Following three years of declining home prices, the end of the nationwide housing slump may be in sight. Home sales consistently have been rising, the surplus of houses is shrinking, and most economists believe home values nationwide will hit bottom in the second half of 2010—but not before declining an additional five to 10 percent. That’s good news for homeowners hoping to sell or rebuild lost equity.
Here is a look into the future...
Mortgage rates currently are below 5 percent, and should remain low for the next few months, partially due to the Federal Reserve’s ongoing purchase of mortgage-backed securities. However, if the economy quickly turns around and inflation fears resurface, rates could rise to as high as 6.5 percent, slowing demand and pushing down home values.
According to one analyst, the market will remain tilted in favor of buyers over the next year, but that power gradually will be reduced as conditions in the housing market continue to improve. It's important to note that in some areas, buyers have already lost that power.
Buyers hoping to purchase or invest in a lower-priced, entry-level home should expect some competition from investors and other buyers. To remain competitive, buyers are advised to put down as much cash as possible, as many investors are offering to make all-cash deals. Another factor to keep in mind is that offers below listing price often are outbid by others.
Some home sellers are postponing listing their homes until the market recovers. However, timing the market is difficult, so homeowners thinking of selling should carefully weigh their options. Congress recently expanded the federal tax credit to include some existing homeowners, but they must close before June 30, 2010 to qualify. Although existing homeowners are not required to sell their current home to qualify for the credit, those who plan to rent out their current residences should be aware that many lenders require borrowers to show they are financially capable of paying two mortgages, or show rental income for at least six months. Discretionary sellers should discuss their options with a REALTOR® before making a decision.
It often is difficult for homeowners to objectively value their homes, which often reflects their sense of personal style. However, by consulting with a REALTOR®, using online resources, investigating neighborhood trends, and soliciting the opinion of friends, homeowners can arrive at a reasonably accurate appraisal.
Here are some helpful tips...
REALTORS® and real estate appraisers are the best sources of information on current market conditions. Consumers should begin the home valuation process by consulting with their REALTOR® or a local real estate appraiser. REALTORS® can provide homeowners with a list of homes that recently have sold in the area, and use that data to help determine the most accurate and competitive price for the home.
Homeowners also can contact their local tax assessor’s or county clerk’s office, many of which post real estate transactions on their Web site. The records will indicate what properties have recently sold in the neighborhood and the respective sales prices. Consumers should look for homes that have sold within the last six months for a more accurate picture of current market conditions. Some real estate experts also recommend homeowners attend nearby open houses to see how their homes compare in size and amenities.
Online sites such as Zillow.com and trulia.com also provide free online home value estimators. Consumers should be aware though that these sites derive some of their information from public records including tax appraisals and sales information. AND, they don't take into consideration the things they can't see, like location, amenities, neighborhood quality, upgrades, additions, etc. These things are important in estimating prices. Online sites and books should only be used as guidelines, and homeowners are advised to contact a real estate professional to help determine the current value of their home.
Barring a sudden decline in home values over the next few months, the statewide median price will register year-over-year gains by year end, although it will still be well below the mid-decade peak. The median price of a detached existing single family home was $296,090 in September, up 1.1 percent from the August median of $292,960, but down 7.3 percent from the September 2008 median price of $319,310.
Is the California Housing Market Headed Back to Normal?
The median price in California continued to increase in September, driven by lean inventory levels, while home sales remained on track with expectations for the month. Inventory numbers have averaged just over 4 months for the past 3 months, indicating that the California housing market may be edging back toward its normal state. Indeed, these numbers are welcome developments for a housing market that was among the hardest hit in the country. But a look behind the topline numbers suggests that current conditions have resulted from a heavy dose of policy intervention and from efforts by lenders – who currently dominate the supply side of the market – to manage the flow of troubled mortgages and properties at all stages of the ‘foreclosure pipeline’ from delinquencies to REOs.
What About Foreclosures?
The number of defaults in California escalated rapidly in the last couple of years, with 111,700 defaults in the third quarter of this year and a record high of 135,400 defaults in the first quarter of 2009. Normally, the trend in foreclosures corresponds approximately to the trend in defaults with a one to two quarter lag so the number of foreclosures should be on the rise as well. Instead, the level of foreclosures has been steady at roughly 50,000 per quarter since the last quarter of 2008. This seems to be the result from the combination of policy intervention, including foreclosure moratoria last year and early this year as well as the federal loan modification program, and efforts by lenders to deal problem loans on a case-by-case basis. As a result, market supply has held steady at levels that have stabilized the median price at the state level and in most California markets. In a number of markets, there have been some modest price gains compared to earlier in the year.
It’s a strange, once-in-a-lifetime real estate market. Even the most seasoned Realtors are working overtime to understand the rapidly changing values within their primary markets. Here are three things to consider when valuing a property in these conditions.
