Community News
Whither the Housing Market
by Steve Propes
Few residents who lived in East Long Beach two years ago will fail to recall the plethora of real estate “for sale” signs that littered the landscape. Now the main corner for sale sign is a curiosity, almost a relic of the past. Potential buyers don’t seem to exist, at least in the greater L.A. area. But that can’t be. Can it?
To understand the current situation means understanding terms like short sale (the sale proceeds fall short of the balance owed on the property’s loan), REO (bank owned real estate) and ARM (adjustable rate mortgage).
Broker Associate/Partner Richard Daskam of Keller Williams Realty in Los Alamitos, recalled “being in real estate three to five years ago meant being more of an ‘order-taker,’ where clients came to you, told you what they wanted, you negotiated the deal and walked it through a relatively smooth transaction.
“The key then was being the winning buyer. Buyers were offering several thousand dollars over asking price, removing contingencies just to be the one picked by the seller.”
According to Keller Williams’ Sativia Barbosa, “two or three years ago, we had no short sales. A year and half ago, we had the odd short sales, now they’re the majority of sales.”
Often these potential short sales don’t end up as open houses. People who must short sell “don’t put signs up for the shame, the guilt and embarrassment of the neighbors, so the listings are on the MLS” (multiple listings service), said Marilynn Evans, also of Keller Williams.
“An open house is an invasion to privacy,” said Barbosa, so those owners aren’t inclined to go through the hassle. “Regular sales are happy; short sales are not so happy.”
Even though potential buyers are looking for these values, a short sale doesn’t result in a listing. Since “the bulk of the properties on the market are short sales, where the owner still has ownership with the bank, which will allow the seller to sell for less than what’s due. When the bank forecloses, it’s the bank’s property.”
Estimating that “90 percent of pending sales in area are short sales,” Barbosa observed “sellers are upset with the bank. We could list their house within a week, but a bank can take six months. All the short sales already have offers.”
“Once a buyer is found, then it takes a lot of work, skill and finesse to get the deal to actually close escrow,” said Daskam. “Buyers need to actually make enough money today to make their house payment. Lenders are very tight with their money; they make buyers prove everything on their loan application. Very few escrows are able to close in 30 days right now due to the loan requirements that weren’t there 3-5 years ago.”
“In our office, we’ve lost 20 percent of our agents, people who’ve been in real estate for several years,” said Barbosa. “It’s easier to count the ones who stayed in than those who are out. Now, when we find a client a property,” because it’s generally bank-owned, “it takes six months to get paid.”
“In the last three or four weeks, there has a noticeable increase in bank sales,” said Evans. “REOs have gone past the short sale process, making a much easier transaction.” However, a “short sale is a silent auction. You never know where you sit. Banks are not processing the paperwork and you can‘t talk to the people who are working the files. Banks have not set up proper systems.”
“There are bargains for everyone to pick up,” said Evans. “I think the reason the banks are holding out so long is to show a loss on their books.”
Evans anticipates even more short sales in the short term. “People hanging on the skin of their teeth. Five years ago there was the five-year ARM and all those loans are coming up next year and most of these buyers are not going to be able to finance. All the properties short sold this year will be bank owned, so next year will also be tough times.”
However, there is a plus side. “We are seeing lots of buyers coming out. The tax credit of $8,000 for first time home buyer and up to $6,500 for an existing homeowner was a benefit to us. That federal tax credit has been extended until April 30, 2010. But I don’t know if the price of real estate is going to be affected for the next three years.
Daskam is hopeful “as more and more of the ‘first-time buyers’ or buyers under the $500,000 market come out of the wood work to buy a home, that will free up those sellers to make the move up and the domino effect takes place, with more and more real estate sales in the higher-end market.”
“Another best case scenario is that banks begin to loosen their credit standards a bit, allowing a renter who is paying $2,500 a month in rent to now buy a home with a payment of $3,000 a month, because after their tax benefit, their payment will actually be less than their rent was at $2,500 a month.”
However, there is always the fear the market might plunge further. In a recent Forbes interview, Donald Trump hedged when asked if there are true bargains out there. “No one can at this point determine if someone is a fool for buying now. Some buyers will be disappointed; others may make a good deal. I still feel we have some time until we hit a true bottom.”
“In the next three to five years real estate could very well stagnate, Daskam opined. In such a scenario, “lenders will still be very tight with their money, but interest rates will be much higher due to inflation. Once the Fed concludes that we are headed back out of the recession, short term interest rates will be increased in order to try to limit the amount of Inflation. Mortgage lenders and the secondary market that buys mortgages will begin to demand a higher rate of return on their investments, thereby forcing mortgage rates to go higher and we will see both the cost of first trust deed loans and second trust deed loans increase rates.”
“There is a good chance that we will be in the middle somewhere, where inflation is radically high, mortgage rates don’t double, and banks get back into the business they truly make money from, lending on home purchases.”
Kathy Apples.com anticipates that in “3 to 5 years from now we will be finishing the normal, eight year cycle of real estate from 2005 to 2013.” To Apples, the worst case would be, “we are lower in prices because the government incentives are creating a false market. The best case would be stabilized and adjusted prices “according to the rest of the world.”
|