Local net jobs growth rate (local jobs growth rate â€“ local unemployment rate) is THE early predictor for housing recovery in any specific area. People donâ€™t buy homes when they are uncertain if they will be getting a paycheck next week. The larger the â€œnet jobs growth rateâ€œ, the greater the "velocity" of the recovery in an area. With jobs creation comes a heightened demand for housing, allowing prices to stabilize. Eventually, housing appreciation will develop. Barring any successful government intervention, the end of 2011 is when the brunt of â€œquestionable loansâ€ is flushed from the financial system. By Jan of 2013 itâ€™s all gone, but my sincere hope is housing appreciation occurs well before 2011 and with enough zest to allow some homeowners to refinance out of these final loans and into more affordable loans prior to the currently projected reset schedule (which can be viewed via the link in the next two paragraphs). While the predominate amount of foreclosures tied to â€œsubprimeâ€ loan products has passed, we're not in the clear. This chart shows scheduled reset loan volumes for different loan categories:
As the chart shows, Subprime loans have pretty much run their course; however, Option/Alt-A/Unsecuritized ARMs are the next phase to provide a destabilizing affect. We have taken on some of the projected Option ARM pain earlier than is shown in the reset schedule. This is because Option ARMs have valuation based "triggers" that can cause resetting to occur sooner than originally planned (due to property devaluation and an owner's payment selection of a minimum or interest-only payment). The following chart shows how the resetting of these loans has shifted due to valuation based resetting and I have also provided an explanation.
Historically, since 1968 (this is how far the available data from CAR goes) there has only been one time where California housing had consecutive years of price decline. That would be 1992-1996 (see chart link below). Note that after this period the entire decline had been made up within the following two years (92-96 total decline of 12.2%, 97-98 total increase of 12.5%). While past performance is not a 100% predictor of future performance, I believe in the resiliency of California as an international destination location for work and living.
I'm suggesting that my buyers hold their cash at least until the end of Q109 and then reassess the direction of the economy. I donâ€™t see anything concrete indicating Q2 will be better. The resulting reduction in jobs will lead to less demand for purchase housing (and will also lead to more distressed supply).
Thereâ€™s been quite a bit of attention concerning the $700 billion Troubled Asset Relief Program (TARP) approved by Congress. That certainly is a large amount of money; however, what most people do not realize is that the â€œmaximum commitmentâ€ of programs targeting an economic recovery currently amounts to 8.5 trillion!
President Obama will most certainly fund public infrastructure projects to immediately help create jobs and spur local economies; however, the specific localities that will receive this funding is unidentified at the moment. One thing is for sure, if the new currently proposed Stimulus plan is passed (with Obamaâ€™s current momentum I think this will happen â€“ really like the Billâ€™s provision for tracking all spending), along with all that other â€œbailoutâ€ money thatâ€™s been pumped into the system we had better see some â€œrecoveryâ€! Hereâ€™s a list of where the new proposed money would go:
Toes and fingers crossedâ€¦
I think we're moving towards more of a short sale market. While I think more of our inventory is currently short sale, they weren't the properties that we could get to the 'sold' status. The difference is we're now closing more in the short sale status than ever before. The original statistic was around 5-7% that would be able to avoid foreclosure by selling in a short sale status. I don't know what it is now for the general public, but I've been able to get a short sale approval on my listings within 2 weeks, and my buyers of short sales have been able to get responses as well.
Alot depends on the listing agent's ability to package the short sale submission and their ability to communicate this correctly to the lender. Too often the distressed seller is relying on their relative who does real estate part time to help them. This isn't a market for the part time realtor.
I think in the next two years, realtors will be selling more short sales. If they do, the foreclosure market will be reduced but it's anyone's guess as to when this is all resolved. It's jusr one piece in the whole national economic puzzle.
What do YOU think?