There is a technical explanation and a “real-world” explanation to this process, and we will discuss both below.  Also, whenever we delve into the fringes of the legal world, we need to include the typical warning that the following is generalized information and that you should consult an attorney for any specific information you may need regarding your situation.  However…that out of the way, hopefully you will never need to know the following details…but just in case, here we go.  A simplified explanation of the foreclosure process.

Technical Version

STEP ONE…At some point, after falling behind on your house payment, your bank will contact you with a series of letters or phone calls trying to get you to pay what you have not been paying.  Once they are convinced that you either will not or can not pay your back payments, they will proceed to step 2.

STEP TWO…The bank will file a Notice of Default (NOD) with the county recorders office.  This document says you are officially in arrears, and the NOD will state the total amount of money needed to bring your loan current.  Once this document is filed, you have 90 days to bring the loan current, and the lender must accept these back payments if you offer them.  If you do not attempt to bring the loan current, then step 3 occurs.

STEP THREE…While this is not an actual step, once the 90 days has passed, you now have 21 days to pay the loan in full, including all fees and back payments.  In other words, if you merely offered the bank the back payments that you owe, the bank is under no obligation to take the back payments and can instead insist that you pay the loan in full.  Of course, no bank in their right mind would do this, but stranger things have happened in the banking world.  Assuming you cannot pay the bank off, then step 4 happens.

STEP FOUR…The bank can now schedule a Trustee Sale, which is basically selling the property on the Court house steps.  Regardless of whether the home is sold to someone else at this sale, or if no one bids and the bank takes it back themselves, the bottom line here is that after this sale is approved on that day, the home is no longer yours.

STEP FIVE…The bank (or new owner) will notify you that they now own the home, and inform you that you, in most cases, have 30 days to vacate the property.  If you are not out in the 30 days, they will schedule a Marshall Lockout, where the bank representative, a Marshall, and a locksmith will arrive at the property.  The Marshall will then remove you from the home, and the locksmith will change all the locks.  If you have any possessions in the home, the bank will store them for a certain period of time (unsure how long the law requires them to store), and if you do not redeem them and pay for the storage and costs, the bank will sell what is there and this nightmare is over for everyone.

Now, for the Real World Version.

STEP ONE…How long you are in this step depends solely on who your lender is, and how many other loans they have in a similar situation.  A smaller bank, with fewer  delinquent loans, will be on top of this issue far sooner than a huge bank with thousands of similar loans.  So what is the timetable?  In a generalized statement, a smaller bank will proceed to step 2 in anywhere from 90-120 days after your last payment was received.  A larger bank can be so buried in paperwork that we have seen examples where the owner has stopped making payments for over a year and has never been contacted!  Just remember that every bank is different, so the time they allow you to stay in the home without making payments can vary a great deal.

STEP TWO…Very few differences here.  Eventually your lender will “discover you” and figure out that you have ignored all their letters and calls, and file the NOD.  Again, how long this takes is anyone’s guess, but once they have indeed filed the NOD, the 90 time frame is the same as above.

STEP THREE…Again, the same as above.  No actual step is taken here, so the 90 days in step 2 combined with the 21 days in step 3 blend together into a single 111 day process.

STEP FOUR…Here’s where huge differences can occur.  Every morning at the Riverside County Courthouse, there are hundreds of scheduled Trustee Sales…and every morning, a HUGE percentage of these sales are cancelled for who knows what reasons.  Our theory mentioned previously in this blog is that many lenders do not want to take the home back at that time because they would then have to show the loss on their books and they would rather wait…but who knows.  The bottom line is that if your home is one that is postponed, then you are off the hook until the next scheduled Trustee Sale…in which case the same thing could happen again.  This is another “big lender vs. small lender” thing as well, so it is impossible to predict.  We only know that there have been many people who have had their sale postponed multiple times. 

STEP FIVE…If your home has gone to sale, when the bank representative contacts you (generally by posting information on your door), it is usually a real estate agent hired by the bank…and that agent usually has the power to offer you what is known as “cash-for-keys.”  The bank knows that you (the now former homeowner) can delay your departure, and even take months if you do not move and force them to get legal, so they will generally offer you some money to move out in 30 days.  How much money?  Depends on the bank, but generally it is between $1,000-3,000.  My advice it to take it, because it only gets worse if you force the bank to do the lockout etc.

