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Bumps remain for California's housing market

by Alan Markow, published

Sacramento real estate appears to be ready for a recovery, and a return to more positive days, according an article in the  Sacramento Bee.  The article notes that area prices have fallen to near 2001 levels, thus making housing more competitive with higher cost markets such as the Bay Area and Los Angeles.  The lower prices are once again attracting well-educated and highly skilled workers into the area, according to the Bee.

But Mike Gray, a senior Realtor with Lyon Realty in Folsom, says the story is a bit more complicated than the article indicates.  First, he notes, the continuing double-digit unemployment rate is a barrier to growth in the region.  “People don’t buy homes when they can’t get a job,” he said.  Second, the real estate market still hasn’t settled down in all price ranges, and there remains some pain ahead.  “Houses at a $350,000 or lower price point are now poised for some price appreciation, making them more attractive to buyers,” Gray explained. 

But higher priced housing – especially homes above $450,000 -- can expect to take big hits this year, because foreclosures on jumbo loans have yet to reach their peak.  “These homes often require jumbo mortgages ($475,000 and above), which are going for between 6 1/2 and 7 percent interest versus standard loans available for 4 7/8 to 5 percent interest.  That difference amounts to substantially higher monthly payments,” he said.  “And larger houses also cost more for heat, power and other utilities.  It will take another two to three years to clear out troubled higher-priced properties found in communities such as Granite Bay, Eldorado Hills and Lincoln.”

The Sacramento region (including Yolo, Placer, Eldorado and Sacramento counties) was one of the worst hit locales in the nation during the housing crisis.  And it’s a genuinely positive sign for the area that housing prices have ratcheted back to 2001 or 2002 levels.  But Gray warns that other factors could also have an impact:  “We’re no longer seeing the kinds of creative financing that caused the original problem, which means it’s harder to get a loan.”

The realty industry often referred to these financing schemes as “liar loans” because applications were not checked for factual accuracy.  Such loans were at the heart of the housing bubble and subsequent meltdown.  “We’ve returned to more rational loan methods now, which is good.  But it has raised the bar on borrowers’ requirements.”

Gray notes that speculators with cash in hand have the advantage in the marketplace right now.  “Investors with all cash are buying cheap and selling quickly for a huge profit,” he said.  “Foreclosed properties, short sales, or negotiated deals made on the courthouse steps just ahead of the auction block can result in a bargain for the cash-rich buyer.  But there’s risk as well – such as undisclosed tax liens on a property.”

To reduce the risk in buying such properties, Gray has one crucial tip:  “If you’re the only person visiting a property, then back out.  There’s probably something that’s waiting to come back and bite you.”  There’s no question that California’s hard-hit housing market is on the mend, but we’re a long way from smooth sailing.  Full confidence won’t return to the market until the job picture brightens.

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