: WMT - news - people ) just opened a few blocks away and a Home Depot (nyse: HD - news - people ) is slated to open soon.

His property is zoned commercial, so he can develop an office or classier building, in keeping with the upgraded surroundings. When the junkyard's lease is up next year he can decide whether to renew it at a higher rent or to sell the land to a developer.

Last year Hassannia, 37, ditched his final residential property, a condo in Los Angeles. His portfolio now consists of five commercial properties worth $5 million.

Commercial real estate falls into different segments with their own demands and economics. For individuals the most popular assets are apartments, small offices, strip malls and warehouses. So far the real estate crash hasn't been felt in commercial property. And 2007 appears to show only a slight deceleration in commercial rent increases from 2006.

Apartments, where the pace of increases is in line to slacken from 5% to 4%, have benefited from still high home prices and tightening mortgage-lending standards. Offices (up a percentage point to 10%) have seen continued robust demand for space thus far. Shopping centers, which play host to day-to-day necessities--drugstores, hair salons, laundries--are down 0.5%. (The big malls, owned by powerful players like real estate investment trusts, are finding meager advances in same-store sales at their department stores and boutiques.) Warehouses, their growth pace off only half a point to 4%, are still much in demand.

Over the past 12 months commercial real estate has returned an average 13% (property appreciation plus rental income), says commercial brokerage house Marcus & Millichap. That bests the 8.4% total return from the S&P 500 and far outstrips the circa 3% return on single-family homes, which are falling in price but provide rental value to homeowners.

Commercial property can get killed in a recession (who knows when that's coming) but over the long haul rewards owners with appreciation in line with the standard 5% annual growth in rental income. Net income (rent after expenses) should run at least 6.5% of a property's value.

Regardless of the megatrends, Harvey E. Green, chief executive of Marcus & Millichap, notes that ways always exist to wring better returns from a property. You can improve building management to stop waste, sign up higher-paying tenants and renovate to attract more of them.

As with the residential market, credit for buying commercial property has tightened. Gone are the days of interest-only mortgages. You'll have to put down 30% of the cost of the building and amortize your loan. A high down payment could be a blessing in disguise; it reduces the risk that you'll run up a loss that can't be deducted on your tax return because of antishelter legislation.

GOING IT ALONE

Former mechanic Charles Jones owns six commercial properties around Louisville, Ky., including an 11,000-square-foot self-storage center and a small metalworking factory. Last year one of his tenants, who ran a small grocery store, sent him the keys and a note saying he could no longer run the place. In order to keep money coming in, Jones stepped in to run the store himself while he looked for another tenant. He figured the store would lease out more easily if occupied.

The point: Being a commercial landlord can be as much of a headache as running any other business. Be prepared.

Be prepared, especially, to spend a lot of time looking for an investment and checking it out. Is the tenant in financial straits? Is there chemical waste under the parking lot? Is the zoning about to change in a way that would wreck your resale value?

Don't be too avid to do a so-called Section 1031 exchange, a swap of one investment property for another that enables you to postpone the capital gain tax on the property you're giving up. This would be a fine idea except for five things: 1) Middlemen's fees can eat up a chunk of the supposed tax saving. Remember, the tax you owe is only on your profit from the first property, while the fees are going to be a percentage of the whole transaction. 2) You're not avoiding tax, only deferring it. 3) The federal rate on most of your appreciation is only 15% now. When you pay tax down the road the rate is probably going to be higher. 4) The tight deadlines written into the tax rules may induce you to overpay for the new property. 5) Some 1031 escrow agents lose the money entrusted to them.

All that said, the tax-deferred swap could make sense if you have a single investment property that you want to trade in for a diversified pool and you like the people running the pool.

GOING WITH A GROUP

You can form a pool of buyers with people you know. David Rifkind, a managing director at real estate financier George Smith Partners, says that in addition to thinking about all the financial risks inherent in a real estate deal, you also have to think about the personality risks. "Make sure you're investing with people you know and trust and that everyone's interests are aligned," says Rifkind. A perfect partnership debate: Should you pay for a costly new boiler this winter, or wait and risk the old one breaking down?

You may want to buy into a professionally managed pool, whose managers collect fees for buying, managing and selling. Some pools are limited partnerships, some are "tenancies in common."