In the end, no one likes this side of the business…not the real estate agents, not the banks, and certainly not the home owner…but today, it is a reality that is all too often part of our daily picture.  Hopefully, your life is such that you never have to head down this road…but if circumstances put you there, then perhaps this generalized road map can guide you a bit on what to expect.

Take care, and as always, let us know if there is any issue you would like to see addressed in this blog.

In the latter months of 2009, the huge issue with local real estate was the dirth of bank foreclosures that were making it onto the market for sale.  Everyone knew there were tons out there in the pipeline, but they had not reached the market.  Optimists hoped for a flood of inventory that would allow the massive demand for homes we are experiencing to balance the market, while skeptics remained convinced the big banks would continue to manipulate their repossessions in order to present a “best case” set of books to Wall Street.  And who is right?  Who wins?

So far, the skeptics.

The available inventory on March 1 is up slightly from that of January 1 (1115 homes for sale as compared to 1034), but that gain in homes for sale is not enough to start shouting “trend” at the top of one’s lungs.  Also, the number of homes that entered escrow in January was identical to the number of homes in February…at 400 homes. 

The pending sales at 400 is up from the last few months of 2009, but that is to be expected, as the holidays is traditionally a slower time of year for real estate sales.  If you go back to September and October pending sales of 2009, the pending numbers are 483 and 415 respectively…which again means the beginning of 2010 looks a lot like the last few months of 2009.

So…what does all this mean?

For now, it means that the planes are still circling the airport, but none are landing.  Of the large amount of properties that have had a Notice of Default filed upon them (the first step of the foreclosure process), very few are ultimately hitting our market.  What the future holds depends upon whom you talk too…but there are so many varied opinions on what is happening with this potential bank inventory that the only clear picture is that no one really knows.  The future with regards to the availability of bank repossessions is a guess, and nothing more.

On the demand side, here in the Riverside area, we are still gung ho with all the people who desire to purchase a home at the reduced rates of our current market…but our problem is that they are all fighting over the same pieces of cheese.  We have no problems that about 1000-2000 homes for sale wouldn’t cure, but for now, we will take what we can get…and what we are getting is the slow dribble of homes that are coming from the banks.  Combine these limited bank repo’s with the ever frustrating “short sale” market (think shopping without knowing a price or availability…and taking months to get an answer) and a few ”normal” sellers, and you’ve got a pretty clear picture of what we deal with on a daily basis.

In the end, we will adjust…we always have.  And eventually, the market will swing towards a more balanced arena between buyers and sellers.  It’s just that it hasn’t happened yet in the first two months of 2010.  Stay tuned, and we’ll see what comes next.

The theory here is that too many first time buyers or people who want to live in the home are being aced out of their offers because the investor can purchase with “all cash” while the “regular” buyer needs to get a loan…and since a new loan comes with more potential problems for the bank/seller (qualifying, appraisal issues, repair issues, etc.), the bank/seller accepts the investor offer over any other offer that is not all cash.  As a result, regular buyers don’t really have a chance to purchase these homes.

SO…since Congress is here to protect us all from  the evils that exist in our world (yes, in this case, note the sarcasm), someone got the bright idea to suggest and hopefully pass legislation that will give the regular buyers a 15 day head start before an investor can make an offer…thereby letting the buyer get first crack at the repo, and preserving truth, justice, and the American way (a phrase familiar to old Superman watchers).

There is just one problem with all this…it probably won’t work.

Why?  Because banks are about profits (or limiting losses in the case of a bank that has to foreclose on a property), politicians are about sound bites and good intentions (in that order seemingly), and just as water will find a way through almost any surface, so will a banker who wants to make money.

In this case fo this proposed legislation, the politicians can trumpet to whomever will listen that they have the backs of the regular buyers in their war against the evil, profiteering banks…and everyone will feel better…and then the politicians will move on to next weeks topic of good vs. evil. 

