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