But unless you are a Realtor used to making huge commissions on beach houses or a lender who’s tightening the reigns on your loaning capabilities because you have too many foreclosures, than this should actually be great news!

True, it is a cause for economic concern because lenders are indeed tightening their leashes and those looking to sell their homes (especially near the Gulf of Mexico oil disaster) are probably going to have a difficult time doing so.

But if you’re looking to buy a new home, guess what?  You win! And now is a fantastic time to start looking because the Los Angeles real estate market is flooded with homes for sale that are much more reasonably priced than they were in the past couple years.  Here are some industry negatives being widely reported that translate to great prices for buyers:

This Past May, Home Sales Were the Lowest Ever Recorded:

Though May recorded about half of the home sales nation wide that it usually does, a decrease greater than any other since our government started keeping stats in 1963, this is mainly due to expiring tax credits the government had offered previously to first time buyers in an attempt to stabilize the industry.  The good news? With expired government incentives, prices for homes have fallen.

Internet Searches for Listings are Down Almost 20%

This is likely a reflection of the income situation of the U.S. as a whole.  The good news?  There are tons of listings! If you are considering buying a home, you are much more likely to have a variety of homes to choose from in your target areas.  In a buyer’s market, you actually get to be picky!

The Median Home Price Has Fallen Since This Time in 2009

The median home price has fallen to about $200,000 nation-wide.  This means… you guessed it, prices have fallen!  We clearly learned from the “real estate bubble” that home prices were significantly inflated over the past couple years, and now those prices are falling back to where they should be in relation to mortgage rates and income levels.  This translates to a better chance of a good investment return long-term.

Foreclosures are Setting All Time Records

The plus side? There are many short sales and bank sales that are getting approved.  If you are looking for fixer-uppers or discounted homes, today is a fabulous time to get great real estate deals.

It is More Difficult to Get a Loan

With banks tightening their reigns on loans, those responsibly looking for a home purchase are much more likely to be able to pick and choose since many real estate listings will have less interest from under-qualified buyers.  More loan restrictions mean you need to be in a good position to buy, and falling prices ensure you’ll get a return on your long-term investment.

To learn more about our low interest rates or to apply for a mortgage loan visit us online or call us at 818-500-4124

If you’re a prospective home buyer or investor looking to capitalize on the lower prices of homes in Southern California, you’ve probably shopped the market and found a number of foreclosures and short sales that have attractive prices.

But if you’ve ever made an offer on one of these homes, especially if you’re checking out real estate in California, you know that these listings are oftentimes very difficult to get.  In addition to the red tape that goes along with lenders approving short sales and offers exceeding listing prices, (sometimes by as much as $100,000), these homes also usually carry other disadvantages with them as well, such as maintenance needs. They may even just be in neighborhoods that aren’t attractive to investors.

If you’re an investor, a quick internet news search for “California real estate” will yield a slew of negative predictions, especially in the last couple months.  Though home sales were up pretty significantly in May over 2009, a lot of real estate experts are predicting a market “hangover” based on recent government incentives that expired in late April.

One of the words you might hear thrown around is “shadow inventory,” a name with ghastly connotation that almost seems to describe haunted houses or cobwebbed shacks hidden somewhere deep in the woods.  Really, the term shadow inventory isn’t necessarily a totally bad word.  Though it can affect the overall market, it has a very broad definition and might even be semi-positive for those looking to close on a home at a price much lower that southern California real estate has sold for in previous years.

In a nutshell, shadow inventory refers to houses that are on standby to be sold in some sort of distressed sale. Generally, they are those that have been foreclosed upon or repossessed by banks and are waiting to be put on the market.  Lots of real estate experts will include a vast amount of other properties in their definition of shadow inventory as well.  Some include homes where owners have stopped paying their mortgage, and others even count homes owned by buyers that wish to sell but are holding back because of the down market.

So shadow inventory is really just a “list” of homes ready to be placed on the market at lower market value.  If this number is high, experts worry because if tons of homes flooded the market under value, the real estate market as a whole would suffer.  We say the market would “suffer” because average market value might decline, but also discounted homes might prevent fair-value homes from selling in the same neighborhoods.