However, in my opinion, based upon 30+ years in this business watching both banks and well intentioned politicians, here is what will really happen.  History tells me that banks will put their repos on the market for sale, and simply wait 20 days to receive all offers, and then pick the best one from all those offers that stacked-up in the 20 days…and nothing will change since the banks will still continue to pick the all cash offers from the investors.  Simple as that.  Think I am being negative?

In 2009, the California legislature passed a new law that was supposed to protect the consumer from having to use the escrow companies that were being forced down their throats by the same banks.   All too often, the foreclosing bank forced the buyer (and agents) to use an overworked escrow company generally far away because the bank had a sweatheart deal for the fees these escrow companies charged.  The service stunk, huge delays were the norm, and no one was happy except the banks, for they paid far less for the escrow service than normal. 

So…the California legislature passed a law to “protect it’s citizens” from the evil banks (sound familiar) by making the choice of the escrow company completely up to the buyer, and not the seller.  Political sound bites followed, chests pumped out, and another dragon was slayed on behalf of buyers statewide.

The problem…the banks simply said that if the buyer insisted on using the escrow company of their choice, then the bank/seller would not pay for the title insurance (by custom, the seller pays the bulk of the title fees, not by law), AND…the bank would also not pay any additional costs the buyer may be asking for that would enable them to purchase the home.  In essence, the buyer insisting on using his or her escrow company would cost them hundreds to thousands of dollars for that privilege. 

The net result…nothing changed.  The buyers did not want to pay the additional money for the right to use a local escrow company, nor did they want to rock the boat…and the banks still got to use the escrow company of their choice at the same reduced rates that existed before the legislation passed.  And the politicians who meant so well?  They have moved on to other areas of consumer protection and future sound bites for the local news.  Everyone is obeying the new law, and nothing changed.

Cynical…perhaps…but also realistic.  Understand, I am not a proponent of what I have just described here.  In fact, we still hate using the escrow companies forced upon us by the banks, and we truly wish that the regular buyers who are getting beat out of their home purchases could indeed get the homes they desire.  It’s just that legislation is not the answer, because the banks will always find a way around any new law that is passed (see tarp money, huge bonuses, bailouts, etc.)

So…what is the answer?

Well, if you asked this person in the trenches…if the government wants to really help, then force the banks to put the thousands of repossessions they are now hoarding up for sale on the market.  This would greatly increase the supply of homes, bring down the multiple offer bidding, and leave plenty to go around for both the regular buyers and the investors.   There is enough for everybody if the banks would just stop stockpiling their foreclosures (see previous blogs on why banks are sitting on their inventory). 

Simple, and good for everyone.  However, until the government forces the banks to sell what they have, the banks will continue to find ways around almost any type of legislation.  I wish it weren’t true, but the realist in me (coupled with experience) tells me otherwise.  We’ll see.

In the meantime, take care, and thanks for reading. 

 Let us assume you head to the market to buy a gallon of milk…and when you get there, you discover back at the milk section that there are only 3 one gallon cartons on the shelf (priced at $3.00 per gallon), 40 people standing around wanting to purchase these 3 cartons, and a frazzled milk dude trying to decide who should get the milk.  Someone says they were there first, someone else says they REALLY need the milk, someone begins to cry, and finally someone says they will pay $3.10 for the milk.  Someone else hears that and shouts they will pay $3.25 for the milk, and before you can say ”low fat or regular”, the bidding war is on.

In the end, all 3 cartons of milk are sold for $5.00 each to the 3 people who are willing to pay this amount.  Naturally, these 3 people are pleased with their purchase, completely happy to pay the $5.00 they bid for the milk. The remaining 35+ people are not too pleased with this process, but what can they do?

So…these 3 winning buyers of the milk head to the front to pay, and there are 3 checkstands open.  Buyer number 1 heads to the first checkstand, explains the situation, and presents their $5.00, which the checker accepts and all is well.  Buyer number 1 heads to their car with their milk.

