Welcome the re-entry buyers. Three years ago Mark and Julie lost their home through foreclosure. Last week they closed escrow on their newer, larger, nicer home in the same neighborhood. Their new home was about half the price of what they had paid for the home they lost. They are among a new category of buyers this year who are reentering the market after a two- or three-year respite.
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Although thousands of families have left the region after losing their homes to foreclosure, short sale or bankruptcy, many remained. Most have been rebuilding their credit, paying down debt and some have been saving to buy another home. After three years, and in some cases less, mortgage financing is again available.
REOs and short sales will be the new normal. Two years ago REO and short sales accounted for one-third of all the sales in El Dorado County. Of the 200 home sales during December, about half were shorts or REOs. This year distressed sales will account for the majority.
Over the last few years buyers have had the choice of whether or not they wanted to deal with the uncertainties of REOs and short sales. Bad experiences of buying financially distressed properties have been legendary. Subsequently, many homebuyers have avoided the plethora of problems and issues and have limited their home search to the traditional individual sellers. This year excluding REOs and short sales from a buyer’s consideration will not be a viable option. There will simply be too many. Buyers will no longer have the luxury of excluding distressed homes if they are to have access to the majority of listings.
During the last six years of the housing recession buyers and sellers have been holding their breath, anxiously waiting for the much anticipated “bounce.” Many homeowners have postponed selling their home while waiting for the market to turn-around, and potential homebuyers have delayed making a buying decision until they had a clear sign that the housing market is in full recovery. Both buyers and sellers have grown weary of waiting. Their expectation level that the market is suddenly going to turn around and bounce back has finally evaporated. They have lost hope that any change is in the foreseeable future.
Losing faith that the real estate market will somehow have a phenomenon recovery isn’t all bad. More buyers and sellers will now make decisions based upon the harsh reality of the market and their particular situation, rather than postponing decisions based upon unrealistic assumptions. Many who have postponed decisions based upon hope the market would change have finally come to the conclusion that things are what they are, and will make better decisions accordingly.
More foreclosures are on the way. According to Mark Vitner, a senior economist with Wells Fargo Securities, there are 2 million homes in foreclosure, 2 million with delinquent mortgages and 2 million bank-owned homes that are not on the market —dubbed shadow inventory.
Foreclosure filings have been artificially depressed for more than a year as banks have had to deal with many issues including: the robo-signing scandal, state mandated moratoriums and some banks purposely took homes out of the foreclosure pipeline while they cleaned up their books. That’s all about to change.
“The paperwork issues have been mostly resolved and that could mean bank repossessions will come roaring back in 2012,” said James Saccacio, CEO of RealtyTrac.
It will be another quiet year for new housing developments. Don’t be confused about the recent optimistic hyperbole coming from the building industry. It’s lipstick on a pig. The reported increased construction activity is new multi-family housing not single-family homes. Local builders can’t obtain financing to build new homes that cost them $200 a square foot when there is an excess of nice homes available at $125 a square foot.
Interest rates will continue to remain less than 4.5 percent for at least the next six months. As the economy continues to expand, watch interest slowly tick up, moving into the 5 percent range in 2013.
County home sales will remain strong. Home sales this last year were 15 percent improved over 2010 and that pace will continue resulting from low interest rates and home prices averaging less than $250,000. Buying a county home costing less than $275,000 is now less expensive than paying rent.
Rents are going up. Historically, rental rates on single-family homes have been under-valued. Landlords have been willing to accept below market rents in exchange for accumulated appreciation. Investors made money when they sold their properties and hoped to break even during the term of ownership. With no appreciation in sight, that’s about to change.
The outmigration of families from California and our region will continue, albeit at a lower rate. Watch for a resurgence in popularity of living in small towns and rural areas.
The improving housing market in the Bay Area and our county’s attractive home prices will begin attracting seniors looking to take advantage of the county’s Prop. 90.
More refinancing opportunities for the 11 million underwater homeowners is scheduled to take effect in March.
The worst is over. The recovery of the housing market is tied to regional employment, which is beginning to gain traction. Most importantly, employers who have survived the last five years by increasing their market share or by restructuring their operational costs have positioned themselves to reap the rewards for their tenacity.