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We just got the report from the NAR that existing home sales were down in December from November by 17 percent. Rather than react to the way the media and the NAR want to present it, blaming the end of the Homebuyer tax credit, this decline is the result of the following factors:
1) Buyer uncertainty – December sales were probably entered into contract in October or November. During this time, unemployment was rising and there did not seem to be any end to it, just as today. People look at their finances and hold back during times of uncertainty. This especiallt applies to large purchases, including homes. Until such time as there is a little confidence built into the news, this will be aconstant issues.
2) Seasonal influences. Sale ALWAYS GO DOWN during the holidays. Last year was no different. While this decline was nearly a record decline, see reason #1.
3) Availability of credit - although interest rates are low, financial institutions have raised qualifications, added tone of new rules and paperwork and denied loans that have been approved in the past. This began at the start of the 4th quarter last year and finally evidenced itself in December. Lending institutions are trying to deal with ever changing rules laid down by the regulators as well. Until this confusion ends, it will be more difficult to obtain credit.
The media and the Treasury know all of this to be true, but will not print it. You need a source you can trust to give you the facts.
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It seems like every 6 months, the California Legislature must deal with a $20 billion plus deficit.
In the real estate business, we are concerned about it for a large number of reasons, but this time there is a real problem with the Section 8 part of real estate that we have not heard of for some time.
Section 8 Assistance has been part of the real estate mix for some time. 2 years ago (yes, it was that long ago) there was an uproar by many people in neighborhoods complaining about the number of Section 8 renters in thier neighborhood. While Section 8 was a part of the problem, the number of renters had gone up considerably over the past few years due to the number of investors purchasing properties and renting them out as values soared. Section 8 was a minor portion of the problem and it was an easy target for homeowners. Employees were also very close mouthed about the rental problem and added to the fervor.
All of this brouhaha has subsided as property values shrank, investors lost thier homes, and the renters had to leave, replaced in the main by new homeowners who have purchased these properties at a substantial discount to their original prices.
Section 8 is still a part of the rental picture, even more so than during the times mentioned above. Section 8 rental requests are at very high levels and properties thatg take Section 8 is limited.
There are new problems for Section 8 housing that impact everyone. With the California budget problems, the amount of money that will be available to Section 8 will probably by cut in the next budget year. While this does not mean that people will necessarily be removed from the program (this may also occur as well), it will mean that people who seek Section 8 assistance will probably not have it av ailable to them. People who are removed from the program for violating terms will lose it as well.
This should free some housing for rental to those who are looking. It also may mean that the owners of these homes may not be able to keep them because the rental rates will also go down (Section 8 rental calculation methodology pays higher than market rents, this will be dealt with in another topic) and the rent is no longer guaranteed by the government.
The impact of this is that there may be more homes going on market, either as short sales but more probaly as foreclosures as the landlords can no longer afford the mortgage payments on properties that used to carry the mortgage.
The Governor has proposed a budget in the State for next year that hold the education budget steady but has an across the board cut of 10% in the remainder of the budget, this will include any mandated payments to the counties who need the money to operate the Section 8 programs. Additionally, property tax reduction over the past years has also reduced funds to the counties.
Section 8 Housing, a Federally mandated program, has some real challenges for the next budget year, none of which has an easy answer.
Each year we try to assess where the real estate market is headed for the coming year. Last year, we were way off the mark as there was no way for us to predict what would happen after the Treasury Department became more and more involved in the business due to their TARP involvement with the banking institutions. While the major players (Wells Fargo, Citibank, and most notably, Bank of America) have repaid their TARP funds, it does not mean that the governmet will continue to apply influence to real estate lending activities. In any case here we go:
Real Estate Supply
The market will probably have more supply of homes than last year, more than likely, a lot more. Banks have been trying with little success to stem the foreclosures through loan modifications in 2009. Despite all of the holdovers, approximately 31,000 modifications were done against over 4,000,000 loans in default. This low number of modifications is bad, but not as bad as it sounds. Many of the 4,000,000 homes in foreclosure were either 2nd homes, investments, already abandoned by the owners who may have alreay bought another, or brought the mortgage current prior to foreclosure without resorting to a loan modification.
Nonetheless, there will be a large number of homes available for sale in 2010 with the bulk of them to be foreclosed properties. This will put a lot of pressure on people who must short sell their homes this year. Buyers, when ready to buy, will look at foreclosures first, as they are much easier to close than short sales, which while easier than before, are still much harder to do. It will also put a large amount of pressure on investors who have been buying homes on the courthouse steps and reselling them at a profit. This practice has increased greatly over the past year but will be much harder to do with a large influx of foreclosed homes on market. We expect that by the end of the first quarter of 2010, the incresed supply will be noticable and that by the end of the year will may be at record levels.