Buyer number 2 heads to checkstand 2, but that checker says that the milk really isn’t worth the $5.00 the buyer was willing to pay, and the price should be reduced to $4.00.  Buyer number 2 says they are willing to pay the $5.00, but the checker says no…it is only worth $4.00, and accepts the buyers $4.00 for the purchase.  As you can imagine, buyer number 2 feels like the cat that just swallowed the canary, and leaves the store with the milk before anyone can change their mind.

But buyer number 3 headed to checkstand 3, and there he was greeted by the store manager.  This buyer had witnessed what had happened at checkstand number 2, and wanted to pay the $4.00 for the milk…but was told “NO” by the manager, the price was $5.00.  Buyer 3 was not too happy, but wanted the milk, so they agreed to pay the $5.00…however, the buyer only had $4.00 in cash, so they put the $4.00 out and began to write a check for the other $1.00.  At this point, the store manager said they would only accept cash, and that if the buyer did not have the cash, the manager would not sell them the milk.  The buyer was incensed, very agitated, pleaded their case, and said they would gladly pay the $5.00 for the milk, but had to write a check for the extra dollar.  The manager refused, and ultimately, the gallon of milk was returned to the shelf…where a new bidding process was started again with a new set of 40 people who were now at the milk section.  Buyer number 3 stormed out of the store, (angry as you-know-what), the store did not make the sale, and everybody loses in this case.

…and here is the final kicker…THERE IS A TRUCK FULL OF MILK AT THE BACK DOOR TO THE STORE IF SOMEONE WOULD JUST AUTHORIZE IT’S UNLOADING.

And that is our real estate market in a nutshell. 

The truck full of milk is really all the repossessions the banks are holding off the market, the milk buyers are all the home buyers trying to purchase the small amount of homes currently for sale, and the 3 separate scenarios at the checkstand really represent the mind-boggling array of decisions that are made by either the buyers new bank, or the bank selling the property.  Yes, this is ridiculous…and yes, if the banks would just release the repossessions they already have in their possession, there would be plenty for everyone, and all this bidding and “checkstand” junk would never have to happen.

However, no one checks with us in the industry about all this, so we will just do the best we can with what we have to work with…but all of us hope that someday, they make everybody happy and just unload the milk truck…please.

Take care, and let us know if there is any real estate issue you would like to see addressed on this blog.

However, it is one thing to talk about this “overbidding” issue caused by all this competition, but in our case, we can back it up with numbers.

For the entire year of 2009, in the Riverside area, there were 5,738 homes that closed escrow…and a whopping 64% (3662 homes) closed escrow at a price “equal to or greater than the original list price.”  This means that over 6 of every 10 homes were involved in some type of buyer competition that caused the ultimate buyer to offer higher for the home than the original list price.  Pretty amazing for a “down” real estate market.

When you break down the above statistics by price, the numbers are even more telling.  Most people are aware that the entry level price range is a very active market, with the higher price ranges slightly softer…but by how much?

Well…for homes that closed escrow at $350,000 or less, the percentage remains fairly close at 64%…and for homes priced above the $350,000 mark, the percentage of homes that closed at a price equal to or greater than the list price is at 50%…still a remarkable percentage for the higher priced homes.

However, when you look at the last 6 months of 2009 as a separate group, the percentage for the entry level homes (below $350,000) jumps to 71%, indicating an upward trend that will certainly carry into 2010.  The higher range held steady at 51%.

What do all these numbers mean for anyone who is trying to purchase a home in 2010?

First, understand what you are getting into.  If you are an entry level buyer, you will be competing with a lot of other people who are trying to do the same thing as you are, so come prepared.  If your goal is to purchase a repossessed home for 70 cents on the dollar like the guy with lei around his neck on the 2:00 am television infomercial, it probably won’t happen here in Riverside.  Detroit maybe, or some other area of the country where demand is down, but not here.  However, if you understand that this will be a process, and that patience will eventually get you where you want to be, then jump in…because prices and interest rates are extremely favorable for you at the moment.

Secondly, understand that this imbalance between supply and demand will continue until the banks stop hoarding their repossessions and start letting them loose on the market.  We have no clue when, or if, this will happen…but simple economics dictates that limited supply and large demand will lead to a frenzied market…so fasten your seat belt and accept it for now.

Of course, you can always choose to sit the market out and wait for it to become more balanced, and less frenzied…but you run the risk of higher prices when that happens, and higher interest rates as well…because the pressure on both to rise is measurable.  Even now, in many areas, prices for homes have stabilized, and are starting to trend up just a little from the levels seen only 6-12 months ago.

In the end, the choice is yours if you are thinking of buying…but for our money, take a large dose of patience and jump in, because the price and loan you get today will be well worth it tomorrow.

Take care, and let us know if there is any issue you would like to see addressed in our blog.

First, let me throw in the usual caveat here that we are not attorneys, and if you have a particular situation that requires more than the generic information posted below, please consult your legal representation.  However, what comes below is based upon 33 years of real estate experience.

So…in the typical scenario, buyer #1 enters escrow with the seller, and everything is swimming along nicely right up to the point when it isn’t.  In most cases, it is the buyer who wants out of the transaction.  Understand here that for purposes of answering our question at the top of this blog, the reason for the buyer wanting to “bail” is immaterial.  The buyer could be totally justified in wanting out, or the buyer could be the biggest jerk in the land…it doesn’t matter (as for who gets the deposit, it would matter….but for the seller to re-sell the home, it doesn’t).

Anyway, once the buyer has decided to not continue the purchase, the normal procedure is for the buyer’s agent to notify the seller’s agent of the reason for the discontinuance of the sale…and at that point, if the seller disagrees with the buyers reasons for  wanting out, the fun begins.

Again, in most cases, an argument ensues as to who is entitled to the deposit money that is being held in escrow, as generally the buyer wants it back, and the seller wants to keep it because they feel the buyer’s reason for blowing up the sale is invalid.  Naturally, if they both agree on who should have the deposit money, all this is a moot point, as the money is  mutually released, and all press on.  However, if there is a disagreement on who should get the money (and usually there is), then what happens?

Well…the buyer (or buyer’s agent) tells the escrow officer to cancel the escrow and refund the money back to the buyer…and escrow, being a neutral third party, types up a cancellation amendment stating the buyer wants to cancel the escrow and receive the deposit money back.  This amendment is sent to both the buyer and seller, and naturally, the buyer signs it and sends it back to escrow…but what about the seller? 

Understandably, the seller is not going to go for this, so the seller (or seller’s agent) ALSO calls escrow, and asks for a cancellation amendment stating for the escrow to be cancelled and for the money to be sent to the seller…which of course, the seller signs and sends back to escrow.

Now what?  Escrow has one amendment signed by the buyer (deposit money to be refunded to the buyer), and another amendment signed by the seller (deposit money to be sent to the seller), but there is certainly no agreement between the two parties.  So what happens now?

The law in a case such as this is very clear…escrow can only release the money if one of the folowing three events occurs:  1. The buyer and seller mutually agree on where it should go, which is not the case here.  2. Escrow receives a court order instructing them on where it should go, which is usually the result of either the buyer or seller suing the other in small claims court.  or  3.  After 3 years, the money is sent to the State of California in what is known as escheat.  What the State does with the money is anyone’s guess, but off to the State it goes.

So…back to our original question at the beginning of this blog…Can the seller put the house back up for sale, accept another offer, and close escrow #2 if escrow #1 is still hanging there with no outcome of the original deposit?

YES, YES, YES…because both parties are on record with their respective cancellations that this escrow and sale are to be cancelled.  The dispute now exists as to the disposition of the deposit, not the property.  In other words, the buyer has said to cancel the escrow and the seller has said to cancel the escrow…they agree on that.  They just don’t agree on who should get the money.  Therefore, you now have a dispute over the deposit, not the property, and the seller is free to sell the home to someone else and close escrow with the new buyer #2.

The only time the seller could not sell and close the new escrow #2 is if buyer #1 is on record as still wanting the home, and is fighting the seller over the property instead of just the deposit money.  An example of this would be if the seller cancelled escrow #1 because he got a better offer from buyer #2 and simply wanted to make more money.  Here, buyer #1 would still want the home, and may therefore have a legal claim (to be decided by the courts…and for this, you will need an attorney)…so for the seller to simply try to take the home out from underneath buyer #1 would be very foolish on the sellers part.

