Wednesday Jul 22 2009
Is the real estate market stabilizing in Lincoln?
By: Gene Thorpe, Special to The News Messenger
Part 5 of the series, “The Anatomy of a Real Estate Transaction.” To see past columns, go online to lincolnnewsmessenger.com. California was one of the first states to enter the housing downturn. Could it be one of the first to recover?In October 2007, the U.S. Treasury Secretary called the bursting housing bubble “the most significant risk to our economy.” Fortunately, Placer County has not been hit as hard as other areas, and as we all know, Lincoln has been one of California’s fastest growing cities! The rich history of Lincoln’s downtown area, coupled with the large number of new home developments and shopping centers, make Lincoln very attractive for the family looking for “just the right place to live.” Over the past few years, there has been a significant drop in the area’s home prices. This would be because of the high number of homeowners going into foreclosure. Some prices of homes have come down as much as 60 percent from the peak of the market in July 2005. Price & Inventory At this time, most Lincoln homes are affordably priced. Due to the low interest rates, large inventory and economic uncertainty, this should be a time for buyers to have more negotiating leverage. Many new home developers are offering significant buyer incentives on their new homes. “Sales are weakest in areas that had a lot of new home building in recent years. I believe these are the areas that have the greatest potential for purchasing opportunities,” California Association of Realtors’ Chief Economist Leslie Appleton-Young pointed out. Price Verses Income Some economists say lower house prices are the solution and not the problem. House prices may keep falling in most cases because prices are still high, compared to incomes and rents. Banks say a safe mortgage is a maximum of three times the buyer’s yearly income with 20-percent down payment. Property managers say a safe price is a maximum of 15 times the tenant’s yearly rent. Yet in many areas, these rules of thumb are still being violated. Buyers are still borrowing six times their income and putting only 3 percent down and sellers are still asking 25 times annual rent, even after recent price declines. Renting is a business that reflects what individuals can really pay, based on their salary. This all indicates that prices could keep falling for awhile. Mortgage Rates Mortgage rates have fallen for three consecutive weeks. This is according to Freddy Mac results that were released in its Primary Mortgage Market Survey last Friday. The 30-year fixed-rate mortgage averaged 5.14 percent with an average 0.7 point for the week ending July 16, 2009. Last year at this time, the 30-year rate averaged 6.26 percent. First-time homebuyers and investors are jumping to take advantage of state and federal tax incentives, low-interest rates and prices that are more affordable than they have been in many years. California’s median price climbed in April on a monthly basis for the second straight month. That hasn’t happened since August 2007, the California Association of Realtors reported on May 28. Home sales in April rose 49 percent, compared with April 2008. Right now, it appears as if the government’s plans for reviving housing may be working. The first-time homebuyers $8,000.00 tax credit is definitely stimulating activity. Foreclosure numbers are down from April and May in so many markets across the country. With the stock market still jumpy and investors worried that the global recession may not be ending soon enough, it may seem a little surprising to see such strong positive signs in the home real estate market. Pending Sales Pending home sales rose sharply, by nearly 7 percent, in May, measured by the National Association of Realtors. Pending sales are those where the contracts are signed but the deals haven’t closed escrow yet. Pending sales were up in all four major regions of the country, catching the attention of some key industry economists. Orawin Velz, economic forecaster for the Mortgage Bankers Association, said in a commentary that “the steady improvements in pending home sales are encouraging” and confirm the view that existing home sales hit their cyclical bottom in January and are likely to continue to rise in the coming months. Since the January low point, Velz noted, the Realtors’ pending sale index is up by 13 percent. Homes are at huge discounts. Prices have come down below $100 per square foot on many homes! That is equivalent to building the home at a discount and getting the land underneath for free. While all of this is going on, indicators of market distress continue to move in different directions. Foreclosure activity remains near record levels while financing with adjustable-rate mortgages is near the all-time low but has recently edged higher. One of the main concerns is unemployment. Placer County, as a whole, has an unemployment rate of 10.9 percent (in comparison to Sacramento County’s rate of 11.1 percent). With all of this being said there are many components to the big picture. We are definitely in a volatile economy. The fact remains that sales activity has been on the rise. Bank-owned properties have been getting multiple offers. Conclusion It appears the market is heating up in many cases. For example, some clean properties in the low end of the price range are seeing a slight rise in prices. Many of us in the real estate business wonder if we have actually hit bottom here in Northern California while some places in other sections of the country might not have. The point is, if you are in a position to buy and you want the benefits of home ownership, you might as well jump in now. Gene Thorpe is a California Association of Realtors’ director and president-elect of the Placer County Association of Realtors. He can be reached at email@example.com.