The commercial real estate supply will also increase this year as many bad loans, many of which have already been negotiated have fallen into arrears. Until there are definite increases in business activity, this segment of the market will lag as well, perhaps worse than the residential market.
Real Estate Demand
In the residential market this year, demand has outstripped the supply by numbers we have never seen. Choice properties in popular neighborhoods have seen multiple offers for them (personally, we have had as many as 55 offers on 1 home and heard of properties that brought over 100 offers) throughout the year. This demand is pretty easy to see. Low prices, low interest rates, and a pent up demand due to low inventory is a recipe for prices to go up. This is what happened in 2009. Will it happen in 2010?
With the economy improving, but little improvement in the employment sector of it, demand would probably remain constant. There is promise of jobs in the ‘green’ economy, but many of them would be entry level jobs with low pay and benefits. If the health care plan passes in congress, taxes will go up by some amount. Prices on goods are projected to rise in 2010 due to higher taxes and the begining of inflation due to the excessive borrowing done by all levels of government.
Even in the face of these things, if people are able to keep their jobs or find equivalent employment, the demand should remain constant.
The HomeBuyers Tax Credit, modified and extended through April 2010, allows for a $6,500 credit to homebuyers who have purchased a home and are ‘buying up’ and $8,00 to first time homebuyers. Both of these programs apply to owner occupied homes only. A recent survey of homebuyers who have purchased recently showed that nearly 70% of them would have bought a home whether the credit was there or not. We suspect the the expiration of this credit will have little impact on the demand for homes.
There is a lot to be considered when attempting to deal with all of the items that need to be taken into account with real estate demand, prices, interest rates, supply, employment, taxes; all are factors when making estimates into where the demand is coming from or going to. California added nearly 1/2 million people to the population this year. some of them will be buying homes, some will need rentals, purchased by investors.
Given everything, we expect that demand will remian fairly constant in 2010 unless there is a substantial shock to the system.
Interest Rates
Interest rate are today at near historic lows. Just on this basis, you should expect interest rates to rise. however, some people think we have created the ‘perfect storm’ for interest rates to rise. The federal government has borrowed so much that they have ’squeezed out’ all available funds for other borrowing. The State of California is in as bad a situation today as it was when they balanced the budget 6 months ago. There is such a demand for governmental credit that interest rates will have to be raised in order for people to buy government instruments, or the government will have to raise cash another way, that is, to print it.
In either case, with higher interest rates or inflation, impacts to the real estate market will be real.
Real Estate Prices
Recently (in fact for the past 6 months or so) real estate prices have been on an increase each month; the number of transactions has also increased. While geographically these increases were large or smaller, the result is the same, prices have increased as well as the number of transactions, indicating that there is a mini-boom in the real estate sector. New home starts also appear on the increase as well.
2010, unfortunately, does not look to hold the promise of an extended recovery. One factor, demand, looks steady at best and these increases are the result of demand outstripping supply. However, 2010 will see the following: increased supply, higher interest rates, continued high unemployment, and higher taxes. The impact of all of these factors can only mean one thing, lower real estate prices during the next calendar year.
Buyers will be looking for affordable payments. If interest rates go up, be sure that prices will decline.
We prefer a balanced market with prices remaining fairly constant in a quiet interest rate environment. This condition does not happen often. Real estate for the homebuyer, and for the investor as well, has historically on average been a 5 to 7 year hold. When people hold on longer (use the 1940s and 50s as a reference) prices tend to shrink, as there is little interest in moving. When people move more often as they have in the past 25 years, due to job requirements, larger and larger families, the demand for amenities, and other cultural changes, prices go up. When adding in the bubble environment that we had begining at the start of this millenium, the shcks to the system can be severe, as so many people in this country and around the world have seen and experienced firsthand.
Of course, we could be wrong (check our results from last year). Understandably, we hope we are and the real estate markets are strong and healthy for both buyers and sellers in 2010.
The following news release is from the California State Bar. It shows the problem that people are having with potential theft by lawyers in the Loan Modification process. We recommend that you work with a realtor to help you intercede, as they know the process and do not charge a fee for the service. If you have any questions, please contact us at 925-308-7045.
