California, Nevada and Arizona are finally turning the Corner

Continuing on from last week's real estate updates by region, today's post breaks down why people are jumping into the market in places that haven't been open to first time home-buyers for decades.

While I never recommend you try to time the housing market, if you’re in the market for a new home, it helps to pay attention to its cyclical nature. In tough times like these, prices drop and the market becomes more attractive. The more people that get in, the higher prices rise. While there are still deals out there, this map shows that some of the regions that were hit the hardest by the housing crisis in 2007 and 2008 have begun to bounce back in early 2009 with increased sales numbers. Luckily for me one of those regions is California!

In some regions, sale prices of homes have plummeted as much as 50%, so more people have been jumping into the market with their fingers crossed, especially with 30 year fixed rates falling below 5% for the first time in recent memory. The metropolitan areas that are highlighted are those with the highest percentage of change in median sales prices. The highest percentage of increases in home sales are in areas where prices have dropped the most over the past year. For bargain hunters, this is an encouraging sign to see new opportunities. Furthermore, the combination of decreased prices and attractive housing credits have finally made it possible for many first-time home-buyers to afford a home in the previously financially outrageous areas like Las Vegas, Phoenix and Orange County.

While there are only six states that have experienced increases in sales volume in the past 12 months, most of those positive changes have been very drastic. Arizona has seen a 50% jump, California over 80% and Nevada an impressive 117% increase from 2008. It is typical for many other states to follow real estate market suit within 6 months to a year after California makes a change, for better or for worse. So, depending on where you live, the housing market may be in either a boom or bust cycle- if it's the later, start counting down.

Good news for the San Diego Housing market

According to economist, things are getting better in the near future for the housing market in San Diego!

Lawrence Yun, chief economist for the National Association of Realtors, said "the local market is buoyed by a tight housing inventory and enticing federal tax incentives."

Yun was speaking at a lunch event hosted by the San Diego Association of Realtors on Tuesday. Some 700 people attended the event held at the DoubleTree Hotel in Mission Valley. San Diego Mayor Jerry Sanders, as well as representatives of various politicians in town, also attended the event. Helen Kaiao Chang of SDNN goes on to discuss rising San Diego sales, the federal tax incentive, decline in inventory and more in her blog below.

“The worst in housing is probably already past in the San Diego market,” said Yun. “Home values have fallen so much that many of the potential buyers who have been sidelined are understanding this is a great opportunity.”

Erik Weichelt, president of the San Diego Association of Realtors, who opened the event, agreed. “There’s a lot of homes to be sold, but quite frankly, there’s a lot more buyers,” he said.

Yun and other speakers also pointed out challenges the industry faces and the actions members of the National Association of Realtors is taking to overcome these obstacles. “Realtor” is a trademarked term used by members of the group.

Rising San Diego sales

During his presentation, Yun gave a far-ranging analysis of the market, from national to local statistics. His powerpoint slides painted a picture of rising sales in San Diego in the last year.

The number of San Diego home sales were up 11 percent in June this year, over June last year. At the same time, prices were down 13 percent in the same period, reaching a median price of $362,000 in June.

Federal tax incentive

One key reason for the sales demand is the federal tax incentive for first-time home buyers. The Housing and Economic Recovery Act of 2008 offers an $8,000 tax rebate to first-time home buyers, many of whom have been waiting for prices to come down to affordable levels.

Many of these first-time buyers could not afford housing prices during the boom years. But with lower prices and tax incentives, they are now biting, Yun said. The pent-up demand is now soaking up inventory.

“The stimulus program is working,” said Yun.

Decline in inventory

Another reason for the boost is a decline in housing inventory, said Yun. With lower prices, many low-end properties are now receiving multiple bids.

But part of the reason is that lenders such as Fannie Mae and Freddie Mac are holding back inventory, so as to not flood the market, said Yun. This “shadow inventory” could soften the market, but is not showing up on current data. In San Diego, demand still is currently outstripping supply, he said.

Yun noted that foreclosures would continue to rise nationally, as the “toxic combination” of job losses and underwater homeowners continued to grow. But the government’s program of foreclosure moratoriums - forcing lenders to hold off on foreclosure action against homeowners who have missed payments — has stymied the flood.

This has contributed to a shortage of houses on the market, particularly in San Diego, where demand is still high.

“Last year, foreclosures lingered on the market,” he said. “Now, foreclosed properties… have ready buyers.”

Tipping point

Consumers may also be reaching a “tipping point” for purchase, said Yun.

Many potential home buyers have been afraid to enter the market, wondering when prices would hit bottom. They have also been affected by negative media reports, showing widespread foreclosures.

But after four years of price declines since market highs of 2005, housing prices are now much more affordable. In some places in California, prices are down 20 percent to 40 percent from the previous year.

This has made prices much more affordable for home buyers who stood on the sidelines during the boom years.

“We are back to justifiable levels,” Yun said.

As more people enter the market, others start to follow. Some California cities are now seeing 50 percent to 100 percent rebounds, he said. This is creating a “tipping point” for more consumers to buy, he said.

Lobbying Washington

Despite this rosy outlook, the real estate industry is pushing aggressively for more. Goals include an extension of the home buyers’ tax credit program, as well as a change in bank appraisal requirements.

