As the year winds down, it is time to take a look at the market and get some ideas what to expect going forward.

IT’S NOT A PRETTY PICTURE FOR UPSIDE-DOWN PROPERTY OWNERS

At the start of 2011, I believed that we would get through most of the residential foreclosures by the end of the year and that the market would focus on commercial foreclosures and loan workouts. That turned out to be way too optimistic. Ongoing troubles in financial markets in Europe, the United States, and particularly California coupled with confusion and instability amongst lenders have kept the possible buyers wary of committing. As a result, the “shadow inventory” of distressed home mortgages remains at an all-time high, even though over-all numbers are slowly dropping. Lender Processing Services (www.lps.com) reports that currently there are 6,298,000 mortgages going unpaid in the US. Standard & Poor’s estimates that at current rates, it will take at least 45 months for all of these properties to clear the system either through sales or foreclosure. A deteriorating housing picture, coupled with an increase in expenses and a drop in consumer confidence, led to a sharp decline in consumers’ financial health during the third quarter. The nonprofit credit counseling agency CredAbility puts out a regular quarterly index measuring consumer distress. Between July and September, the gauge recorded its largest drop since the third quarter of 2008. CredAbility’s data show the average consumer has been in distress for 12 straight quarters now.  As reported on my earlier Blog on November 1st, the government’s various programs to help upside-down owners have remained ineffective. Loan Modifications remain as hard to get as ever and short sales are facing resistance from junior lienholders who may find better recourse by forcing a foreclosure.
The bottom line: we cannot expect the market to truly get back on its feet until 2014 or later.

IT’S A GREAT TIME FOR BUYERS AND INVESTORS
While any market turndown means disaster for some, it also means opportunity for others. Given the extreme depth of this economic recession, the result is unprecedented opportunities for those who can act:

1) Property Prices are Down – Prices in California continue to fall. DataQuick (www.dqnews.com) reports that home prices in Sacramento County are down 9.68% from 2010 with California overall down 6.8%. REO’s and short sales make up more than ½ of all sales. Expect further declines in the short run as BofA and other distressed lenders seek to offload the high number of bad loans on their books. Their dramatic increase in foreclosure starts over the summer will skew the numbers further downward but only until they catch up with other lenders who didn’t stall foreclosures after the robo-signer debacle of Fall 2010.

2) Loan Costs are Down - On November 1st, the government raised FHA loan limits through 2013 to 125 percent of local area median home prices, up to a maximum of $729,750 in the highest cost markets. The loan limits for Fannie Mae- and Freddie Mac-backed mortgages, however, will remain at 115 percent of local area median home prices, up to $625,500. That means loans as low as 3.5% down payment for a 30 year fixed rate at 4.0% interest rate.

3) Rents are Steady & Rising – a study by www.ApartmentRatings.com indicates that rents in Sacramento have been climbing in 2011. Our experience was that there has never been much decline throughout this recession. The high number of foreclosed homes has meant a large increase in prospective renters, typically people that know how to care for a home and who will work hard to rebuild their credit so they can buy in again two to three years later.
The bottom line: Get your hands on property now – not for quick flipping but as a steady and stable investment in your future at prices and loan costs we have not seen in a great many years.

Having been a real estate investor, manager, broker, and developer for over 30 years, I’ve survived multiple economic crashes… scarred but with more knowledge to move forward. If you’re upside-down or ready to move forward with property acquisition, we can help.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260. In addition to handling all legal needs you may have, our attorneys are skilled in real estate purchase and sales, lending, property management, and negotiation.  Let BPE be your resource for real estate and business opportunity.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.