Partnerships tend to be illiquid; if you want to sell your share you need the consent of a managing partner. (The partnership agreement spells out an exit strategy for heirs of dead partners.) If the partnership is professionally run it is called a syndicated deal. Brian Shirken, head of Columbus Pacific Properties, says that upfront fees should be low (less than 2%) and that a reputable syndicator will have his own money in the investment and collect his profit on the back end.

Tenancies in common are to partnerships roughly what apartment condos are to apartment co-ops. That is, fellow TIC investors have less say in how you dispose of your unit. But still, if you want out before the agreed termination date you have to find a buyer. TICs normally last only five to ten years. If you go with a TIC, protect yourself by holding it through a limited liability corporation you control.

There are plenty of companies that manage large TICs, such as Fort Properties out of Los Angeles, which has $415 million in properties under management. If you are planning to sell an investment property, you can swap your way into a Fort Properties pool via Section 1031. The minimum investment at Fort is usually $500,000.

TIC funds come with steep fees. Fort Properties marks up the equity shares it sells by 10%. It doesn't manage the properties; it farms out that work and bills the investors. Typical fee for finding tenants, keeping the gardens trimmed and hiring repairmen for the elevators: 3% of the rent.

The most hands-off way to invest in commercial real estate is through a publicly traded real estate investment trust, where the shares are totally liquid and pay a dividend. So far this year reit total returns are a negative 3.5%. Still, they pay an average dividend yield of 4% and tend to keep up with the stock market over long periods. And a REIT will never send you the keys to the business in the mail.

If you want to be a commercial landlord, ask yourself:

--Do you want to invest on your own or in a group?

--How much work do you want to put into your property?

--Is a 1031 exchange worthwhile, or will the delayed tax benefits be eaten up by fees?

--Would you make more money buying a publicly traded REIT?

Going Commercial - Forbes.com

No. 1: San Jose, Calif.

Median Price: $720,000
Estimated New Limit: $729,750
Homes Affected: 54.3%

San Jose is one of the few markets that hasn't dramatically softened since the housing downturn began. Still, the stimulus package should significantly increase sales, as more than half of homes in the metro area will be eligible for Fannie and Freddie securitization, something that will reduce interest rates for home owners.

No. 2: San Francisco, Calif.

Median Price: $680,000
Estimated New Limit: $729,750
Homes Affected: 44.1%

The housing market in San Francisco, like that of its neighbor San Jose, hasn't significantly softened. In the City by the Bay, the loan limit boost should make credit cheaper for consumers and less risky for lenders.

No. 3: Los Angeles, Calif.

Median Price: $560,000
Estimated New Limit: $700,000
Homes Affected: 32.5%

The L.A. metro, which includes many overdeveloped outlying suburbs, is expected to benefit greatly from the increased loan limits. The market has been stagnant for months and foreclosures continue to mount. Almost a third of homes will be eligible for Fannie and Freddie securitization, which could provide much needed liquidity.

No. 4: San Diego, Calif.

Median Price: $470,000
Estimated New Limit: $587,500
Homes Affected: 18.4%

There hasn't been a lot of good news in the San Diego market lately, but home sale volume increased in December, in seasonally adjusted terms. If this trend continues, it could, in conjunction with the stimulus package, help hasten the recovery process.

No. 5: New York, N.Y.

Median Price: $465,000
Estimated New Limit: $581,250
Homes Affected: 17.6%

A loan-limit boost to $581,250 isn't going to help the Manhattan housing market much. Instead, the overdeveloped condo market in the outlying boroughs as well as in swaths of Long Island and New Jersey will likely be most affected by the loan-limit boost.

No. 6: Washington, D.C.

Median Price: $409,109
Estimated New Limit: $511,386
Homes Affected: 10.9%

Condominium developments along the Beltway and into the Virginia and Maryland suburbs represent this market's greatest difficulty. Vacancy rates have gone up while sales rates have gone down. The Fannie and Freddie loan limit boost of almost $100,000 could make it easier to sell off inventory.

No. 7: Sacramento, Calif.

Median Price: $360,000
Estimated New Limit: $450,000
Homes Affected: 3.1%

The lack of securitization in Sacramento hasn't been a huge issue. Instead, bad loans, foreclosures, walkaways and overbuilding have done in this metro. The loan limit boost won't be enough to turn the market around, or provide much relief, in Sacramento, but it will help.