Member Legal Services Tel 213.739.8200 Fax 213.480.7724 September 18, 2009
California State Bar News Release
The State Bar of California, alarmed by the number of lawyers preying on vulnerable homeowners, today identified 16 attorneys who are under investigation for misconduct related to loan modification. “In my 21 years in attorney discipline, I have not seen a crisis of this magnitude. It is truly unprecedented,” said Interim Chief Trial Counsel Russell Weiner, who is waiving investigation confidentiality in favor of public protection. The waiver, allowed by law, is used only occasionally, but Weiner said the seriousness of the problem demanded a strong reaction by the bar in order to protect consumers. This is the first time the names of more than a few lawyers being investigated have been made public. “The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding,” Weiner added. “There are literally thousands of victims who have lost money they could not afford to lose. Under the circumstances, the need for public information and protection is paramount.” Those attorneys being named by the State Bar have allegedly taken fees for promised services and then failed to perform those services, communicate with their clients or return the unearned fees, Weiner said. Some attorneys misrepresented the services they could provide. “It appears these attorneys may have significantly harmed their clients who were already facing great financial pressure and the possible loss of their homes.” About one-quarter – almost 800 cases – of the active investigations in the Office of Chief Trial Counsel (OTC) are related to foreclosure complaints. The office has experienced a 58 percent increase in active investigations over 2008 due in large part to the huge increase in complaints against attorneys offering loan modification services. “Our office is aggressively investigating these cases and is working proactively with law enforcement,” said Weiner.
In March of 2009, the State Bar created a special team of investigators and lawyers to handle the growing number of complaints received about attorneys offering loan modification services. OTC found that many of the offending attorneys are associated with firms that use telemarketers or phone banks to sign up clients without regard to the facts of the individual case or whether or not the client can be helped, Weiner said. In many cases, the attorneys work with untrained non-attorney staff engaging in the unlawful practice of law by offering legal advice to prospective clients. OTC also is investigating the non-attorney staff for possible referral to law enforcement. In recent months, OTC has obtained the resignation of three attorneys who were offering loan modification services. Those attorneys chose to give up their licenses to practice law rather than face disciplinary charges and possible disbarment. In addition, OTC lawyers are preparing to put some attorneys on inactive status pending the filing of formal disciplinary charges Weiner warned consumers to take special caution when seeking legal representation related to loan modification. “Consumers should not be comforted by advertisements that claim the attorney is a member of the State Bar of California,” he said, noting that all attorneys practicing in California on a regular basis are members. “Such membership does not mean the attorney has any special knowledge, experience or expertise in the area of loan modification. In fact, it appears that many of the attorneys offering these services have little or no prior experience in the area of loan modification.” The following attorneys have received a significant number of complaints related to the loan modification services they were hired to perform. They are entitled to a full and fair hearing on any charges that may be filed in the future. No discipline may be imposed unless and until the State Bar proves allegations of misconduct by clear and convincing evidence.
-David Arase, Bar No. 233705, Arase Law Firm and National Housing Assistance
-Stephen Burns, Bar No. 113371, Legal Group Network
-Robert Buscho, Bar No. 122556, United Law Group
-Nicholas Chavarela, Bar No. 251632, Rodis Law Group and America’s Law Group
-Steven Feldman, Bar No. 103676, Feldman Law Center
-Eric Johnson, Bar No. 224065, Avantgarde Group
-Paul Lucas, Bar No. 163076, Lucas Law Center
-Brandon Moreno, Bar No. 233750, U. S. Foreclosure
-Jeffrey Nemerofsky, Bar No. 213014, U.S. Advocacy Law Group and U.S. Financial Products
-Gregory Paiva, Bar No. 207218, Law Offices of Gregory Paiva
-Adrian Pomery, Bar No. 249664, U.S. Foreclosure
-Ronald Rodis, Bar No. 181873, Rodis Law Group and America’s Law Group
-Mark Shoemaker, Bar No. 134828, Advocates for Fair Lending
-Marc Tow, Bar No. 78429, Marc Tow and Associates
-Michael Yellin, Bar No. 255050, A Fresh Start Loan Modification
-Sean Rutledge, Bar No. 255938, United Law Group
The State Bar suggests that consumers be wary of attorneys offering loan modification services under any of the following circumstances:
-Advertisements of the office do not expressly identify by name the attorney who is responsible for the business.
-Office staff will not readily identify by name the attorney responsible for oversight of the business.
-The attorney in charge of the office is too busy or not willing to meet personally with prospective clients.
-The firm advises a consumer to stop paying the existing mortgage.
-The business, through its advertisements or claims of its representatives, makes claims that sound too good to be true, such as claims of a 90 or 100 percent rate of success in obtaining loan modifications, or claims that a reduction in the mortgage principal is likely to be achieved.
