It’s On The Table!

There’s no question. The government’s first-time homebuyer tax credit has spurred a significant amount of sales this year and its positive impact on the hard-hit housing market warrants an extension. Latest estimates show that some 400,000 additional sales occurred this year due to the first time home buyer tax credit, which is about 8% of all sales this year.

The latest news in the saga, The Senate has reached a compromise on extending and expanding the $8,000 tax credit for first-time home buyers. While its passage remains uncertain, the agreement would extend the existing credit for first-time homebuyers, worth up to $8,000, while offering a new credit of up to $6,500 for some existing homeowners. The reduced credit would be available to all homeowners who have been in their current residence for a consecutive five-year period in the past eight years. Lawmakers in Washington also raised the qualifying income limits to $125,000 for single taxpayers and $250,000 for joint taxpayers, from the current $75,000 and $150,000. Under the Senate compromise, buyers must have sales agreements in hand by April 30, but they will have until June 30 to go to settlement, said the sources. The measure still faces votes in the full Senate and the House.

The U.S. Senate won’t vote until next week at the earliest. As soon as they do we intend to create a piece that will allow you to communicate the news to your clients.

Reports show that Senate action has been delayed by a Republican demand that a vote be allowed on an amendment to end the Treasury Department’s Troubled Asset Relief Program at the end of this year. But lawmakers say they want to prevent home sales from slipping as the economy struggles to recover. And as I mentioned in a previous edition of Weekly Market Watch, that is just what may happen if lawmakers choose to let the tax credit expire.

On the flip side, the Democrats, along with the Obama administration are backing it. “The success of the American economy is closely tied to the success of the housing market; by helping to stabilize the housing market, the homebuyer tax credit has helped to shore up the economy as it begins to recover,” said Baucus, a Montana Democrat. “This would enable an even greater number of potential homebuyers to take the credit.”

Thus far it seems to be doing its job. This week, Business Week reported “The broad improvement in the housing indicators in recent months leaves no doubt that the long-awaited housing recovery is finally under way.” The article went on to report: “Policy alone cannot explain the 24% gain in existing home sales since January, nor the 22% increase in new-home purchases, the 40% rise in single-family housing starts, and the recent upturn in home prices. The primary driver is historically high affordability. Fixed 30-year mortgage rates are at 5%, a multi-decade low, and prices have plunged a total of 30% since May 2006, based on the Standard & Poor's Case-Shiller Home Price Index. By that price gauge, homes are well undervalued relative to both rents and aftertax income.”

Next week I hope to report some positive news on the home buyer tax credit front. Until then, let’s take a look at this week in real estate:

