Hi Desert Real Estate Forum

Housing Market Outlook

On 2 July 2008 I was fortunate enough to attend a luncheon with Leslie Appleton-Young the Vice President and Chief Economist for the California Association of Realtors. She is an excellent speaker and the information she provided was timely and inspiring. Although we are by no means out of the woods regarding the current housing slump, she pointed to some key indicators that give us hope that there may be a light at the end of the tunnel.

I have spoken to many people in the last year who have stated that they are looking to buy, but are waiting for the market to bottom out. After listening to Leslie Appleton-Young, I believe that now may be the time for many prospective buyers to move forward. The following demonstrates that even though this may not be the bottom, it may very well be an excellent time to buy.

Inventory is decreasing – In the fall of 2007 there was 17 months of inventory on the California market, that number is currently 8 months inventory. The California average is between 6 and 7 months. If this trend continues we may see a more seller friendly market very soon.

Sales are improving – Through May of 2007 543 homes were sold year to date as opposed to 2008 where 898 homes were sold through May. Many buyers (first time and investors alike) are increasing their activity in the market. In fact, recent “good deals” brought to the market are receiving multiple offers and bidding wars reminiscent of 2005 are beginning to make a come back.

First time home buyer affordability has increased – In San Bernardino County, the housing affordability rate for first time home buyers was 44% (25% statewide) for the third quarter of 2007. In the first quarter of 2008 county wide affordability had reached 59% (45% statewide). With interest rates near historic lows, there may never be a better time to purchase your first home

The median home price in the high desert in May of 2007 was $313,547. By May of 2008 the median home priced had dropped 35% to $200,739. This indicator will begin to creep back up as the foreclosure market slows down in the future.

FHA returns to California – O.K. it really never left, it just wasn’t utilized often as many NINJA (No Income, No Job or Assets) loans were available to almost all buyers. With lenders tightening standards and actually requiring a down payment, the FHA loan with its 3% down payment is far more attractive.

So what do these numbers mean? The inventory decrease is based primarily on three factors. Fewer new homes are being constructed and added to the market. Many sellers (especially those who purchased during the “boom” period) are electing to remove their homes from the market and await better times. The decrease in prices (resulting in increased affordability) means that more homes are being sold and removed from the market. Of course, the increasing numbers of foreclosed properties are contributing significantly to the overall affordability numbers. The affordability increase means that many more people can now afford to buy a home leading to more competition for the “deals”

Bottom of the market???? I don’t know, but now may very well be the time to get into (or back into) the real estate market.

The U.S. Senate on Saturday passed a bill that would stem foreclosures by allowing some 400,000 home owners refinance into affordable, government-backed loans.

The bill, strongly supported by the NATIONAL ASSOCIATION OF REALTORS®, passed by a margin of 72-13. The House of Representatives approved the bill on Wednesday in a 272-15 vote.

"This bill must get to the president quickly, and we urge him to act immediately to sign it into law," NAR President Dick Gaylord said in a statement last week.

NAR says the bill will help bring stability to the housing market and put a dent in the rising rate of foreclosures.

The program will be run by the Federal Housing Administration, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can't be for more than 90 percent of a home's newly appraised value.

For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

Experts say the success of the program depends on how receptive banks are to writing down a portion of the loan.

If passed into law, the program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won't be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31 percent as of March 1.

Source: Associated Press, The Wall Street Journal, NAR

"Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission."

Under a California initiative aimed to help prospective homeowners with modest means, lenders including Wells Fargo, HomeEq, CitiMortgage, and Fannie Mae will price their foreclosed properties at 12 percent below market value.

The California Housing Finance Agency will offer 30-year loans at a fixed interest rate of 5.5 percent to first-time home buyers who purchase the foreclosed properties through the Community Stabilization Home Loan Program.

"This is a starting point to try to get some of these foreclosures off the market in some of the hardest-hit communities in the state," says Ken Giebel, marketing director for the California Housing Finance Agency. He expects more lenders to join the program.

Source: San Francisco Chronicle, Carolyn Said (07/22/08)

Copyright Info Inc.

"Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission."