One of the keys to successful real estate investing has always been to buy undervalued property — and avoid anything that’s way overpriced.

Well, now a new study from the international consulting group IHS Global Insight has identified dozens of undervalued metropolitan markets – where household incomes, employment, population density and other factors – could support higher housing prices, but just aren’t doing it at the moment.

Some of the most undervalued markets as of the first quarter of 2009, according to the new study, are formerly high-flying boom-era cities where prices soared and then crashed. They include:

Vero Beach, Florida, where prices are now 42.5 percent below where they “should” be based on the underlying economics. You may recall that a few weeks ago, Realty Times reported on a New York investor, Larry Kestin of Glenmont Capital, who bought a mixed package of new houses and developed lots in Vero Beach for just under $9 million.

At the height of the boom, that same real estate was appraised at $100 million, according to Kestin. So he came away with a bargain basement deal of about nine cents on the dollar in Vero Beach.

Also on the “most undervalued” list – Las Vegas, where today’s $140,000 median house price is down drastically from the $290.000 median of the first quarter of 2006. Global Insight puts Las Vegas’s overall market undervaluation today at 40.9 percent.

• Then there’s Fort Myers/Cape Coral, Florida. Once the hottest spot in the country during the boom for investors snapping up condos, Ft. Myers today is the foreclosure capital of the state. Its $119,000 median price in the first quarter contrasts with the $245,000 median just three years ago.
• Naples Florida, just down the west cost from Ft. Myers, is rated 33 percent undervalued by Global Insight. Its current $200,000 median price is about half of what it was in 2006 — $392,000.
• Reno, Nevada is rated 26 percent undervalued based on its underlying economic fundamentals. Today’s median is $179,000 compared with a roaring $324,500 three years ago.
• Finally, San Francisco, believe it or not, is on sale – undervalued by 25 percent, according to Global Insight researchers. Back in 2006, the median house price in San Francisco topped $811,000. Today it’s “just” $578,000.

Now, not all undervalued markets are boom to bust, high-volatility sorts of places.

High on Global Insight’s list are two big markets that in recent years missed the wild appreciation of the boom, and have only experienced modest price deflation: Houston, which is 36.9 percent undervalued — and Dallas, where median prices are about 32 percent below what the market fundamentals could actually support.

K. Harney

Cathleen Gallagher could have bulldozed the home at 750 Toyopa in the glorious Huntington Palisades (CA) and turned over the rebuild to a “different” kind of builder. She could have hired someone to plan where each room would go, how they would work together to create the home’s flow, and pick all the finishes.

After all, men dominate the home building industry, and when it comes to custom homes, women are but a speck on the builder spectrum. Which is unfortunate, given the fact that, if Gallagher’s home–a magnificent display of smart floorplan choices and exquisite finishes–is any indication (and it is), women make mighty fine custom homebuilders.

“The reality is that the larger-scale builders have invested a lot of money to get a female perspective on their product, usually through the services of an interior designer,” said Tom Weston, president/CEO of Weston/Mason Marketing, a top Los Angeles-based independent advertising agency. “Typically these builders are male, and while very talented and capable of overcoming enormous challenges, they do sometimes overlook some of the realities of building a home that works for today’s family, which means emphasizing the woman’s perspective.

“In the custom market, it’s about anticipating needs at a more personal and detailed level,” he added. “Someone who naturally comes equipped with the female perspective and who also brings the necessary building/planning/designing skills offers a tremendous advantage.” National Association of Home Builders (NAHB) Women’s Council statistics from 2007 show that of the 2.8 million home construction firms in the U.S., only 201,000 of them are owned by women. Yet women play the major role in up to 91 percent of home purchases. It’s not hard to figure out the cavernous void that is being left–one that talented builders like Gallagher can ably fill.

“It’s not only that women make more of the home buying decisions; it’s also that they decide differently,” said Dave Harding, CMP, an NAHB National Sales Manager of the Year and Principal, Western Market Forces. “The single-greatest identifiable group of prospects–indeed constituting a majority of the population–is women. Male builders try to design homes then merchandise them to appeal to that largest demographic. But just as women (and men for that matter) dress for other women, what is more logical than women building for women? Not to exclude men, but to supplement man-think.

“Women are more often heads of state, secretaries of state and practitioners of real estate,” he added. “But, so few are actual builders. Look at the annual reports of the biggest public builders and you’ll see few pictures of women in leadership positions. It’s a huge missed opportunity. Cathleen has a built-in constituency. Her design and execution are superb. Not superb as a woman builder. Superb for a builder.” The Toyopa property was the first that Gallagher built, with seven more to follow in the past five years, and the intensive process she endures remains the same.