At the event, a lobbyist for NAR encouraged agents to make their voices heard in Washington.

Carol Horn and Ed Lawler, directors of the NAR Broker Involvement Program whose jobs entail lobbying Congress people and Senators, encouraged agents to log on to the NAR Web site to send automated email messages.

San Diego statistics

These messages support proposals that benefit the real estate industry. For one, the group is pushing for the first-time home buyers’ tax incentive program to be extended beyond the November 30 expiration date. For another, NAR wants to expand the program to cover all home buyers.

This year so far, about 6.5 percent of its members have par ticipated in this “Call to Action” program. The group hopes to expand this number to 15 percent. “We’re going to have to have strong involvement” to make things happen, said Horn.

Appraisal obstacles

The NAR is also pushing to clear obstacles in the appraisal process.

In an effort to cut down on the practice of appraisers rubber-stamping artificially high prices during the boom years, the federal law now requires banks to use approved appraisers. These supposedly more objective appraisers typically come from outside the area.

This has resulted in longer closing times, higher appraisal costs for would-be home buyers, and sometimes inaccurate results, due to the appraisers’ lack of knowledge of local markets.

“It was a good-intentioned policy with unintended consequences,” said Yun. “Buyers are coming back, but a hurdle is placed.”

The NAR is also lobbying for changes to these rules.

Market stabilizing

Despite these obstacles, Yun noted that the signs of recovery are strong. With the current uptick, San Diego’s real estate market may be leading a national recovery.

As inventory continues to decline, the real estate market should start to see a more stable, 5 percent annual growth, he said.

Building a fence in 4 Easy Steps

Building a fence is just one of the many home improvement projects covered under the FHA 203k home loan program. It varies of course depending on what kind of a fence you desire, but for most fences you can roll your sleeves up and install it on your own. These instructions are assuming you already have the wood posts and you are building in your backyard. Get out there and accomplish these home improvements while we still have some summer left!

1. Set the posts. Lay out the site, dig holes, and set posts, starting with the end posts. (For basic information on installing posts, see our Home Improvement Encyclopedia.) Check each post for plumb by holding a level to two adjacent faces; nail braces to hold posts upright. Check, too, that posts are aligned by tying string from end post to end post.



2. Add concrete. As you shovel concrete into the holes, have a helper tamp the concrete to remove bubbles. Round off the concrete so water will drain away from the posts. After the concrete cures, cut posts to a uniform height, if necessary. Shape tops of posts so they'll shed water.


3. Add rails. Attach the rails to the posts. We used galvanized rail clips. A line level and combination square assure that each rail is level and square with the posts.

4. Measure. Measure carefully and use a square to mark locations on the rails for each fencing board. Wood scraps squeezed between boards maintain uniform spacing. Have a helper align boards while you nail them to the rails.

FHA program gaining popularity in 2009

According to Jon Prior, of housingwire.com a Federal Housing Administration (FHA) program for purchase loans on foreclosures or other properties in need of rehabilitation gained in popularity in 2009. What's interesting is that the volume of 203(k) loans parallels the growth and fall of the market. While home prices sky rocketed in 2005 and 2006, the demand for the program fizzled. After the bubble burst and foreclosure inventories stacked up, the 203(k) loan again began to attract borrowers. Jon goes on to talk about the new loans in 2009 and what has been leading up to this spike of activity in recent years.

As of June 2009, the volume of new loans covered by the FHA 203(k) Home Rehabilitation Mortgage Insurance Program nearly doubled the amount from all of last year, according to a report Thursday from the Office of the Comptroller of the Currency (OCC).

Congress established the 203(k) loan program in 1978 to help borrowers gain and rehabilitate single-family properties. It allows FHA-insured financing for structures with up to four dwelling units in need of repair, but the owner must occupy the subject property or it can be owned by eligible nonprofits or government agencies.

Usually, borrowers looking to rehabilitate properties must obtain a short-term financing loan to purchase the home, another short-term loan to cover rehabilitation costs and third permanent financing to pay off the first two. The 203(k) loan condenses the rehabilitation financing process by allowing a borrower to take out one loan to cover costs rather than the three separate loans.

“The 203(k) Program is an important tool that can help mitigate a lender’s risk, while at the same time restore some of the nation’s foreclosed properties and help stabilize neighborhoods,” said Comptroller of the Currency John Dugan in a release.

As of June 2009, real estate data provider Realty Trac saw 2m foreclosure houses on the market, according to the OCC’s report. And, with many of these foreclosures in need of repair, the report indicates significant room for use of the 203(k) program.

From 1999 to 2005, the amount of 203(k) loans declined, but the volume started to climb in 2006 when approximately 3,000 loans joined the program. In the fiscal year of 2008, the program insured 6,749 loans, doubling from 2007, but the program topped 11,000 as of June 30, 2009.

The volume of 203(k) loans mirrors the growth and fall of the housing bubble. While prices soared in 2005 and 2006, the demand for the program dwindled. After the bubble burst and foreclosure inventories stacked up, the 203(k) once more attracted borrowers. The volume of loans originated under the program is back up to a level unseen since 1999.

“In fiscal years 2008 and 2009, demand for 203(k) loans increased because of limited availability of home equity lines of credit to make property repairs,” the report reads.

In total, the program insures approximately $2.7bn in outstanding loans.