In the end, there is no way to cover all the possibilities that could occur in a situation such as this.  Every escrow and sale is different..but just remember…if the dispute is over the deposit, the seller can go ahead and re-sell the home.  If the dispute if over the home, then everyone better check with their attorneys.  Hope this clears up the Urban Myth of what a seller can and cannot do with their home and escrow.

 Take care, and as always, if you have any questions you would like to see addressed in this blog, let us know.

Well…we now have the final years tally for comparison, and it completely bears out the fact that in our Riverside area (and Inland Empire area as well), we really are a “tale of two markets.”

For the entire year of 2009, there were 5,168 properties that closed escrow in the Riverside area at a price range of $350,000 or less.  Of those closings, 3,379 were at a price that was “equal to or greater” than the original list price.  Or, in percentages, 65% of all homes below the $350,000 price level sold at a price at least equal or greater than the list price.  That is a huge percentage of homes that were possibly “overbid” by frantic buyers wanting to take advantage of the lower pricing of the last year.  This is not new, as we have blogged many times this past year about the frenzied, manic, and fast-paced market for entry level homes in the Riverside area.

It should also be noted that is you just look at the figures for the past 6 months of 2009, the percentage of overbids rises from 65% to 71%…indicating a trend caused by the lack of housing inventory.  Overbidding is on the rise, and since it was 73% for the month of December, it looks like it is here to stay for a while.

Now…contrast these figures above with those from the “higher” priced level above $350,000.

For this higher price range, the figures change dramatically.  In all of 2009, there were only 570 homes that closed escrow above the $350,000 level, and of those only 50% (283) were overbid…which is still a large overbidding percentage, but albeit from a much smaller pool of sales.  In fact, only 10% of all closings in 2009 occured at this higher range.

If you total the two categories together for an overall percentage of overbid closings, the combined number is 64%…still a massive number in any type of real estate sales market.

So what does all this mean?

It means that our “entry level price range” market is on fire…a huge number of sales, and an even larger number of potential buyers who are not afraid of real estate as an investment in the future since they are willing, at a 65-71% rate, to pay more than list price for a home.  Statistics such as these are the reason we are very bullish on the future of real estate in our area.  Remember, the average home in this price range has multiple offers (which leads to the overbidding)…which means that for every sale, there is at least one other person/family (the “losing” bidder who is still in the market to purchase a home.

This is why, as real estate professionals, we go crazy when the major banks hoard their foreclosures for bookkeeping purposes (or because they are horribly inefficient, take your pick), because at least in the Riverside area, we have willing buyers for almost all of what they have to sell…they just need to get their housing inventory to the market.  This is why we stump repeatedly for the banks to let loose with their repossessions and let us clear them out of the marketplace.  

For the ”higher level” price range over $350,000, things are a little different.  Yes, there are still overbids on the foreclosures in this price range too, but as a general rule, this market is a little slower, and not a frenzied as the lower price level.  It is still active, but it only represents 10% of the total sales in Riverside.  It will improve in time, but not until the banks sell-off all their excess foreclosures…because the only way the higher end market begins to appreciate and get stronger sales numbers is when sellers of the lower price homes use their sales equity to purchase the higher priced homes…and those lower priced sellers have no equity because the majority of them are banks, who are obviously not going to repurchase a higher priced home.

In the end, this market will run it ’s course in time, but the magic question is….how long will it take?  There are guesses galore with all the pundits and real estate “experts”, so who knows when that date will happen…but one thing for sure is that it cannot happen until the banks get out of the real estate homeownership business…a sight we would all like to see happen soon.

So instead, we thought it might be more useful to simply state a few facts about our local, Inland Empire real estate market as it stands today…or to quote Jack Friday from the old Dragnet series (yes, I am dating myself…you younger types can Google it)…”Just the Facts Ma’am.”

