Copy for Real Estate Guide Column for 7-2-10
REAL ESTATE PATTERNS
By Ken DuVall

ON THE FORECLOSURE FRONT

The mortgage crisis is creating a drag on the economic recovery as more homeowners fall behind on their payments. Analysts expect improvement soon, but the number of homeowners in default or at risk of foreclosure will have a lingering effect on the broader economy. I won’t sugar coat the issues facing us.

More than 10% of homeowners had missed at least 1 mortgage payment during the first quarter of 2010, reports the Mortgage Bankers Association (MBA). That's a record high, up from a year ago. This big jump in the number of borrowers who have missed 3 months of mortgage payments drove the increase. Fortunately, the number of homeowners just starting to show trouble is trending downward.

Around 4.3 million homeowners, or about 8% of all Americans with mortgages, are at risk of losing their homes, per the MBA. They have either missed at least 3 months of payments or are already in foreclosure. Nationally, although expected to rise, existing home sales fell 2.2% in May over April. More than 4.6% of homeowners were already in foreclosure, a record.

Should loan modification programs fail to help, those homes will go up for sale either as a foreclosure or short sale, when the bank agrees to sell the property for less than the loan amount. Analysts have forecast some area home prices could dip again as more of these homes, known as “shadow inventory”, hit the market at deeply discounted prices.

Federal tax credits boosted home sales this spring. But new home sales plunged 33%, the lowest on record, as the tax credit expired in April. However, the Senate last week voted to extend the deadline to September 30 and California’s credit is still in effect. New mortgage applications fell to the lowest level in 13 years last week even as 30-year loan rates are only 4.7%, the lowest since 1950.

The Obama administration's $75 billion foreclosure prevention program has barely dented the surface. Only about 25% of the 1.2 million homeowners who started the program had received loan modifications as of last month. Some 23% of those enrolled dropped out during a trial phase that lasted 3 months. Many are still in limbo due to government red tape.

Economic woes, unemployment, or reduced income are the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. Surprisingly, homeowners with good credit who took out conventional, fixed-rate loans now represent the fastest growing segment of foreclosures. They made up nearly 37% of new foreclosures in the first quarter of the year, up from 29% a year earlier.

On the bright side, the median price of an existing, single-family detached home in California during May 2010 surged 23.2% to $324,430 from May 2009. And this May’s price increased another 5.9% over April’s. The risky subprime adjustable-rate loans that kicked off the crisis are thankfully making up a smaller share of new foreclosures, only 14% in the January-March period, down from 27% a year earlier. And Chico is again picking up a little steam too. So it’s not all dark and gloomy.

Lenders have returned to considering only solid borrowers. No more shoddy loans being made that could bring us to our knees again, perhaps putting a stake in the foreclosure monster’s heart. That’s the good news.

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.

Copy for Real Estate Guide Column for 6-25-10

REAL ESTATE PATTERNS
By Ken DuVall

WHAT’S AHEAD?

We should take a look at the U.S. economy this week since housing and the economy interact and affect each other in every way. It’s important to keep current events in mind to understand the big picture of where we may be headed. But for openers, there is still no short term housing or economic fix on the horizon by any stretch of the imagination.

The good news: There appears to be no likely relapse into recession or a depression foreseeable at this point in time. Odds are that concerns about Europe’s woes infecting the U.S. will recede by year-end as policymakers take steps to avoid a full-blown meltdown there. Yet regaining our own economic health will still take a few more years.

Figure on about a 3.5% gross domestic product (GDP) growth this year and next. Not too shabby considering, but still far from our more normal 6.3% growth. Meanwhile, rock-bottom interest rates will continue for now. With the Fed more worried about deflation than inflation, it should keep rates at record lows into next year, a good thing for real estate loans. Also rising consumer confidence is playing a role, with consumers finally recovering a renewed sense of wealth.

Wow stuff: There are now 4.7 million people in the U.S. classified as millionaires, a 15% increase over last year. Go figure! There are $20 trillion worth of homes in the U.S. We’ve lost 8.4 million jobs- so far- in this recession. American’s household net worth is up $3.5 trillion from a year ago, and $5.8 trillion from the recession’s low point.

In the last 5 years the national median home price has fallen 26%. Yet the California median home price is up nearly 21% over a year ago to $278,000 and up 9% just in April. High-end home sales are staring to move again too, up over 16% from a year ago. Here at home, the old Goodyear Tire store building on Cohasset below East Ave. was just purchased by Firestone Tire for $750,000. Notwithstanding the sad loss of Aero Union and Longfellow Lumber, we may be finally starting on the road to recovery.

Nagging problems: we’ve still got loads of idled resources; vacant homes and stores, assembly lines, and factories. Millions are still unemployed. The jobless rate won’t sink to the normal 5.5% rate from near 10% now for several more years. Housing and related industries account for 7% of the economy, making headway tough when they stall.

It will take many years to get back to the pre-recession highs in construction and home sales due to the artificially high peaks pumped up by shaky loans that were pre-destined to crumble. But there is a decent outlook for existing home sales of 5.3 million this year and 5.5 million next, nearing the pre-bubble level. Projections are also up for new home starts (in the pits for the moment) and sales, but still far below 2001’s 1.6 million units.

Attitude is everything. It’s a little thing that makes a huge difference. I’ve said it before: it’s your attitude, not your aptitude that determines your altitude! Keep the Faith. We shall endure.