-The business demands payment of a large fee, even before obtaining a prospective client’s basic income and expense information, and information about the existing mortgage and present home value.
-The attorney responsible for the business is not licensed to practice law in the state where the consumer resides.
There are legitimate loan modification services and ethical attorneys that are providing the promised services for their clients. Two places to start in the search for loan modification assistance are: HUD Housing Counselors, 800-569-4287, http://www.hud.gov/counseling; and HOPE NOW, 888-995-HOPE, http://www.hopenow.com.
Consumers can also find qualified attorneys through a State Bar-certified lawyer referral service that can be found on the State Bar’s Web site (www.calbar.ca.gov), or by calling the State Bar’s Lawyer Referral Services Directory at 1-866-442-2529 (toll free in California) or 415-538-2250 (from outside California).
Consumers having a problem with the attorney handling their loan modification may contact the State Bar at 1-800-843-9053 or visit the State Bar’s Web site at www.calbar.ca.gov to find a complaint form. Founded in 1927 by the state legislature, the State Bar of California is an administrative arm of the California Supreme Court, serving the public and seeking to improve the justice system for more than 80 years.
The NAR reported that home sales fell in August. Interest rates were lower and prices continued to fall nationwide. However, this should indicate the sales should increase. What needs to be asked is why? Many properties sold are recieving multiple offers, of course only one can be accepted and those who do not get the home continue to look. We are in need of more properties to balance this market
The answer is fairly simple. Inventory levels continued to shrink due to the REO properties not on market. Once the lending institutions place properties on market, the sales should increase.
The article link follows:
http://www.realtor.org/press_room/news_releases/2009/09/ease_four
Most people are very good at predicting the past but the prediction of the future is a bit more difficult. That said, I will make a try toward giving a prediction for the remainder of the year.
Available homes.
The market today is driven by the number of REO (bank owned) properties, both those that are being foreclosed upon today and the ’shadow’ inventory that exists with the banks since the moratorium over the past year (yes, it lasted a whole year, despite what you may have heard). Banks have said that they will be trickling properties on to the market and that is true, but to a lesser extent than one may think. A few banks are not releasing properties at all yet. Even a trickle is dependent upon the larger banks putting properties on market. I do not think that we will see anything like we saw last year until after the first of the year. This is due, I think, to government influence and the expiration of the $8,000 tax credit. Once the tax credit expires, I think we we see more properties released to market. I have asked a lot of people and no one can refute this logic.
The bulk of the properties available are short sales, partially due to the reluctance of the banks to complete loan modifications, despite the governments urging to keep people in their homes. Most of this is understandable, but many banks are very inflexible with regard to their lending standards, a pendulum swing form the easy money days. The banks want these properties sold prior to foreclosure, as a foreclosure costs between $30,00 to $50,000 and the proceeds are less than a short sale. Experienced short sale agents are few and confusion reigns. At any rate, short sales will be one of the more common real estate transactions through the end of the year and into next year.
Interest rates.
While the long term pressure on rate will cause them to rise, in the near term we should not see much movement. The fear is that with the government expansion of debt, that interest rate and inflation must rise, potentially to hyper-inflation rates. I do not think this will be true, as the the impact of all of the money injected into the economy is having no effect on the lending, business, and monetary cycles. Much of the money is being used in non-productive and transfer payments. Very little iss actual stimulus. The money that may be available is not being lent to business, home owners, etc. The result of this is that there really is less money in the economy than one may have predicted. Most of monetary expansion is dependent upon the ‘multiplier effect’. No multiplier is recieved if the money is given from government entity to another government entity, where it will be used up on temporary jobs and transfer payments to citizens. It is just a tax and spend transfer with little stimulus. In order for the money to expend normally, lending institutions must lend it, which is not happening at expected levels. there are many reasons for it, but it is enough to day that it is not happening.
Home Buying
As we come to the end of the year, the number of transactions usually goes down and it probably will this year as well, but not as much as it does normally. Many people do not buy during the holiday season which begins in just a few weeks. Additionally, many real estate agents take the bulk of the holiday season off, due to the lower number of transactions. This year will be different. For the past year, homebuyers have been challenged by this market to purchase a home due to the small number of available home and the more challenging lending market. Most home sell with multiple offers hoping to be the winner. The people who are shut out go on to find other possibilities. They are still looking for their home. Many agents who may have taken the holidays off may not be able to afford to do it this year, given the challenging market, lower prices (and lower commissions). I expect a smaller drop in transactions this year, but not to the same extent.