Mike’s Real Estate Show

What a year!! Whew! I predicted eveything about this year except for the massive “crater” which happened due to the “credit tightening” we experienced in late August. This “crunch” is still in effect as it has crippled the “jumbo” loans (all loans originiating over the conforming rate of $417,000) and since we are officialy a “High-Value” area this has knocked the slats out from a somewhere lack luster year. Our sales have been “limping” along since September with sales just over 200 units per month. From the perspective of a “year-to-date” monthly sales comparision sales have dropped over 50%!! And the median home price is starting to erode also. It took a while as the lower end market vaporized due to a number of issues; credit tightening, tougher underwriting guidelines, rate increases, full documentation for loans, etc. The median seemed to be fine as the only real activity was the higher priced homes which held the median up. Now we have a rash of short-sales and bank owned properties flooding the market and escrows are starting to close at these distressed prices. The median a year ago at this time was $547,000. Today it is $434,500 or a 27.5% drop. The sales activity is even more startling: December of ‘06: 438 units sold and today 186!!

  My “vacant house” report is trending “UP”. We currently have 2565 Homes on the market today in Sonoma County. Of these homes 1074 are VACANT. This is due to the increase in bank owned properties flooding the market and those homeowner/investors “walking” away from their homes due to foreclosure or attempting one of the many “Short-Sales” out there or relocation,moving down or death. Remember, a “Short-Sale” is a home sale where the market value is now LESS THAN the loans secured on the property. It is deemed to be “Short” the payoff of the loans when closing escrow.  Not a good thing! When you then add in the tenant occupied properties you have 1308 houses either vacant or tenant occupied or over 50% of all our existing housing stock. The total number of homes usually trend “Down” during this time of the year due to the holidays and this was evident over the last few months. But “Banks and Institutions” know nothing of Xmas!!! Bah humbug! Here’s your lump of coal in the stocking. The numbers are on the way up as these “institutions” put their foreclosed properties on the market.

  You can tell  how over encumbered these homes are in relation to value of the property by the number of homes the “Institutions” where forced to “take-back”. They went to foreclosure but the only bidder was the lender as the loan amounts where way over the market value!!  This brings us to another topic; no equity. The institutions talk about helping out with payments and interest rates but the biggie piece of the equation-VALUE- is being ignored. Homeowners are walking from homes which have lost major portions of their equity. Why pay for a home where the loan is $100,000 to $200,000 over the current market value? How long will it take to make THAT up!! This will be the next big shoe to drop. Either give the homeowner “Equity relief” or be prepared to take the property back. This market is going nowhere “north” for years to come. If we’re lucky we’ll just be “Flat” which happened during the last debacle of a market in 1989-96. We initially had a 10% price drop then leveled off. Some insist that the longer the “Run-up” the longer the “Run-down!”. We shall see.