Unemployment rate drops! Does it mean real estate prices hit bottom?

Yesterday, I tuned into NPR and caught a segment reporting that the unemployment rate dropped for the first time in 15 months and the government said this is a sign of the beginning of the recovery. Isn’t this what everyone WANTS to hear? Everyone is jumping over joy that truly boost confidence, doesn’t it? Well, how does this translate to the real estate market, especially in Southern California? Being a Realtor® and constantly talking to asset managers and other real estate professionals, I can’t help to have a little different perspective of the economy. Yes, there are multiple offers situations everywhere. Yes, the accepted price mostly higher than the asking price. Yes, the real estate inventory has shrunk. But the main question is, why did the inventory shrink? Is it really because there is less foreclosures? I am not going to talk about the national economy, and I’ll only talk about here in California. Asset managers have been complaining not receiving enough inventories from banks and lenders mainly because California imposed the moratorium law on June 15th for 90 days which means by law, banks have to try very hard to modify borrowers’ loans before they can foreclose on their properties. This process started to bottleneck the inventory, many homeowners are convinced that they can do a loan modifications with the banks before going into short sale or foreclosures. Unfortuantely, the loan modification process is taking extremely long and difficult. With the skyrocketed unemployment rate in California at 11.6%, and loan modifications would not work with homeowners who may have lost their jobs = no income. On average, it takes about 4-6 months to complete a loan modification (if you are lucky and satisfy with the term), and if that doesn’t work, they’ll go to short sale. Short sale is another long dragging process that takes another 4-6 weeks before you’ll hear back from the lenders. Short sale listing agents get frustrated with the lenders because by the time the lender responds back by approving the price or accepting an offer, the potential buyers either already found another property or the property values may have dropped more and the buyer(s) decide they don’t want to move forward anymore. So, the process starts all over again. In addition, with the price drops so much, I have seen people who can afford their payments decide to let go of their properties also. It sounds crazy, right? We truly are living in a very strange economic time right now. The moratorium law truly have helped reducing the number of foreclosures & inveontory in the mean time, but it DOESN’T eliminate them! They are just being bottlenecked up, and it’s waiting to be released. Not to mention, there are many more adjustable rate mortgages (ARMs) are scheduled to be reset in 2010, 2011 and 2012. Is this a good time to buy then? Many have asked me the same question. I still think the current market is a great time to buy, not because the real estate prices have hit bottom, but because many property values have dropped over 30-50% and in addition, the interest rate is historically low which means the monthly mortgage payment is affordable. The interest rate is guaranteed not to stay this low for too long. (Well, this would be a whole other topic to talk about and I will leave it as this for now.) I have found many multi units in Southern California provide great cash flow and earning my investors an upward of 6-10% cap rates! If you have extra cash stashed in the bank, earning 0-3%, maybe you should really think about getting your money to work a little harder for you at this time. All in all, if you ask me is the economy recovering…I am not so sure about it and I have to say, do not always believe what the news tell you. Did the law help halting the crash further, absolutely. Is the inventory shrinking, yes! Is the real estate market as active as what people are saying, OH YES, you better believe that! Multiple offers have driven up the offering price by as much as 30% . Open houses attracted over 200 people on a Tuesday afternoon. Listing agents receiving over 35 offers on one property. These are all TRUE and it’s happening right now at this moment. However, if you are not ready to buy, it’s okay too. I can assure you that the inventory will keep coming and there will be many great properties coming out on the market. –Helen Chong, Realtor®, DRE license no. 01700495

If you have any Real Estate questions and comments, please email HelenHChong@gmail.com. www.HCRealtor.com


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