“When I look at a property before I buy it, I know what it will look like finished and how it will live,” she said. “I imagine everything from the style of the home to the rooflines to how the individual rooms will look.” Gallagher does all of the preliminary planning herself, and then turns over the plans to her architect for hand drawing. With finished plans in hand, she oversees the build every day on site to ensure that her vision is fully realized.

“The flexibility it would give me as a mom (to two daughters with her commercial director husband) was also important,” she added. “And, I saw there was a need for a woman’s touch, especially among the Pacific Palisades spec builders. In this niche, there were a lot of the same finishes and a pretty consistent lack of individuality. I wanted to bring together a great layout, great functionality, and exceptional style. I asked myself how a house could best function for both a man and a woman to be happy, and then I started designing.”

P. Mosca

Congress took its first step last week on a mission that could totally reshape the American mortgage market.

A House financial services subcommittee held the first hearing on what to do with Fannie Mae and Freddie Mac — the failed, trillion-dollar mortgage giants that are now operating under direct federal control.

The ultimate answers are likely to determine the types of loans and interest rates that home buyers will have in the future. That’s because Fannie and Freddie have dominated the real estate market for decades, writing the rulebook on everything from loan sizes, credit requirements, downpayments and underwriting standards.

Among the idea floated at last week’s Capitol Hill hearing were a “utility” concept, where Fannie and Freddie might be merged into a single, privately-owned, federally-regulated superstore for mortgage money.

The model would be along the lines of the water, power and sewage utilities we see all over the country, but there’d just be one mega-utility to fund mortgages. The utility concept was first proposed last year by former Treasury Secretary Hank Paulson. The Obama Administration has not spoken out publicly on it yet.

Another idea floated at the hearing was to broaden the mortgage menus of whatever agency or agencies replace Fannie and Freddie to include types of mortgages they currently can’t touch — especially jumbo home loans and commercial real estate mortgages.

Frances Martinez Myers, representing the National Association of Realtors, said jumbos and commercial real estate loans are suffering in the credit crunch and need more support. Commercial and investment property owners in particular, said Myers, find themselves unable to refinance because there is neither a private nor public secondary market for their loans at the moment.

The Mortgage Bankers Association came to the hearing with a white paper listing various alternative futures for Fannie and Freddie, including turning them into a government-owned version of the FHA and Ginnie Mae, but targeted on conventional mortgages.

Without endorsing any particular alternative, the MBA also suggested consideration be given to a private “cooperative” model, in which banks and other mortgage industry players would pool their assets and provide secondary market services in addition to mortgage originations.

Under this scenario, the federal government would provide back-up insurance against “catastrophic losses” that exceed the private cooperative’s capital and pledged assets.

Where’s the debate over Fannie and Freddie headed? Look for Congress to hold more exploratory hearings this year. Then, maybe as early as next year if the recession is over and the market is healthier , the Obama administration might begin drafting its preferred solution – which almost certainly will not involve total privatization.

K. Harney

The big economic news for housing this week is all about sales.

Housing sales and pending sales contracts are up, dramatically in some markets, and a rebounding real estate sector could soon start stimulating the broader economy.

Even Federal Reserve Chairman Ben Bernanke told Congress last week that essentially the worst is over, the housing market is stabilizing, and we’re heading out of recession in the second half of the year.

Pending home sales jumped by 6.7 percent in April. That was the third straight month of significant increases, and the highest pending sale total for any month in the past seven years.

In the Northeast, pending sales were up last month by an extraordinary 33 percent. In the Midwest, they rose by just under 10 percent, and the West by two percent. They only declined in the southern region — and that was by just two tenths of one percent.

In a handful of major markets, closed sales also are moving up sharply. In Las Vegas, sales jumped by 36 percent during April – the highest in two years, according to MDA DataQuick researchers.

The flip side of that, of course, is that most of these sales were distressed — foreclosures or sales of bank-owned properties. Fully three quarters of all Las Vegas area sales fit into that category in April.

The median price in Vegas sunk to about $141,000, the lowest since 2001, and that’s 55 percent below the $312,00 cyclical peak hit in June of 2006.

Meanwhile, low prices nationwide, combined with mortgage rates at near-record lows, have pushed the National Association of Realtors’ Affordability Index into record territory.

In April the index hit its second highest market ever, based median household income and the monthly payments needed to buy the median cost home.

On the mortgage front, applications to purchase homes continued to rise last week — up by 4.3 percent — according to the Mortgage Bankers Association.