• Auburn— Through October 28th there are 24 pendings and 22 closed escrows with an average price of $400,600 for the southwest area and $294,557 for homes within city limits.
• El Dorado Hills— October has been a bit busier for new sales but many of them are short sales with buyers and Agents experiencing a lot of frustration. Inventory remains low.
• Elk Grove— While short sales and REOs continue to dominate, we are seeing some signs of normalization in the market as traditional sellers are beginning to list and sell. At this point, the affect of this seems to be more psychological than anything else, but it a very positive sign. Buyers are still plentiful and inventory quite low. A comment from one of my Agents sums up the market today nicely: “Real sellers seem to be anxious to take advantage of the low inventory of "real listings". I am experiencing getting more listings that are not short sales or reo properties. I am listing properties for the flip investors. I am still getting multiple (many) offers on the bank owned properties and the poor FHA buyers are really not being able to compete, especially if they need any type of seller contribution for closing costs. There is a very fine line between ‘upping the ante’ and making appraisal.”
• Folsom— Listings are still slow but once again, if a property is priced right it will sell and quick! If the new sales this week 40% were sales of our listings by other brokers and 60% we represented the buyer on another brokers listing.
• Placerville— Sales have been brisk this month and inventory is still shrinking. A few of our buyers will be very happy to hear that the tax credit has been extended.
• Rocklin/Lincoln—Thanks to our new Move-Up Marketer program, we are seeing many good leads and agents have some wonderful stories. One agent now knows the history of a neighborhood and has made a couple of solid contacts in the area. Another came across a possible listing within the first few doors and yet another has a possible new listing and a buyer. Just as importantly, the agents are smiling and are seeing some great responses.
• Sacramento Metro—REOs seem to be picking up…just a little. Lots of short sales.
• Tahoe/Truckee— Active Inventory Summary: Active Listings: The listing inventory for the Tahoe-Truckee market went down slightly again to its lowest level since May of this year to 2,069 active listings - 1,412 residential properties and 657 lots and land listed for sale. Active Listings - REOs and Short Sales: Of the active listings, there are 169 properties listed as short sales, (8.2%) and 74 properties listed as REO sales, (3.6%). While less than 12% of the active listings are short sales and REO’s, roughly 23% of the properties selling are short sales and REOs. Sales Summary: Last Week’s Sales: For the week of October 19th to October 25th it was yet another record breaking week for the year with 37 properties that sold which was identical to last week and the largest single two weeks of the year. Of the properties sold last week, six (6) of those sold at a price above $750,000. Coldwell Banker was involved in 13 of the properties sold. Pending Sales: Pending sales decreased once again to 182 properties from the previous week. Market Activity Summary: With the two strongest sales weeks of the year back to back, it is clearly an indication of buyer’s continued interest in well priced properties and the tremendous values which exist in the market. While visitor activity has fallen off with the fall season, buyers who have been watching the market are seizing this unique time to buy Tahoe-Truckee real estate in a down market. Coldwell Banker currently has over 43 homes in escrow scheduled to close in the next 30-60 days.
• Vacaville-Fairfield— What a great time to be in real estate! Opportunity is knocking in all price ranges! With affordability at an all time high, buyers and investors are out in droves. Most of our markets are back to 2001 prices. So anyone who wanted to buy then, but missed the opportunity is realizing the dream now.
  · For our first time home buyers the city of Fairfield and Dixon are both offering First Time Home Buyer Credits in addition to the (just extended) federal $8,000 home buyer credit.
  · Because our inventory is so low, our prices are actually creeping up. This has been fantastic for our sellers
  · First time and long time investors are snatching up properties that will actually cash flow, allowing them an opportunity for wealth building.
  · Dare I say short sales are actually being negotiated by the lenders and more importantly, closing escrow!

Next week I will release the November edition of Reality Check. In it, we focus on the state of the market and include an interview with me. I think you’ll find it helpful and informative in educating your clients and prospects on the current state of the housing market.

Until then,
Make it a great week,

Bob Bronswick
Coldwell Banker Residential Brokerage Sacramento/Tahoe

“U.S. Economic Recovery on Track”

While we await the results of the possible expiration, extension or expansion of the $8,000 first time home buyer tax credit, one thing is for sure, the economy is moving forward in full force—which is driving consumer confidence. Earlier this week, Reuters.com ran a very interesting story on the U.S. economic recovery and the result was very encouraging. Among the story’s highlights:

• “The U.S. economy is firmly poised for a recovery from its deep recession but growth may be moderate and the job market will not revive immediately, senior White House aide Lawrence Summers predicted on Wednesday.”
• “On the economy, Summers said the $787 billion stimulus package and inventory rebuilding by businesses were among the “dominant drivers” lifting the economy.”
• “It will be some time before unemployment starts to decline. Once it declines it will take a long time to return to normal levels, given how elevated it is…The jobless rate is now at a 26-year high of 9.8 percent.”
• “Most private economists think the recession, which began in December 2007, ended in the third quarter. But there is much disagreement about the path to recovery.”
• “Some see above-average growth continuing through next year, arguing that deep recessions are typically followed by powerful recoveries, helped along by pent-up demand as consumers and companies resume spending.”

Obviously this is welcome news for the economy which ultimately benefits the local housing market. What I can tell you is that I am encouraged by the progress we are making in the real estate market. We’re beginning to see more days of progress than days of back stepping. We’re watching sales activity and consumer sentiment and we are expecting over the coming months a moderate to a more sustainable pace and we will probably see a modest rise in housing prices in the coming year. Will it be the double digit appreciation we saw in the earlier part of the decade? Probably not. But this new normal (as we’re calling it) is much more sustainable and a much healthier path to build upon. It makes me excited about the future and gives us all hope for a relatively modest and productive 2010.

