Market update: REMAX Gold Real Estate. End of the Distressed Market?

Market Update: REMAX Gold Real Estate. End of the distressed Market?

Articles have appeared recently in the Sacramento Bee reporting news which could indicate a lessening of influence of distressed properties in the Sacramento CA real estate market. These articles argue that a large influx of foreclosed properties in the Sacramento region is not likely to happen anytime soon because of:

1. The massive foreclosure sell-offs to investors. Many of these homes have become rentals and others that were bought off the courthouse steps have been fixed up and flipped to buyers seeking tax credits and low interest rates. The sell-off has shrunk the inventory of foreclosures and has stabilized the region's market prices.
2. The curtailment of new home production is a second factor sited. What builder can afford to develop when regulatory and permit costs will eat up potential profits from the sale of new homes?
3. Buyers who have been enticed by low prices, low interest rates, and tax incentives have jumped at the bargains. Just as the "Cash for Clunkers" program moved cars out of showrooms and onto the streets, the $8000 dollar first-time buyer tax credit program has moved home buyers to buy now. Because of the looming December 1 2009 expiration of the tax credit, September 2009 home sales rose an unexpected 9% nationwide.

The Sacramento Association of Realtors also put out a statement which I have summarized and paraphrased: Despite the fact that 40% of all Sacramento CA region home sales in the past month were either short sales or foreclosures and despite the fact that the Sacramento CA region home sales volume is down trending month over month compared to last year's sales, the Sacramento Bee found hope in the fact that home values are no longer sliding and that the market inventory has stabilized at a much lower level than that of previous years. The present median price is $176,000.

Foreclosure Radar, a California service, also argues that there really is no overhang of unsold foreclosures and that fears of hidden overhanging inventory have been hyped. They are less clear about the effect of people remaining in their homes after they cease making payments for months and years. Political and business factors have curtailed the desire of banks to move as quickly to Notice of Default and foreclosure as they once did.

The other shoe about to drop:

While all of these facts and figures attempt to find a silver lining to today's market they miss some basic facts which will influence the Sacramento market by mid-year 2010:

1. Interest rates are expected to go up in the next year which will put downward pressure on consumption. Too much cash has been printed and circulated and as it becomes clear that a recovery is picking up steam, inflation looms. Inflation drives interest rates up because the Federal Reserve Bank changes it bias. High unemployment creates downward pressure on consumption. The term for this is stagflation. Stagflation has happened before in the 1970's. Stagflation creates the worst of all worlds because interest rates go up and that kills housing demand.
2. More adjustable rate mortgages, greater in number than the total number of sub prime loans which have created our current crisis, are in the pipeline and ready to adjust in the next 3 years. Based on past experience it seems likely that there will be massive loan defaults.
3. While the first batch of loans that defaulted were with less credit-worthy people, the next batch will hit better neighborhoods like Folsom and Eldorado Hills. This will depress the top of the market. These higher-end loans have names like pick-a-payment, Alt-A, Smart loans and were made to more affluent buyers with higher credit scores. Many of these buyers are now less affluent because of the turn down in the business cycle.
4. Political pressure to stop foreclosures has been intense. State and Federal foreclosure moratoriums have stabilized Sacramento area housing inventories. The question is, with unemployment reaching above 12% in the Sacramento region and furloughs and partial employment at record highs will these government efforts prove to be a band aid rather than a cure?
5. Many of the same banks that have had exposure in the residential mortgage crisis also have exposure in the exploding commercial real estate crisis. The effects of failed small businesses show up in half empty business parks and shopping malls. Malls and offices that are not leased decay in value. This leads to massive foreclosures and sell-offs as banks with these uninsured assets seek cover from the deflationary storm.
6. Most residential real estate has mortgage insurance to partially cover a bank's loss. This is not the case with commercial mortgages - they rely on large down payments and on business success to fill buildings.

So what can an individual do in this environment to help his situation?

1. Recognize that now may be a really good time to buy a home because of cheap money (ie) low interest rates and tax incentives. It is expected that Congress will expand the $8000 tax credit for first-time buyers for another 18 months.
2. Listing and selling your home in this brief moment may prove to be your last best opportunity for several years to come to get your home sold fro the best possible price. We are in a respite in the foreclosure crisis with most adjustable rate mortgages not beginning to adjust until well into 2010. People who have defaulted recently did do so as a result of unemployment or other traditional economic factors.

• RE/MAX Gold Real Estate has formed a strategic alliance with Nfinit solutions, a Nehemiah Company to bring relief to distress home sellers. These solutions include:
• Reinstatement
• Repayment Plan
• Loan Modification which takes no upfront fees and is SB94 compliant
• Forebearance
• Short Sale - which is less damaging to a security clearance than a foreclosure
• Deed in Liew of Foreclosure
• Cash for Keys

• Loren Ransier DRE 01132890
• lransier@remax.net
• (Phone) 916.439.3588
• (Fax) 916.357.9940
• Website www.sacramento.me
• RE/MAX Gold DRE # 00863521

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