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.

Copy for Real Estate Guide Column for 6-18-10

REAL ESTATE PATTERNS
By Ken DuVall

MARKETS EVEN OUT OVER TIME

Knowledgeable economists tell us that decisions about what to buy and when to buy inevitably lead to market fluctuations that can sometimes be forecast and sometimes not. Of course, an economist is an expert who will know tomorrow why what he predicted yesterday didn’t happen! But whatever, they’re the ones who inform us where it’s at any given point in time.

Over the long term, broad trends can smooth out short-term fluctuations. With 4 million births and 2 million deaths, plus 2 million newly arriving immigrants into the U.S. each year, it’s obvious that housing will remain in steady demand. Historically, the net number of homeowners continues to rise by 1 million every year. The 2 million weddings and the 1 million divorces each year also add to changes in living patterns.

Furthermore, home owners look for a new nest every 7 to 10 years. As a result, over the next 10 years, that equates to 50 to 70 million home sales. After 4 years of declining construction and sales, the painful housing slide seems to be ending. Kiplinger tells us we’ll finally begin to see an upturn this year, a start on the road to recovery. Again, nationally, existing home sales prices were up 6% and sales up 7.6% in April, the latest stats available.

But “it ain’t over ‘til it’s over”, per Yogi. We’ll see more casualties along the way. Expect a choppy, uneven period of a year to 18 months. On the upside, a big jump in new housing starts, 30% over last year, and overall home sales up to 5.8 million vs. 5.5 million in 2009. Compare to 8.4 million sales in 2006, at the peak of the boom. Also there are still some 10% of the nation’s 52 million mortgages over 90 days delinquent or in some stage of foreclosure, which ultimately will add to the existing inventory of 2 mil empty homes- huge. New home sales usually account for 15% of sales vs. 5% now.

With the primary elections over, maybe we’ll see some changes on the political front. Most things are still in major state of unrest. We’ll see as we go. California is bracing for another ferocious budget battle as we try to dig out of our $20 billion hole. The outcome matters to everybody. As the most populous state, we account for fully 13% of the U.S. gross domestic product. California could actually put a damper on the entire nationwide recovery. Meanwhile, back at the ranch, Sacramento politicians continue to squabble over raising taxes or reducing spending. So what else is new?!

Of course, demand is being hurt by high unemployment but the offset are the historically low current interest rates continue way below 5%. At the moment, the trail ahead looks to be heading up rather than down. Home prices continue going up in some areas of the country. Don’t pop the cork just yet, but after the past few nervous years, it’s cause for relief.

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.

Copy for Real Estate Guide Column for 6-11-10
REAL ESTATE PATTERNS
By Ken DuVall

GOOD NEWS FOR A CHANGE!

The partial housing recovery is real and sustainable despite recent volatility brought on mostly by on-again, off-again tax incentives for home buyers. There are some reasons to believe the recovery will continue. Prices comparably have again become very affordable. Nationally, pending sales were up 6% in April.

It now takes about 18% of the typical household income to meet payments on a single family home, which compares well with the long-term average of 26%. Consumer confidence is improving some. It doesn’t drive all purchases by consumers, but it does play a role in expensive, long-term commitments.

A recent survey by the Univ. of Mich. found that about three quarters of Americans believe that this is “a good time to buy.” The outlook may stay positive. And credit conditions continue their let-up. Many lenders are still waiting for assurances that home prices are stabilizing, but the consensus seems to be moving in that direction. Credit will flow more freely as a result with 30-year fixed rates now below 5%.

Europe’s sovereign debt crisis has a silver lining for U.S. motorists. Gasoline pump prices will fall along with oil prices, just in time for a vacation season that’s likely to see more Americans traveling than a year ago. A gallon of gas will cost $2.50, on average, by July 4th, vs. $2.74 now. The per-barrel price may hit $60 vs. $70+ lately. Strong demand may beef up the price to about $2.60 by Labor Day. So you can drive around looking for a house to buy at a lower gas cost!

The nation's housing inventory is cluttered with foreclosures, short sales, and home builders willing to make a deal. If you're in the market to buy a home today, you're likely weighing the benefits of each type of property available for purchase.

Don't be fooled. Not all bank-owned foreclosures are sold at deep discounts. Not all builders are slashing prices. Short sales can be a crapshoot, with some buyers enduring months of waiting and still not getting the property. Buyers are more educated these days. They have a good sense of what they're looking for.

Foreclosures reclaimed by the bank are many times sold at a discount. However, the size of the discount depends on the market you're in. A recent report found that the typical discount for bank-owned properties, compared with a traditionally sold home, averaged 20% to 30%. According to an online marketplace of foreclosure properties, the average discount on bank-owned properties was 34% in the first quarter on a national basis.

There is more than one reason why the selling price of a foreclosure is lower than a traditional home. The seller is typically a bank, and would like to move the property off the books as quickly as possible. Conversely, a traditional seller is interested in getting a certain price and is willing to stay in the market although listing price decreases are not uncommon in Chico these days.

The median price of an existing, single-family detached home in California during April 2010 was $306,230, a 21% increase from the $253,110 median for April 2009. The April 2010 median price increased 1.5% compared with March’s $301,790 median price. So far, so good, folks.

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.