Now, let’s take a look at this week in real estate:

• Auburn--Most short sales are showing as contingent and we need some new listings. The buyers are still waiting for the next surge of REOs and we are using the information provided by the economic report from CAR to show them they should act now. We have gotten a few very good leads from floor. We are also in our 2nd week of the 100 days from Buffini.
• Dixon-Davis--Since we have not had any changes in the last few months I ask for quotes from my Agents to see how they are dealing with our market here is one of them: In doing the research for Coldwell Banker’s "Move up Marketing Program,” I am finding that a great number of homeowners do have equity that they can use to purchase another property that better suits their needs or buy property as an investment. In this time of short sales and REOs it is great to see that there can be some "regular" sellers. All we need to do is go to work and let them know of the great opportunity that exists now. It is Real Estate 101. Door knocking and putting your face and name out there. Marianne MacDonald
• El Dorado Hills-- Inventory continues to drop with only 329 active listings. Our high last year was over 450. Over 1/3 of the actives are short sales and 2/3 of those have offers waiting for bank approval but the REO’s make up only 5% of our market.
• Elk Grove--For September 2009 in the 95624 Zip Code, there were a total of 77 closed sales approximately 43% REO, 27% Short Sales and 30%(28% August) conventional sales. Average sales price was $250k ($230k August) for conventional sales vs. $232 for REO/Short. For 95758 there were 77 sales with approximately 47% REO, 24% Short and 29%( 25% August) conventional sales. While conventional sales average price was $240k, REO’s were $218k and Short Sales were $194k. For 95757, there were 69 sales with 55% being REO, 20% Short Sale and 25% (no change from August) conventional sales. Again, average sales price for conventional sales was considerably higher than REO and Short Sales with averages of $280k, $267k and $247k. The 3 zips combined: 240 closed sales with approximately 47% REO, 24% Short Sales and 29% conventional sales (26% August). From all this, it appears that we are starting to see more conventional sales with average sales prices higher on these sales in 95624 and lower in 95757 and 95758 month over month. No clear trend in sight.
• Folsom--We are looking for more listings! Every week we sell our good listings but we are not replacing our inventory! Closings are strong so we are paying the bills, new escrows are being opened so the pipeline is good, and agent attitude is for the most part good. So, I think the last quarter of 2009 will be the start of a better year in 2010!
• Placerville--We continue to get walk ins nearly every day from all areas. Inventory is “skinny” and good deals go quickly. Inner office networking is paying off and we’re double ending many of our listings.
• Rocklin/Lincoln--Loans are the challenge. It took a week to fund a loan on what should have been a “slam dunk.” We were to fund on Monday but a review of the credit report showed two social security numbers. It turned out the one number was from her ex husband and they had been divorced for 15 years. On top of that there was nothing derogatory but the lender demanded a copy of the divorce decree and then when that was submitted, the lender said they needed proof of the notary being an employee of Old Republic Title and that person had to supply 2 current pay check stubs.
• Sacramento Metro--Inventory in our core areas continue to be slow.
• Sacramento Sierra Oaks--The inventory is very low. A LOT of “frustration” from the Agents in getting appraisals and loans. The whole process is getting bogged down and taking a lot longer.
• Tahoe/Truckee--Active Inventory Summary: Active Listings: The listing inventory for the Tahoe-Truckee market went down slightly again to its lowest level since May of this year to 2,083 active listings - 1,423 residential properties and 660 lots and land listed for sale. Active Listings - REO’s and Short Sales: Of the active listings, there are 167 properties listed as short sales, (8.0%) and 68 properties listed as REO sales, (3.3%). While less than 12% of the active listings are short sales and REO’s, roughly 25% of the properties selling are short sales and REOs. Sales Summary: Last Week’s Sales: For the week of October 12th to October 18th there were 37 properties that sold which was the largest single week of sales in 2009. Of the properties sold last week, nine (9) of those sold at a price above $750,000. Coldwell Banker was involved in 12 of the properties sold. Pending Sales: Pending sales decreased once again to 191 properties from the previous week.
• Vacaville-Fairfield--For Solano County we have 1450 active single family homes. 1004 Pending Sale and 245 single family homes have closed escrow in the last 22 days. The lowest selling price as $60K and the highest was $1,556,500. Homes that were on the market 0-30 days sold at 102.68% of their list price and the average days on market to close of escrow is 63 days. As you can deduct from our numbers we are in a robust market with no signs of slowing down.

This week I’ll conclude with a few articles of interest:

• What Housing Bust?; CNN Money

• Housing Tax Credit Working, So Keep Momentum Going, NAR Urges Congress; Realtor.org
• Shape Of The Housing Recovery; CNBC
• Real Estate Outlook: Mixed Signals; Realty Times

Until next week,
Make it a great one,

Bob Bronswick
Coldwell Banker Residential Brokerage Sacramento/Tahoe

Recent Housing Upturn Sparked By Buyer Leverage

The latest S&P/Case-Shiller home price index reveals home price for 10 major cities rose 3.6 percent between April and July. So does this recent uptick in the housing market mean we are on the cusp of a housing boom?

I hate to burst your bubble but probably not. In all likelihood, the recent upturn in the housing market has been sparked by several competing factors:

· The impending expiration of the $8,000 first-time home buyer tax credit
· The recent uptick in the stock market
· Increased consumer confidence
· Continued low interest rates

Essentially, buyers are playing a leverage game. They’re watching the economic indicators and trying to determine the best time (for them) to buy. It seems many are now pulling the trigger which is causing sales figures and prices to go up.

Will it last? It’s tough to say. Right now we’re in a slightly unique position because some of the stimulus packages that the government instituted are working which may be causing a false front for the overall economy. The stock market is up. Consumer confidence is on the rise. The housing market is up. All of those are pointing to some current benefits in the market.
But, the fundamentals themselves haven’t changed. Foreclosures remain a major issue for our economy. And unemployment remains a major challenge. Until those two areas of the economy fully recovery, we may see continued economic volatility.

What I can say is I think the worst of the housing market’s problems are probably behind us. But the road ahead isn’t completely clear. One major factor that stands in our way is the impending expiration of the first time home buyer tax credit. This credit has helped to drive much of our recovery. But right now the debate on Capitol Hill continues and everyone is waiting to learn whether the credit will be extended, expanded or will it simply expire. Many on the opposing side believe it is too costly to finance. But NAR had this to say: “Each home sale pumps an additional $63,000 into the economy through related goods and services, so the benefits of extending and expanding the tax credit far outweigh the costs.”

If the opposing side gets their way and the credit simply expires, NAR had this to say: “All we can say for certain is sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession. Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit.”

So there you have it. We’re in a state of flux as we await the results of the credit. As that debate continues, buyers seem to be leveraging today’s market advantages which is creating a welcome relief for our local market. Let’s just hope the leveraging opportunities continue.

Now, let’s take a look at this week in real estate:

