Copy for Real Estate Guide Column for 6-13-08

REAL ESTATE PATTERNS
By Ken DuVall

THE OUTLOOK

Long column, lots of news. While housing data shows the sales environment for both new and existing homes are still sluggish, a small increase in housing starts along with a rebound in building permits would suggest the worst of the housing downturn may just possibly be behind us. We haven’t reached the bottom by any means but as housing starts and new home sales unexpectedly rose, that represents a positive sign the market may have finally begun to at least stabilize.

The Office of Federal Housing tells us that nationally, home prices fell only an average of 7.7% over the past year, while some markets declined less, and some are even in positive territory. According to them Butte County home values have fallen a mere 11% since 2006 and that we’re the 2nd most affordable housing market in the state. I would say that’s fantastic in light of everything that’s happened.

The nation's gross domestic product increased at a 0.9% annual rate in the first three months of 2008, despite being held back by the biggest housing slump in 26 years. The GDP (housing accounts for fully 1/3 of it) also increased 0.6% in the 4th quarter of 2007. The economy has grown 2.5% overall in the past year. In other economic growth indicators, sales of big ticket goods (appliances, communication equipment, etc.), showed surprising strength by rising 2.5% in April, the biggest gain in 9 months. Business investment also rose by 4.2% in the same period. Don’t close the casket just yet.

Personal incomes grew significantly faster than anticipated. The economy was on firmer footing in the second quarter than would have possibly been imagined a month ago by the doomsday media. They’re still shaking their heads in disbelief and denial. April home sales- 366,720 of them-represented a 2.5 percent year-to-year gain compared with April 2007, ending a 30-month string of year-to-year percentage decreases that began in October 2005. While some reputable doomsayers are still predicting a crash and burn worldwide, we are not in a recession yet, despite the current tumultuous activity in commodities- oil in particular- and Wall Street.

In the neighborhoods that lost the most homes to foreclosure are now the ones posting the strongest sales. Caution: Expect the volume of foreclosures to keep rising. It isn’t likely to tail off anytime soon. But on the bright side, areas with the steepest price declines are likewise now experiencing the biggest sales gains. Anything will sell when the price gets low enough. Even the beleaguered Sacramento area’s sales increased 25% last month over a year ago. Interest rates below 6% have made it again possible to have a positive cash flow on a rental home purchased at today’s decreased prices. You win some, you lose some.

Chief Economist Lawrence Yun for the Nat’l Assn. of Realtors says it begins to look like home sales and prices throughout most of the country are poised for improvement in the 2nd half of 2008 and into 2009. As always, it will vary by market. He states several Middle America cities are likely to see price gains in the 20 to 30% range over the next 5 years, while Miami, Las Vegas and Phoenix could see prices up by as much as 50%. Chico is still doing just fine so far.

We now know the subprime mess caused the greater part of the downturn and softening of the housing market. “In fact”, Yun continues, “prices fell the most where subprime loans were prevalent. It’s important to keep things in context. While much of the media has focused on foreclosures… the fact is that only 2% of all U.S. homes are involved. The vast majority of homeowners are still making their loan payments on time.” It’s been a catastrophe for the few- but not for the many.

Now that the subprime market has dried up and traditional loans are making a comeback, housing markets will strengthen and prices are likely to again begin a steady uptick in the months ahead. The NAR supports legislation urging Washington to modernize and reform regulations of government-sponsored FHA, Freddie Mac, and Fannie Mae loan programs and to make the temporary loan amount increases permanent. These measures would help stabilize the housing market. But as politics are involved, who knows what will happen, if or when. About 1% or 800,000 U.S. homes are now bank owned with no end in sight.

My opinion: There’s every reason to take advantage of today’s market conditions: A plentiful supply of homes for sale at reasonable prices; interest rates near 40-year lows; coupled with a strong track record makes housing an exceptional long term investment. Conditions are ripe for buyers, plain and simple. No one can predict the future but I can tell you this for sure: You’re always going to need a roof over your head. That’ll never go out of style or demand. We need that just like we need gasoline or food. End of story.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.