Monday, August 06, 2007

Importance of Water Rights, Metro Proximity and Gas Prices affect future property Valuations.

The quip "location, location, location" of many real estate agents in the near future may not carry the same weight anymore. Land values of once highly held recreation property is diminishing if the property is not well within the confines of a 200 mile radius of a major city. Reason: Cost of gasoline is affecting the value of recreation properties because of time spent driving to and from major metropolitan areas.

Couple this with the importance with the proximity of potable water makes this tenet of value even higher. Properties for instance of Cody WY, Joseph,OR or Paonia, Co are diminishing in value because of their accessibility distance from a major city and summertime water volume outlooks.

If it takes longer than an hour and a half to get to recreation area, some cities could hurt for recreation value.

The average consumer will no longer drive longer than and one tank of gas to get to select skiing areas before calling it quits." This is affecting valuations of properties in Mammoth Mountain ski resorts in Mono County, Ca much more so than let's say Big Bear City which is just a hop skip and jump from San Bernadino. But the clincher is this...Water availability.

Water rights are becoming the primary reason for land values in rural areas; especially in parts of Wyoming, Western Colorado and Oklahoma and eastern Montana. If you don't have water rights, the valuation of the property itself may be as much as 80% lower than those properties with water rights attached to it. This is a strong consideration by would be investors prior to lending to recreation areas right now.

For instance, in order to protect itself from impending water scarcity Las Vegas Casinos have purchased agricultural water rights from outlying areas such as Pahrump, NV. This is strong vote in the case of the Casinos when the event of water scarcity comes into play even this decade.

Over building in towns such as Las Vegas and Phoenix, AZ have been the concern of bank investors who are looking at future water concerns with regard property valuations. Water issues have affected the ability of farmers in Eastern Oregon for instance to parcel their properties out, because many of the parcels cannot be bank financed because of the requirements cannot be met for wells drilled to produce 5 gallons of water per minute for 4 straight hours. This is leading water drillers to use wider drilling bits, usually from 6 inches to 10 inches to meet this water access requirement. This has added to the "bubble burst" factor to these areas. NRP recently was quoted that banks in the Phoenix area recently have bought back new construction at $80 a square foot because of projected value losses of new construction in the area.

Post Script: 8/6/2007
After talking with Forrest Smith at Hill and Associates over the phone today, mortgage foreclosures in Southern California and Las Vegas are up by 799% from the previous year. Future quips I predict will change they famous real estate tenet to,"LOCATION, LOCATION, LOCATION TO" to "LOCATION, WATER, LOCATION."

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