While prices are lower for buyers looking for a home, short sales and foreclosures usually are sold at a loss to lenders, so the long term effects could include rising mortgage rates and fewer lenders in general.  This also hurts the return of investment on those looking to sell their homes, because buyers are more likely to make offers on the discounted properties.

In essence, shadow inventory is the amount of poor inventory projected to be available in the housing market.  They are usually distressed homes in need of some kind of distressed sale.

While some less-optimistic real estate experts believe that a glut of shadow inventory will negatively affect the market, typically these homes aren’t all placed on the market in amounts great enough to saturate the industry and drive down market prices.

While a high amount of shadow inventory is not desirable for market value or investors, it’s not necessarily a great indicator for severe market disaster either—especially since the definitions can be so broad.  High shadow inventory could actually mean it’s a great time to buy, just be sure to check the numbers in your prospective neighborhoods to be sure you’re making a wise investment decision.

Prudential Financial surveyed over 1,000 Americans with a household income of at least $35,000.  Though 90 percent of those surveyed said they thought the home buyer tax credit was effective in helping many first-time purchasers take advantage of real estate investments, 65 percent of consumers that are actually shopping for homes believe the expiration of the tax credits will have little or no effect on their decision to purchase real estate.
The survey also reports that 79 percent feel that real estate prices will increase over the next five years with 20 percent predicting a substantial increase.  46 percent of real estate buyers expect prices to go up in their areas in just the next year. Only 12 percent are predicting the market will experience further decline and expect prices to fall further.

“The survey underscores the key role the federal home buyer tax credits played in stimulating residential real estate market activity and the U.S. economy,” said James Mallozzi, chairman and CEO of Prudential Real Estate and Relocation Services, Inc in a press release the company issued near the end of April.  “It also shows that most consumers believe the market has hit bottom and are more optimistic about the future.”

Despite the general downturn in the real estate market with the current recession, the survey also solidified the belief among consumers that purchasing real estate investments is still financially wise.  Roughly 75 percent of those surveyed believe a real estate investment will provide a better and more secure return than individual stocks, mutual funds or savings accounts. Many of those surveyed that are actually interested in buying a first-time home said low mortgage rates and current lower housing prices are motivating them to make a home buying investment more than any tax credits for purchasing.

In essence, a short sale is getting a lender to take a loss on their initial inflated terms of mortgage, allowing the homeowner freedom from the initial debt. This can be a very convoluted process, since many lenders may be involved and all will have to agree on the loss.  A buyer is necessary as well, and though short sales typically have a very attractive price tag, most of the time cash is the preferred method of payment since convoluted financing is what caused the unreasonable mortgage to begin with, and cash is much better to cover losses than credit that may not be there in the future.  It’s not uncommon for there to be at least 10 or 20 offers on a home being short sold, and oftentimes the offer with the most cash constitution—not necessarily the highest dollar amount, is the most desirable.

This can be a good thing for investors, as they typically have much greater capital than families or first-time buyers, but the process can be extremely arduous and contain rolls of red tape based on the number of parties involved that have to negotiate and agree on the deal. Many short sale offers ultimately fall through.

This is where the Obama Administration is attempting to step in. With a new standardized short sale plan that is rolling out this year, parties involved are required to use uniform documentation, pre-approved terms and accelerated turn-around times in an attempt to avoid the long drawn out negotiations that sometimes ruin short sale offers. It also offers incentives in the way of homeowner relocation grants, mortgage servicing fees, real estate agent commissions and stipends for secondary lenders and investors.

Though the jury is still out as to whether the streamlining will be effective and encourage more short sales to be initiated and taken to completion, it seems any kind of standardization process will be in favor of investors with cash capital that can benefit from purchasing these homes, as well as homeowners that need to free themselves of over-inflated mortgages.

If you are interested in learning more about the short sell process or want to invest in properties that are offered for short sale  please call me at 818-241-5196.