No. 8: Seattle, Wash.

Median Price: $354,950
Estimated New Limit: $443,688
Homes Affected: 2.6%

Prices in Seattle have grown over the last two years, but the market has recently flattened out and slowed. This is in part because prices exploded in Seattle during the housing boom, and some buyers are hoping they'll fall to a more affordable level. The loan limit increase should entice a few, but Seattle's transaction volume is expected to be slower than sellers would like.

In Depth: Economic Stimulus' Biggest Real Estate Winners - Forbes.com

When you can no longer stomach the swings of a volatile market, it's best to head to the safety of blue chips. In real estate this often means paying a premium, but it's better than getting stuck with a property that won't appreciate and that you can't sell. To figure out which neighborhoods were blue chips in the 15 biggest American cities, we prepared a study using data from NeighborhoodScout.com, a Rhode Island real estate research firm, to determine which well-established spots have held on to and increased in value over the last 17 years.

New York, N.Y.

Fifth Avenue And 70th Street
Median Home Sale Price: $2.45 million
Price Growth Since 1990: 325%

This section of Manhattan doesn't come as much of a surprise. The Upper East Side nook--which borders Central Park--runs between 70th Street and 76th Street and includes many of New York's most expensive homes. It hasn't appreciated as fast as many other parts of Manhattan or the outer boroughs in the short term, but its price growth has been robust and consistent, and hasn't relied on new development to achieve it.

Chicago, Ill.

Lake Shore Drive And Route 41
Median Home Sale Price: $1.91 million
Price Growth Since 1990: 236%

Most of Chicago's best neighborhoods are situated around Lake Michigan, and like this one, circle Lake Shore Drive. Though the neighborhood is pricey, about 30% of the properties--often smaller homes and apartments--are available for between $340,000 and $670,000. For a market that hasn't seen the same sort of price growth as coastal cities, the 236% climb has "blue chip" written all over it.

Dallas, Texas

University Park
Median Home Sale Price: $898,640
Price Growth Since 1990: 148%

Technically, University Park is a city within the municipality of Dallas, and shares a school system with neighboring city Highland Park. Schools are good, homes are large, parks are plentiful and neighbors have higher incomes than those in the surrounding Dallas area. Translation: It's not shocking that prices are higher and climb more consistently than other neighborhoods in the Big D.

Philadelphia, Penn.

Walnut Street And Third Street
Median Home Sale Price: $914,115
Price Growth Since 1990: 184%

A fairly dense urban area, this section of Philadelphia has experienced some of the fastest price appreciation in the state of Pennsylvania since 1990. Though the median home sale price is almost a million dollars, there's a wide range of housing stock available: Almost 30% of homes go on the market for between $195,000 and $590,000, though many of them are smaller apartments and not the townhouses that can climb over $2 million.

San Francisco, Calif.

El Camino Del Mar And Lake Street
Median Home Sale Price: $2.2 million
Price Growth Since 1990: 282%

This neighborhood along the city’s western edge is often referred to as Sea Cliff, as it looks over the Golden Gate National Recreation Area to the Pacific Ocean and the San Francisco Bay. Definitely one of the pricier neighborhoods in town, many of the townhouses and Spanish-style homes have balconies overlooking the water. It outperformed many prestigious parts of the city, such as neighborhoods in Pacific Heights and the Saint Francis Wood subdivision, by gaining 282% since 1990.

Los Angeles, Calif.

Pacific Palisades
Median Home Sale Price: $3.1 million
Price Growth Since 1990: 440%

By L.A. standards, most of the homes in Pacific Palisades are historic, with the majority of them dating to before 1959. Smack-dab on the ocean, Pacific Palisades lies between Brentwood and Malibu and is bounded to the north by the Santa Monica Mountains. Homes are expensive--even by California standards--but you can't beat the location, which shows up constantly in film and television, or the 17-year, 440% price appreciation.

Houston, Texas

West University Place
Median Home Sale Price: $663,740
Price Growth Since 1990: 194%

West University Place, a smaller city within Houston, originally chose to remain separate from the big city for tax purposes, and has its own city council, postal system and school system. West U. is effectively an urban suburb, and has the feel of a place outside the city limits. In other words, a very desirable place to live. Texas is home to some of the nation's most affordable markets, yet West U. has experienced extremely potent price growth since 1990.

