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You are here: Home / From Curtis / The $64 question: Are we at a bottom in Real Estate prices?

The $64 question: Are we at a bottom in Real Estate prices?

July 18, 2008 by Curtis Van Carter 1 Comment

Below is a quote from Barron’s Cover article on July 14, 2008 which has been repeated by most every other news organization this last week and reprinted by California Association of Realtors (“CAR”) in their July 17th Money Matters newsletter that I receive. Granted, Barron’s is a widely read and highly regarded publication and CAR is my appointed leader and is suppose to let me know what I may expect in the future. However, being in the real estate trenches for the past 25 years and having experienced three such down-turns, granted this being the worst, if you want my opinion, Barron’s is wrong and CAR is looking to promote any good news they can find.

  Barron’s

Bottom’s up: This real-estate rout may be short-lived

Home sales and prices may be down, foreclosures may be mushrooming and the blowback from the subprime mortgage crisis may be threatening banks and secondary mortgage lenders, but there are some early signs the real estate market is trending in a more positive direction — although you may not know it if you rely on the mainstream media for your real estate news.

MAKING SENSE OF THE STORY FOR CONSUMERS

· Recent data suggest real estate market pessimism may be overblown. Even economist Karl Case, father of the S&P/Case Shiller Home Price Index, admits many industry pundits and members of the media are ignoring key facts – as demonstrated by their focus on negative year-over-year price figures rather than more recent monthly data. An example: Home prices actually increased slightly in eightof 20 Case Shiller markets between March and April. Instead, the focus of most media reports was on year-over-year figures, which continue to support the notion that the market may not have hit bottom, let alone begun to improve.  

· Transaction-related indices may be skewed at present by a far larger than normal share of subprime-derived default and distress sales. In the San Francisco Bay Area, for example, more expensive homes (those priced over $721,548) have dropped in price by only about 10.7 percent from their peak, compared with homes priced under $473,711, which have tumbled by 40.9 percent.

· Even new housing construction numbers suggest an improvement, according to Case. He notes that housing starts, which fell to 975,000 in April from 2.27 million in January 2006, have fallen by similar percentages three times during the last 35 years. Case observes that each previous time this has occurred the market has staged a surprising upturn within a quarter. Only a slide into a recession would temper his optimism about the potential for a similar recurrence of this trend.

To read the full story, please click here:

http://online.barrons.com/article/SB121581623724947273.html?mod=googlenews_barrons&page=sp

Why do I say Barron’s is wrong and CAR is hyping? In a nutshell: there are still an awful lot of properties that still need to come to market which are under-water due to the newly established, lower foreclosure-set pricing for every home sold in 2006 and 2007, especially for newer subdivision properties; and secondly, loans are becoming very difficult to get and are going to be more so over the next year. Heck, the next article in the CAR Money Matters newsletter was:

  Los Angeles Times

Fed stiffens restrictions on mortgage lenders

The Federal Reserve is clamping down on what it called “deceptive acts and practices” by some mortgage lenders that it says helped lead to the subprime mortgage crisis. The new rules, which apply to all banks and other lenders and specifically target subprime loans and borrowers, will take effect Oct. 1.

Since I work and do about 90% of my business in the Napa Valley here is proof from there for the first part of my argument, the new realty in the value of your home. On Wednesday the Napa Valley Register, our biggest local newspaper, ran a front page article from our County Assessor, John Tuteur, ” Tuteur cuts assessed values ………..cutting $600 million from the assessed value of 5,200 Napa County Properties.” To quote the article:

Tuteur is reducing assessments on 1,824 American Canyon homes — 40 percent of the city’s housing stock — by an average of $127,000. The assessed value of some American Canyon properties is dropping by as much as 35 percent.

In Napa, 3,062 homes, or 20 percent of the city’s residences, were dropped in value by an average of $97,000 for 2008-09, Tuteur said.

American Canyon is the fastest growing city in Napa County with it population approaching 20,000 which came primarily via a new home building spree over the last six years. In tracking the new foreclosures weekly, American Canyon has approximately 50% of the County’s totals which run from 20-50 every week. In my estimate, 2/3 of the foreclosures there are newer subdivision homes which sold for $700-800,000 at their peak in early 2007 and now sell for $350-500,000 today. In the City of Napa, I will use two examples: one being the first large scale subdivision built in Napa, Westwood which has several hundred smaller homes built in the 1940s; and second, Sheveland Ranch, a new home planned unit development of approximately 75 homes sold primarily in 2005 and 2006.
 
Westwood was built with the coming of Mare Island Naval shipyard in the 1940s and consists of 2 and 3 bedroom, 1 bath, smaller homes which sold at their peak for nearly $500,000 in late 2006. Today, in my MLS, there are 24 homes for sale, 8 of those in escrow, and only 3 recent sales between $220-279,250. This is a 50% price reduction and almost every sale, plus those in escrow, being a bank owned foreclosure. In my estimate, at least half to maybe as many as two thirds of the existing Westwood owners are under water, their loans are greater than what they can sell the home for in today’s market due to the newly established values there set by all the recent foreclosure sales. The same is true for Sheveland Ranch. Gene Ciabattari of Mortgage Solutions, the mortgage broker who does most of my business, and I both think at least 75% of the owners in Sheveland Ranch are under water. Being the average length of time a person would own their home in California was per my memory approaching 10 years, what do the 65% plus of these owners, who are under water, do when they need to move and sell their homes? Till we work through this and until home values stop going down, it will be difficult to arrive at any normalcy in the housing market.
 
As to the second part of my argument, the increasing difficulty in getting a loan, ask any person in the home lending business their opinion and you will find all the proof you need. This is reinforced by every article I read about this, whether in a newsletter, blogs, print or just listen to the evening TV news. I was even denied a $300,000 loan 3 months ago with 40% down for a second home due to the fact I took off most of last year to care for my ailing mother. Thus my income for last year was much lower than average and when I went to qualify, several lenders wouldn’t take this fact into account and all I got was NO LOAN even though I have super credit scores. The only loan available to me was one at 7.5% compared to a rate of 5.75% for a loan you qualify for. And according to everyone I have spoken to lately, it only gotten tougher to get a loan.
 
With all this doom and gloom, it is easy to become depressed but there is a bright side to this story. Almost every good deal here in Napa County, particularly those priced slightly below the current market price, have been receiving multiple offers. Granted many are short sales and the lenders involved are a pain in the butt to deal with. But for the persistent and patient buyer, there are deals to be had and, in general, prices for the City of Napa are back to 2004 levels.
 
Yes, there may be some more down side and I feel the lowest prices are yet to come, 2009 will be the bottom in my opinion. But for all of you fence sitters, the price you will pay, excuse the pun, will be a more arduous time in getting a loan. Please contact me if you would like more about this. Till then, happy house hunting for all you buyers out there ………………….

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Curtis Van Carter, has been one of Napa Valley Real Estate's most knowledgeable and experienced agents. He has been characterized by his clients for his honesty and knowledge to make a home sale or purchase as smooth as possible. If you are interested in selling or listing a home please call or EMAIL Curtis here.

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  1. Napa Valley Address » Some very interesting real estate statistics says:
    July 26, 2008 at 11:58 am

    […] in my effort to continue on with my real estate sales during these times. Just read my The $64 question post on July 18th to get a true sense of what is happening to real estate values here in the Napa […]

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