• Auburn—Most short sales are showing as contingen
• Elk Grove— For September 2009 in the 95624 Zip Code, there were a total of 77 closed sales approximately 43% REO, 27% Short Sales and 30%(28% August) conventional sales. Average sales price was $250k ($230k August) for conventional sales vs. $232 for REO/Short. For 95758 there were 77 sales with approximately 47% REO, 24% Short and 29%( 25% August) conventional sales. While conventional sales average price was $240k, REO’s were $218k and Short Sales were $194k. For 95757, there were 69 sales with 55% being REO, 20% Short Sale and 25% (no change from August) conventional sales. Again, average sales price for conventional sales was considerably higher than REO and Short Sales with averages of $280k, $267k and $247k. The 3 zips combined: 240 closed sales with approximately 47% REO, 24% Short Sales and 29% conventional sales (26% August). From all this, it appears that we are starting to see more conventional sales with average sales prices higher on these sales in 95624 and lower in 95757 and 95758 month over month. No clear trend in sight.
• Rocklin Lincoln—Most short sales are showing as contingent but asset managers are calling to see if they can help for a change. We have four more that appear to be closing this month.
• Sacramento Fair Oaks— REO Activity: The REO activity is still slow in the office. Our REO agents are getting a few new assignments and listings. They are still waiting for the wave to come in. Short Sales: They are steady but still very hard to close. Representing buyers is the most difficult to close do to lack of control of the transaction. Listing Agents are doing fairly well in their closing rate though. Activity over $750,000 slow but it is coming around and we are seeing more sellers requesting market analysis of their properties. This is a good sign for the up and coming year. Additional comments: Agents are still thinking very positive about the market. It is about prospecting and getting out there in the public and asking for the order. If you do not ask them there will be another agent that will.
• Sacramento Sierra Oaks— The inventory is very low. A LOT of “frustration” from the Agents in getting appraisals and loans. The whole process is getting bogged down and taking a lot longer.
• Tahoe Truckee— Active Listings: The listing inventory for the Tahoe-Truckee market went down slightly again to its lowest level since May of this year to 2,097 active listings - 1,443 residential properties and 654 lots and land listed for sale. The reduction in listings is part due to sales and in part to expired listings and homeowners taking their homes off the market for the winter. Active Listings - REOs and Short Sales: Of the active listings, there are 166 properties listed as short sales, (7.9%) and 61 properties listed as REO sales, (2.9%). While less than 11% of the active listings are short sales and REO’s, roughly 25% of the properties selling are short sales and REO’s. Last Week’s Sales: For the week of October 5th to October 11th there were 22 properties that sold which was a large drop off from the week prior 33 sales. Of the properties sold last week, three (3) of those sold at a price above $750,000. Pending Sales: Pending sales decreased once again to 210 properties from the previous week. Market Activity Summary: Fall has definitely hit the Tahoe-Truckee area with cooler weather and a much quieter town with respect to visitor activity. While visitor activity is slow, Buyer activity remains encouraging for competitively priced properties. Coldwell Banker currently has over 50 homes in escrow scheduled to close in the next 30-60 days.

This week I’ll conclude with a few story highlights:

• USAA Praises Biggert Bill To Extend First-Time Homebuyers Tax Credit; Reuters
• Hopes Run High For Tax-Credit Expansion; MarketWatch
• Washington Report: $8,000 Home Buyer Tax Credit; Realty Times

Also, CAR released its 2010 forecast this week. Please read it here: http://www.car.org/newsstand/newsreleases/2010forecast/.

Until next week,
Make it a great one,

Bob Bronswick
Coldwell Banker Residential Brokerage Sacramento/Tahoe

Tax Credit: Expand? Extend? Expire?

The question everyone is asking is, will the government expand, extend or simply let the $8,000 first time home buyer tax credit expire. With just over 50 days left until it is expires, the debate is on and everyone is waiting on pins and needles to hear the result.

Whichever side you take on the debate, what you can’t deny is the fact that nothing has done more in the past year to jumpstart our housing market more than the $8,000 first time home buyer credit. Will all of that come tumbling down if it isn’t extended or expanded on? It’s hard to say but I believe that if it isn’t expanded we will see a definite drop in first time home buyers in 2010 and probably a much larger emergence of investors in the entry level arena. While on the surface that may not seem troubling, it actually is. The fact is that investors purchase homes solely for net profit while first time home buyers purchase homes for lifestyle. When we have a balance between the two it keeps home prices relatively stable. If one of the two disappears, we’ll likely start to see drops in home prices which isn’t good for a market that has already taken its fair share of hits.

While Congress continues to debate the issue what we as Realtors are calling for is support of an expansion of the tax credit from first-time buyers to all homebuyers, increasing the maximum amount of the tax credit from $8,000 to $15,000, eliminating the existing income caps for eligibility purposes and extending this homebuyer tax credit for one year from the date of enactment.