Miami, Fla.

Brickell Avenue And 13th Street
Median Home Sale Price: $623,492
Price Growth Since 1990: 471%

Given the recently bipolar activity in the Miami real estate market, where home values were the fastest to grow and the quickest to fall, it's a great time to evaluate the areas of the city where median home sale prices have remained resilient over time. Parts of Miami Beach are more expensive than the Brickell Avenue area, though often that's the case of recent development. This suggests that new homes, not home appreciation, has driven much of the climb. In terms of long-term performance, a 471% increase in median home price over 17 years is impressive. Like much of the area near the coast, this neighborhood has many luxury apartment buildings overlooking the water.

Phoenix, Ariz.

Village On The Lakes And Taliverde
Median Home Sale Price: $1.01 million
Price Growth Since 1990: 177%

Phoenix is another city which has gone through significant booms and busts since 2000. In such a volatile and fast-growing market, it's important to know which parts of town hold their value over time. In the Valley of the Sun, look no further than the Village on the Lakes/Taliverde section of town, which encompasses the posh Biltmore Estates, one of the city's historic luxury centers. Prices here have climbed 177% since 1990, which looks more impressive in nominal terms, as median prices are now over $1 million.

Washington, D.C.

Rock Creek Parkway And Massachusetts Avenue
Median Home Sale Price: $2.84 million
Price Growth Since 1990: 393%

Starting close to Dupont Circle, this neighborhood spreads as it climbs up Massachusetts Avenue and Embassy Row. On the edge of Rock Creek Park is where you'll find the District's largest and most expensive homes, including the vice-presidential residence at the Naval Observatory. Georgetown row houses are perhaps more famous, but the homes in this tree-lined neighborhood are much larger. While many sections of the District have experienced sharp growth curves in the last five years, the strongest sustained growth came in Northwest neighborhoods like the Rock Creek area.

Atlanta, Ga.

Ponce De Leon Avenue And Oakdale Road
Median Home Sale Price: $703,087
Price Growth Since 1990: 237%

Atlanta may be fast-growing, but because of sprawl, prices remain relatively low and affordable. Still, during the real estate boom, there was a lot of new construction. Now, much of the city finds itself going through a price correction. This neighborhood on the east side of Atlanta, surrounded by parks and golf courses, and not far from the Carter Presidential Library, has grown consistently since 1990, with prices jumping upward 237%

Detroit, Mich.

Grosse Point Park
Median Home Sale Price: $510,578
Price Growth Since 1990: 142%

There is little good news coming out of the Detroit housing market overall, but that's not the case for this bedroom community neighborhood, situated northeast of downtown. Homeowners here have enjoyed strong historic appreciation, with prices moving upward 142% since 1990. The median price point, just over $500,000, is very high for Detroit, and for the state of Michigan in general.

Boston, Mass.

Chelsea Street And Medford Street
Median Home Sale Price: $1.48 million
Price Growth Since 1990: 221%

Located directly on the Boston Inner Harbor, this area of the city has more than a few high rises that take advantage of both city and bay views. Homes are typically smaller--many are apartments--but property values are very high. To get in on the low end of the neighborhood, you'll need about $700,000; prime properties can fetch well over $2 million.

Seattle, Wash.

Laurelhurst
Median Home Sale Price: $1.12 million
Price Growth Since 1990: 216%

Not too far from the University of Washington, and situated on Lake Washington, this neighborhood is home to college students renting smaller homes and local professionals, families and professors with book deals owning the more expensive homes. Seattle prices in many areas have exploded, making Laurelhurst's 216% appreciation since 1990 appear a bit shabby, but the neighborhood has produced a consistent return--not a quick spike, as in many other areas.

Minneapolis, Minn.

Cedar Lake Road And Theodore Wirth Parkway
Median Home Sale Price: $305,290
Price Growth Since 1990: 197%

The Twin Cities have some of the more stable prices in the country, and properties are very affordable to the local population. The only drawback--if you can call it one--is that prices don't often soar upward. That’s not the case in this Minneapolis neighborhood, where there's been very strong price growth since 1990, yet prices are still quite affordable: The mean home sells for $305,290.

In Pictures: Best Blue-Chip Real Estate Investments - Forbes.com