Wednesday, January 3, 2007


I just returned from Christmas vacation in Southern California, where I spent six days bouncing around between Orange County, San Diego and Los Angeles. And while it was good to catch up with family and friends, it's also good to be back in Colorado (except for all this SNOW!).

It seems the topic on everyone's mind "back home" is still the housing market. It's kind of funny, because ten years ago no one talked about housing. You found a house you liked and could afford, you purchased, and then you lived in it.

But during the great housing boom of 1998-2005, as the "wealth effect" of double digit appreciation and serial refinancing (i.e. "equity extraction") began to subsidize the acquisition of Hummers and speed boats, personal chefs and extravagant vacations, real estate became everyone's favorite subject.

And marginally-educated investors became wealthy simply by outbidding the pack for second, third and fourth investment homes... raking in those 18% annualized rates of appeciation.  It's a very different story today - SoCal MLS reports that nearly one-third of the 16,000 homes for sale in Orange County are sitting vacant and overpriced. The California Department of Real Estate reports that there are now over 500,000 real estate licensees in the state, up from 220,000 five years ago. One in eighty Californians has a real estate license, and in Orange County one in 25 households has a licensed real estate agent living in it.

Colleagues of mine predict that up to 30% of all outstanding real estate licenses in California will not be renewed. Agents desperate for business continue to create unrealistic expecations for sellers who want to sell, but who don't have to sell. And when it comes to acquiring investment property, working with MOTIVATED sellers is everything.

In a state where less than 14% of its residents can afford a median priced home, winds of change are blowing in California. The Public Policy Institute of California ( continues to report that California is losing upwards of 250,000 residents a year to out-of-state migration, one of the highest rates in the country.

When it comes to real estate investing, I say "stick with the basics". Find stable markets with motivated sellers and let the combined benefit of appreciation and tax advantages fuel your investment portfolio.