We believe that stimulating demand for housing—particularly in the repeat buyer market—is the most effective way for Congress to help lead the U.S. economy into a recovery and back on the path to growth. Timing is critical and we hope that Congress will hear our voices.
While the clock ticks and we await the results of the debate on Capitol Hill, let’s take a look at this week in real estate:

· El Dorado Hills— The inventory is falling and is down close to 10% over the last few weeks. Over 1/3 of the listings are short sales and over half of those have offers and are waiting for bank approval so the true actives are very low. Closings are slower with lots of last minute loan hurdles to jump over.
· Elk Grove— How do you come up with different ways to say the same thing each week…REOs and short sales continue to dominate. We did have a “real” listing that didn’t appear to be priced overly aggressively, receive multiple offers. The only explanation is that there is little inventory and a tax credit that is expiring in November. Agents that are looking for good listing leads are finding them.
· Folsom— Good market but no easy escrows! The Folsom agents were busy with buyers this week with 75% of our total sales on the buying side and only 25% of the time representing the seller. We need more good inventory to sell just like every other office in town!
· Placerville— Inventory is the Placerville area has dropped over the past few weeks and well priced homes are receiving multiple offers. About 25% of the listings are short sales and very few REO’s. We’re seeing incredible bargains in all of El Dorado County so buyers who have been waiting for that great deal better hurry up!
· Roseville Granite Bay— Banks slow on Short Sale approvals
· Sacramento Fair Oaks-We are seeing an increase in sales and activities recently. Agents are working extremely hard on getting listings with the real sellers and the short sale Agents in the office are doing very well. Short sales are closing but taking longer than expected. We are seeing light at the end of the tunner. We just keep pushing forward. Yes, it is a great opportunity to be in real estate, especially with Coldwell Banker.
· Sacramento Metro— Market has really slowed down in our core areas of Sacramento.
Sacramento Sierra Oaks—The inventory is very low. A LOT of “frustration” from the Agents in getting appraisals and loans. The whole process is getting bogged down and taking a lot longer.
· Tahoe/Truckee— Active Inventory Summary: Active Listings: The listing inventory for the Tahoe-Truckee market went down to its lowest level since May of this year to 2,121 active listings - 1,456 residential properties and 665 lots and land listed for sale. The reduction in listings is part due to sales and in part to expired listings and homeowners taking their homes off the market for the winter. Active Listings - REOs and Short Sales: Of the active listings, there are 158 properties listed as short sales, (7.4%) and 60 properties listed as REO sales, (2.8%). While less than 10% of the active listings are short sales and REO’s, roughly 25% of the properties selling are short sales and REO’s. Sales Summary: Last Week’s Sales: For the week of September 28th to October 5th, there were 33 properties that sold which was the highest singles week for closed properties in all of 2009. Of the properties sold last week, four (4) of those sold at a price above $750,000. Coldwell Banker was involved in 11 of the 33 closed properties either on the listing or selling side of the transaction. Pending Sales: Pending sales decreased once again to 217 properties from the previous week. Market Activity Summary: Fall has definitely hit the Tahoe-Truckee area with cool weather this past week. The town was quiet and while open house activity was slow, sales for the week were at a yearly high…go figure. Buyers for competitively priced properties continue to be strong. Coldwell Banker currently has over 50 homes in escrow scheduled to close in the next 30-60 days.
· Vacaville— With rates low and affordability back we have a tremendous amount of buyers who recognize the opportunity in this market. But, we continue to have an inventory shortage, our median sold price continues to improve indicating that we are no longer in a declining market. In September we only had 1868 homes to sell compared to September of last year when we had over 4400. Our median sales price is hovering right around 200K and right now the bulk of our inventory is short sales.