But here’s a little sobering news: It’s becoming increasingly clear that low mortgage rates are not going to be around forever. Average thirty year fixed rates took their biggest jump in half a year last week on bond market jitters.

The average rate for 30 year fixed topped five and a quarter percent, up from 4.8 percent the week before. And 15 year rates went to 4.8 percent from 4.4 percent.

So, if you are seriously considering getting off the sidelines – now that prices are back to pre-boom levels in some markets and sales are on the upswing, jump in sooner rather than later, if you want the lowest mortgage rates.

More than 18,000 emergency room visits a year are made by Canadian children who have been injured by common household products. To an adult, a chest of drawers is a storage device, but to a child, it can become a staircase to climb – causing the whole chest to tip over. A pull string on a window blind can act like a noose around a child’s neck.

A survey by Safe Kids Canada, a national program of Toronto’s The Hospital for Sick Children, says that 86 per cent of Canadians assume that the household products they buy are safe for the family to use. But this isn’t always the case, says Safe Kids.

“Children are particularly vulnerable to home product-related injuries, often using normally safe products in ways they were never meant to be used,” says Pamela Fuselli, executive director of the association. “Parents and caregivers need to consider how a child sees different products in the home and anticipate how they could be harmful if used improperly.”

For children ages four and younger, the biggest risk is falling from furniture. For example, Safe Kids says between 1990 and 2007, more than 5,400 injuries involving falls from bunk beds were reported in this age group. It says only children over age six should be allowed to use the top bunk, and padded carpeting should be installed under the bed. Other common incidents for the youngest age group include falls from tables, chairs and couches.

Toppling furniture is the number one risk for children ages five to nine. Televisions are one of the biggest hazards, more than 100 children visit the emergency room every year because they have managed to pull a TV onto themselves. Safe kids says television sets should always be kept on low, sturdy furniture and not on dressers. Safety products such as angle-brackets or furniture straps can be used to secure the set.

Water coolers, wall units and bookcases are other pieces of furniture that frequently fall on children.

For kids ages 10 to 14, backyard play equipment poses the biggest risk of injury. While parents can’t build a bubble around kids to keep them safe at all times, and the odd scrape and bump is bound to happen to active kids, there are some things that can be done to help minimize playground accidents. The equipment should be surrounded by a deep, soft surface such as wood chips or sand to help cushion a fall. In cool weather, kids should not be wearing clothing with drawstrings, since they could be caught in the equipment and cause strangulation. Scarves should be tucked into clothing.

Trampolines have become popular in backyards in recent years, but Safe Kids says that even with adult supervision and “spotters,” the risk of injury is too great. It says it agrees with the Canadian Pediatric Society and the Canadian Academy of Sports Medicine that parents should not use or buy trampolines at home for children and youth.

The survey also showed that almost half of Canadians rely on the media to keep them informed about product recalls. However, Health Canada reported at least 82 separate product recalls in 2007, far too many for the news media to cover.

Already this year, there have been product recalls for playpens, bicycles, toy beach chairs, charm bracelets, children’s sleepwear, waffle makers, hair care products and much more. Some of the items are recalled because they don’t meet safety regulations, some don’t have correct labeling, and some are downright scary. Some recalled bicycles, for example, have a suspension fork that “can lose alignment with the handlebar, causing the front wheel to turn unexpectedly. This can cause the rider to lose control of the bicycle and crash,” says Health Canada.

A recalled “mood ring” has levels of lead that exceed allowable standards, and could cause lead poisoning. The waffle makers pose a shock or fire hazard.

Health Canada’s list of product recalls should be checked often by parents.

Health Canada has also banned a few children’s items that it deems unsafe. These include lawn darts with elongated tips and baby walkers.

Some other products, like trampolines, are not banned but could be very dangerous. Baby bath rings, for example, can give parents a false sense of security that they will hold a child up in the bathtub. Children should never be left unsupervised in the tub, even for a moment.

Children’s car seats, baby strollers, cribs and baby gates, if more than a few years old, probably do not meet current safety requirements. Parents should not buy such items used unless they are sure they are in good shape and meet regulations. Hockey helmets only last about three to five years, and should not be used if they have been subject to a major impact.

Toys with magnets in them can be particularly dangerous if they are swallowed by a child, leading to death or serious injury. Most of these magnet toys have been recalled but there may still be some being sold at yard sales.

When it comes to child safety, a little paranoia can be a good thing. Take a look around your house from a child’s point of view and make sure it’s a safe place to play.

J. Adair