Fact #1…We are still an area dominated by two distinct real estate markets, separated by price.  In arbitrarily picking a line at the $350,000 price range, in 2009 there were 4,746 closings in Riverside below this price, and only 521 above this price.  This means that roughly 90% of all sales occurred at the “affordable” range, and only 10% above it…and in order for the higher price range to begin to see any significant action, there needs to be more sellers at the low prices using their equity to move up into the higher prices.  Unfortunately, most of the “affordable” range sellers are banks or distressed sellers, neither of whom are looking to buy a more expensive home.

Fact #2…Available housing inventory is way down.  Homes for sale in Riverside dropped over 55% from January 2009 to January 2010…from 2,385 to 1,034.  This reduction is available inventory is really playing havoc with our markets, for reasons we will outline below after we lay out a few more facts.

Fact #3…Major banks are hoarding their repossessions, keeping them off the market.  Why?  The optimistic amongst us think that the banks are concerned about the possible negative effect of dumping their repos on the market…but when was the last time you saw a major bank care about the general public?  The more cynical of us feel that the banks are actually “hiding” all their repos (and yes, reporting laws have changed and banks can indeed hide their repos) to make their books look good for Wall Street.  Either way, the result is the same…and there are estimates of thousands of foreclosures in the Inland Empire that are unavailable and unaccounted for at this moment.

Fact #4…Buyer demand for “affordable” housing is higher than ever.  We cannot speak about other parts of the country (or even California for that matter), but here in the Riverside area, we could easily sell every bit of the bank foreclosure inventory thrown our way.  We consistently have 5-15 offers on any reasonable, “affordably’ priced home for sale, and the limited supply coupled with almost unlimited demand creates a very frenzied marketplace.  Jobs and the economy aside, prices have fallen so much since 2007 that more and more people who were priced out of the buying equation can now afford to purchase a home.

Fact #5…Since the real estate meltdown of 2007, the new regulations imposed upon the appraisal industry have everyone running scared…and as a result, in our opinion, housing values are being kept artificially low by nervous appraisers who find it almost impossible to let market prices rise.  Simple economics dictates that limited supply coupled with massive demand should lead to rising prices unless some outside force is acting upon the market…and in this case, that outside force is the constraints and new regulations placed upon the appraisal industry that keep prices from rising.

Fact #6…Interest rates for new hosing loans are extremely low…for now.  There is a lot of pressure on the Fed to raise rates as soon as the economy shoes any consistent signs of life, so if you want today’s absolutely awesome 30 year fixed interest rates, you need to get on board that bus now…for the powers-that-be want the bus to leave the interest rate station as soon as possible in 2010.

In conclusion…Our market will weather this storm as it has all others, and the real estate sun will shine again…but when?  If the banks would just let us sell what they have, then we could see our market turn around almost as quickly as ti tanked.  If not, then this dual market of “affordable” price vs. “higher end” price will continue far longer than it should.  That makes for a lot of very frustrated real estate professionals, buyers and home owners who are left to wade through a market that should not have to exist.  However, we are stuck with what we have…for the one prediction we can make is that until banks get out of the home ownership business, we cannot have a sustained, reasonable real estate market.  It’s that simple…and let’s all hope that happens in 2010.

Take care, and let us know if there is any real estate issue or topic you would like to see addressed in our blog.

 Below you will find the latest inventory statistics from the local MLS regarding the number of properties available for sale. (and yes, I know this will come out crooked when you read it…programming glitch, because it is straight when I type it!)

Month                    Properties for Sale           Month                     Properties for Sale

January, 2009                 2385                        July                                  1184

February                           2238                        August                             1100

March                                 2106                       September                      1056

April                                   1883                        October                            983

May                                    1646                        November                       997

June                                   1332                         December                       1050

Now, let’s look at this…and please note, the number of available properties for sale in January, 2010 was 1034.

First, there is no increase that I can see.  The inventory numbers for the year are off over 50%, and since October, there is less than 50 properties separating these 4 months.  If you really want to micromanage the data, then you can note that January 2010 saw a decrease from December…but for statistical purposes, it appears that while our inventory took some serious drops throughout the year, it seemingly stabilized a bit beginning in October/November.