Here are a few informative links regarding the $8,000 tax credit that you may find helpful:

• Update: Industry Makes Case For Home Buyer Tax-Credit Extension; Wall Street Journal
• Builders Urge Congress To Act On Home Buyer Tax Credit, Appraisal And Lending Issues; National Association of Home Builders
• Homebuyer Tax Credit Best Tool For Sustaining Housing Recovery, Says NAR; NAR
• Make The Home Buyer Tax Credit More Easily Available At Closing; RISMedia
• 1.4 Million Families Have Taken Advantage Of First-Time Home Buyer Tax Credit, More Claims Expected; RISMedia

Until next week,
Make it a great one,

Bob Bronswick
Coldwell Banker Residential Brokerage Sacramento/Tahoe

S&P Reports On The State of the Housing Market

One of the founders of what has really become the industry’s (and media’s) bible for real estate statistics and forecasts, S&P Case Shiller, recently participated in a Q&A about the state of the housing market. Robert Shiller, a Yale University economist, discussed the housing market and the implications of lower interest rates. I found it quite conservative yet insightful and in my opinion, on target with what is going on in today’s market.

That is why for this edition of Weekly Market Watch, I am going to provide you with an excerpt from his interview:

Is the slump in U.S. home prices bottoming out?

Shiller: The situation has definitely changed. With our numbers — the S&P/Case Shiller home price index — going up sharply. It looks like a major turnaround. We’ve been watching that for three months now, and we have some concern that it could be an aberration and temporary. But, at this point, it seems to be evident in just about every city in the U.S. That suggests it’s real. But it probably isn’t the beginning of a major boom, just because the economy is in such bad shape. There’s also a chance that it will reverse. It’s still only three months old, so it’s very hard to be sure at this point. The most likely scenario is that it won’t continue at this high rate of increase, but that it will neither go down a lot, nor up a lot.

So the index will move sideways for a while?

Shiller: Yes, for a while, meaning five years.

What are the main factors driving U.S. house prices? What could push them up, or cause another slump?

Shiller: The main factor is the world economic crisis and the efforts of governments around the world to stimulate the economy. Parts of those efforts have been directed at the housing market. In the U.S., there is an 8,000 dollar first-time home buyer’s tax credit which expires at the end of November. That’s a reason for concern, as it comes to an end. Also, the Federal Reserve has a plan to buy $1.25 trillion worth of mortgage-backed securities to support the housing market. They are most of the way through the program and anticipate phasing it out at some time in 2010 - that’s another thing that will go away. We’ve yet to see how the housing market will continue. Part of the problem is that people are buying now rather than later. When later comes, there could be a downturn in the market.

Is there an oversupply of houses in the U.S.?

Shiller: That’s been a problem. The inventory of unsold houses has been high, but has come down a bit. On top of that, there will be more foreclosures, more homes are going to be dumped on the market as people default. Now, that may show down as home prices will start going up again. But I suspect that this isn’t going to happen. Also, banks have more REO, or real estate owned, that they’re holding on to for the time being. But eventually those REOs are going to be dumped on the market. So that’s why it doesn’t look particularly encouraging from a supply consideration.

Turning to interest rates, which are at exceptionally low levels: Is there a risk that this eventually will cause irrational exuberance?

Shiller: There is always a risk of that. Those things are hard to predict. However it seems like the present time is least conducive to bubbles of any time. We’re in what some people call “pretend-and-extend” economy, which means that banks that have commercial loans are often extending those loans and pretending that the property is worth something. That’s because they don’t face reality. This kind of economy isn’t really suited to a beginning of a real bubble. Now, everything could change… It’s surprising how strong the residential, single-family home market looks right now. It makes me think that it’s hard to predict animal spirits.

How long can central banks afford to keep expansive policies in place?

Shiller: In principle we can keep this in place for a long time. That’s what Japan did… But confidence is definitely coming back. The depression scare is over at the moment. So it would be plausible that central banks could be raising interest rates — both in the U.S. and Europe — [as early as next year]. But I just have a worry that this isn’t going to happen and that it’s not going to be so easy to extricate [themselves from the low-rate environment].

Will the sharp increase in global debt levels drive up inflation over the medium to long-term?

Shiller: My best guess is that we won’t have inflation, that central banks will pull it back as inflation starts to begin. But I think that there’s a chance of it; people have to be defensive in their investments. It always amazes me that people are so trusting and that they want nominal debt as much as they do… So a good long-term strategy is to invest a good part of one’s portfolio in inflation-indexed bonds, even though it doesn’t particularly look like the time to worry about inflation right now.