Know your price range
In the current market, different price ranges are moving in different directions. Since many homeowners are downsizing and the government has offered incentives to first-time homebuyers, there is a race for homes at the lower end of the market, leaving many higher-end homes to languish on the market without much interest or activity. The result is that in some markets lower-priced homes are increasing in value, while higher-end homes are decreasing in value. Of course, the reverse can also be true, which is why it’s important to understand the local trends
within your price range.
Understand the foreclosure market
No one is exactly sure how many foreclosures are currently on the market, how many are being withheld from the market, and how many are yet to come. However, we do know that there are a lot in the pipeline and they affect neighborhood home prices drastically. If there are a number
of bank-owned properties in your neighborhood, conventional wisdom dictates that housing prices will decline throughout the neighborhood to compete with the artificially deflated prices of the bank-owned properties.
Don’t trust the internet
Over the past several years, many websites have emerged that “estimate” the value of your home based on current market conditions. Unfortunately, these estimates are often misleading or downright wrong, particularly in a turbulent market. Sellers, agents and appraisers pay no
attention to these sites when assigning value, and neither should you. If you want a realistic estimate, call your agent.
Recent reports on the health of the economy and the housing market have shown improved conditions. The federal tax credit for first-time buyers, affordable home prices, and low interest rates also are driving many buyers into the market. However, housing markets are local, and can vary greatly from one to the next. Still, there are indicators on which homeowners can rely to determine whether their home’s value will rise.
Here are some great indicators...
Unemployment - The unemployment rate in an area can help homeowners determine if their homes’ values is likely to rise. As the unemployment rate rises, fewer individuals are capable of purchasing homes, decreasing the demand for homes, and driving down prices. To find a city’s unemployment rate and whether it’s rising or falling, consumers can visit the Bureau of Labor Statistics’ Web site at http://www.bls.gov/lau.
Foreclosures - On average, foreclosed homes sell for 30 percent less than similar homes in the same area. However, that figure varies by housing market, according to an executive at RealtyTrac.com, which tracks foreclosures. As foreclosures increase, the average prices of homes in the neighborhood decrease. On the other hand, as foreclosures decrease the average price increases. Visit http://www.realtrytrac.com to view properties in various stages of foreclosure, including foreclosure filings, auctions, and bank repossessions.
Inventory - Tracking a neighborhood’s inventory supply also is a good indicator. A supply of five to six months is considered “normal.” For the most extensive inventory level comparisons, homeowners should contact a local REALTOR®.
List Prcie / Sale Price - Following the list-to-sale-price ratios of a neighborhood can help determine the direction of home prices in an area. If the price difference is shrinking for an area, that suggests the real estate market is improving. Homeowners can contact their REALTOR® who can provide the average list-to-sales price ratio and a historical comparison.
Rising Incomes - Generally, when a neighborhood is financially healthy, it has the extra income to take care of maintenance and upgrades for their homes. Homeowners who have stagnant or decreasing salaries may not have much cash left over after they pay their mortgage. As a result, they might not maintain their homes or stay on top of repairs, which could lower a home’s value. http://www.edd.ca.gov/ is a good source of information regarding employment.
Market Bottom - As most of you are aware, the real estate industry has declined in the past two or three years. BUT, according to historical data, the economy of real estate is cyclical. There have been many "bottoms" in the past only to be outdone by many "bubbles." Once we pass the hurdle of reaching the lowest point, values can only increase. You should contact your local REALTOR® for insight on which part of the cycle your neighborhood is on.
More good news for buyers and the housing market recovery. Following the Senate’s favorable vote recently, the U.S. House of Representatives also voted 403 to 12 to extend the home buyer tax credit, expanding the parameters to include existing homeowners and not just first-time buyers. As you may know, C.A.R. and NAR have worked for months urging Congress and the Senate to extend and expand this crucial piece of legislation. We expect President Obama to sign the legislation very soon.
As it now stands, the federal tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline. Which means purchase agreements need to be signed by April 30th and close by June 30th. First-time home buyers will continue to be eligible for a tax credit of up to $8,000, while existing homeowners will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years. The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.
Under additional provisions included in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The legislation maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.
Nationwide, more than 1.4 million first-time home buyers were given the opportunity to become homeowners as a result of the Federal Tax Credit for First-time Home Buyers. We expect that number to increase dramatically in the months ahead with this new legislation in place.
President Obama recently signed a congressional resolution to extend through 2010 the current conforming loan limits of $417,000 for most areas in the U.S. and $729,750 for high-cost areas, including many in California. The resolution was part of a broader piece of budgetary legislation that will prevent a government shutdown.
Both C.A.R. and NAR have long advocated making permanent higher conforming loan limits. As a result of C.A.R.’s and NAR’s efforts, a provision of the Housing and Economic Recovery Act of 2008 included temporarily raising the conforming loan limits. The signing of the congressional resolution effectively extends the higher conforming loan limits for Fannie, Freddie, and FHA loans through 2010.
The conforming loan limit determines the maximum size of a mortgage that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, and the Federal Housing Administration (FHA) can buy or “guarantee.” Non-conforming or “jumbo loans” typically carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.