Second, by many accounts, there are tens of thousands of unaccounted for bank repossessions in the Inland Empire area…so where are they?  You’ll get as many different answers to that question as there are people in the room, but we can tell where they aren’t….THEY AREN’T FOR SALE, THAT IS FOR SURE.  Theories abound, but the simple reality is that they are not being released for sale in the market…and trust me…they are not being held for loan modifications either.  Loan mods represent a very small part of our market.  Yes, there are some, but not many compared to all the properties in some stage of foreclosure.

Thirdly, we cannot emphasise enough that until banks get out of the home ownership business, our real estate market cannot equalize and begin the road back to recovery.  As long as the banks hoard their repos (for whatever reason), there are no “move-up” sellers to purchase the more expensive homes, appraisers remain extremely conservative because of all the unaccounted for repos that are somewhere (and therefore they will not let prices rise for fear a flood of repos are coming soon), this market will extend for a far longer period of time while we are forced to wait this out, and the massive demand of buyers that we now have will continue to remain incredibly frustrated at the lack of available homes to purchase…HOME PURCHASES THAT COULD GET US OUT OF THIS MESS.

So…while we beg, plead, and pray for our inventory to rise as the Press suggests, for now, that is only a wish, and not a reality.

Take care, and let us know if there is any issue you would like to see addressed in this blog.

Loan Modifications…lots of talk by the Obama administration about demanding that lenders do more on their loan modifications, but the bottom line here is that this still represents a minuscule portion of what is happening in our market.  In reality, we have all seen that the administration really has very little power over the lending industry (this is not a political statement…either party would probably be in the same boat), so the government can huff and puff all they want about loan modifications, but the simple truth is that they are very complicated, hard to do, and therefore still have a very long way to go.  Better, but by no means good.

As an aside regarding loan modifications, please be aware that if you have your loan modified, your credit score will drop substantially…and this surprises some people.  Remember…a loan modification is another way of saying that you cannot pay what was promised when the loan was originated, so technically speaking you are in default on the original note and want it modified…hence a drop in your credit scoring.

Short Sales…Getting better, but still a black hole quagmire, depending upon who the lender is.  In a real estate nut shell, a “good” lender to work with will probably get you a closing in 4-5 months…and a “bad” lender will take 9-10 months….and that is assuming that you can make the sale happen at all.  Yes, this is ridiculous, and yes, this is a lousy way to do business…but that’s the market we have, and there is nothing we can do about it except try to work within the “rules” set down by the banks.  Again, the Obama administration is attempting to pressure the major lenders to do a much better job, but good luck with that.  In the end, stay patient, and hope for a little good luck along the way.

Bank repos…they are still locked away in a drawer some where, waiting to be sprung on the market at some random time in the future.  The formula for when banks release their standing inventory is as secret as the KFC chicken recipe, but we still maintain that the banks are far more interested in looking good for Wall Street than they are in ridding themselves of their foreclosed properties.  Remember, some banks can hide their loan losses right up until they sell the property (not when the repossess it)…so stay tuned for further notice, and expect the number of repossessions available for purchase to remain scarce.  Wish we had better news here because we all need these properties to get released and sold, but we do not control the flow…only react to it.

New Housing Starts…They are way down, and will stay way down for many years.  Do not look to new home building to be a part of this market for quite some time.  The reason is that prices have dropped so low that builders in our area simply cannot build and make a profit…so they will pass until they can.  It makes no sense to build a home for $275,000 that can only be sold for $250,000.  Some builders even feel tract land has no value…as in ”0″…for this reason.  Therefore, in most cases, the only new homes being built today are by lenders who have had to foreclose on partially built tracts and thereby have no choice but to finish the building and sell at a loss.  Otherwise, this market has a long way to go before builders come back to build.

All of the above have had some media attention over the past month, and so we hope this information brings you up to speed on exactly what is happening at the moment.  As we head into 2010, we will, as always, make every attempt to keep you informed on anything that affects the real estate market in our Riverside area.

 In the meantime, lets just keep our heads down and keep plowing away, because for all the hassles associated with our housing market at the moment, we still have one of the greatest places in the country to live…just look at the weather maps this week!

Take care, and let us know if there is any information you would like us to address on this blog.