I tend to agree with Shiller on many of his statements, specifically that we are probably in the midst of a turnaround. Having said that, it is important to point out that this isn’t going to be a sharp “V” recovery with a sudden jump in prices or units. In all probability what we will see is a long “L” shaped broad recovery in which prices are relatively stagnant for some time before eventually inching up.

Now, let’s take a look at this week in real estate:

· Auburn—Agents are trying to stay upbeat but they are pretty beat up by the buyers regarding the lack of inventory. We did get one short sale approved this week even after the mortgage insurance company said no. We will have another short sale approved by the end of this week. It is great seeing some of the short sales come to closing.
· El Dorado Hills—The market remains the same. The pending listings are about the same as the new listings coming on the market so the inventory is still at about 361 active listings. Short sale listings continue to rise but the REO listings are still under 10% of the inventory. More NODs are being filed so Agents need to be aware when working with investors.
· Placerville—The entire El Dorado County market is pretty much the same. We’re seeing a few more REO’s come on the market but they are almost always priced competitively and sell with multiple offers. We’re seeing a lot of FHA first time homebuyers. The short sale listings make up almost 40% of the Placerville area inventory.
· Rocklin-Lincoln—We had a great speaker that stressed getting back to the basics and then CoreFact showed us some of the tools that they have that might help the Agents become successful. We have several Agents participating in the Move up buyer program.
· Roseville/Granite Bay—Look for opportunities. The push is on for saleable listings with REO lull in current mode.
· Sacramento Metro—Good priced properties in East Sacramento, Land Park and South Land Park continue to sell very quickly.
· Sacramento-Sierra Oaks—The inventory is very low. A LOT of “frustration” from the Agents in getting appraisals and loans. The whole process is getting bogged down and taking a lot longer.
· Tahoe/Truckee—Active Inventory Summary: Active Listings: The listing inventory for the Tahoe-Truckee market went down slightly for the week to 2,223 active listings - 1,536 residential properties and 687 Lots and land listed for sale. The reduction in listings is part due to sales and in part to expired listings and homeowners taking their homes off the market for the winter. Active Listings - REOs and Short Sales: Of the active listings, there are 160 properties listed as short sales, (7.2%) and 57 properties listed as REO sales, (2.6%). While less than 10% of the active listings are short sales and REO’s, roughly 24% of the properties selling are short sales and REOs. Months of Inventory: Based on the current inventory and sales for the previous 30-day period, the market has roughly 15-months of inventory available. There is definitely a large inventory of homes for buyers to choose from at great prices. Sales Summary: Last Week’s Sales: For the week of September 21st through 27th there were 30 properties which closed in the market which is a slight increase from the previous week. Of the properties sold last week, five (5) of those sold at a price above $750,000. Pending Sales: Pending sales decreased to 226 properties from the previous week. Market Activity Summary: With the end of the summer season and beginning of fall, visitor traffic has slowed and open house activity is fair. However, sales this past week were consistent with weekly sales averages since early August. Buyers for competitively priced properties continue to be strong. Coldwell Banker currently has over 54 homes in escrow scheduled to close in the next 30-60 days.

Without a doubt, locally what continues to push our market in the right direction is the $8,000 first time home buyer tax credit. Currently in Washington D.C., real estate industry representatives and government officials are lobbying for either a $15,000 all home buyer tax credit or at minimum, an extension of the $8,000 first time home buyer tax credit but the result of that debate is still in the air. If the tax credit does disappear we are likely going to see an emergence of investors in the first time home buyer arena which may cause problems with housing prices and a continued erosion of the first time home buyer market. Please contact your local representative to call upon his/her support of this important initiative.

Next week I will release the October edition of Reality Check. This month’s edition will feature a Q&A from me on the local housing market and what we may expect for 2010.

Until then,
Make it a great week,

Bob Bronswick
Coldwell Banker Residential Brokerage Sacramento/Tahoe