As reported in today’s San Diego Union Tribune, the CA Assoc. of Realtors predicted that there will be a slight dip in the number of home sales next year (about 2% reduction) and a slight increase in prices (up 3.3%), compared with this year. These changes are attributable to the continued high rate of unemployment.

The market will likely have two distinct segments: a continuation of this year’s large volume of low-cost homes sold in foreclosure  or in short sales, with multiple offers from first-time buyers and investors looking for bargains, and a slow moving segment of higher cost homes put onto the market as unemployment creeps into higher income groups. This latter group of homes will need to lower prices more in order to sell more quickly.

Also, some of the increase in sales this year is attributable to the $8000 federal tax incentive which is scheduled to expire at the end of this month. There is talk that Congress may extend this incentive.

In conclusion, this may be a very good time to buy for suitable households, before prices begin to creep up.

Rismedia reported today that there are many foreclosures available on the market (so-called REOs or “real estate owned by lenders”) and many buyers in the market searching for bargains. Discounted offering prices on such properties vary from 5% to 30% below market prices (although occasionally there is no discount).

The purchase of such properties requires a buyer who can act quickly because the banks expect a rapid offer and there are often competing offers. The properties are often in poor shape, due to neglect or even vandalism, and are usually sold as is. It is therefore best if the buyers are prepared to do some of the work themselves or are good at dealing with contractors. Once the offer is accepted, the selling banks are often slow with processing the sale, so buyers have to be patient with delayed closings and paperwork.

These properties represent an opportunity for a bargain purchase for buyers who are knowledgable about pricing and prepared to devote time and money to improvements after closing.

Rismedia reported today that pending home sales increased again in August for the seventh straight month, the longest series of increases in the history of the index. Nationally the index rose 6.4% over July, and stood at 12.4% above the August, 2008 figure.

The increase varied regionally, up 8.2% in the northeast, up 3.1% in the midwest, up only 0.8% in the south, and up 16.0% in the west. It should be noted that pending home sales do not all go to closure, especially with the market being dominated by foreclosures and short sales and the delays and complexities brought on by new rules in reaction to the recession. Also part of the increase may be due to a rush of first time buyers trying to take advantage of the $8000 federal tax credit, which expires at the end of October. Nevertheless it indicates an increase in the number of buyers in the market.

Potential buyers have only a few weeks to act before the tax credit expires, unless Congress chooses to extend the credit!

The San Diego Union-Tribune reported today, based on information from MDA DataQuick, a striking fall in both foreclosures (down nearly 40% in August of 2009 against August 2008) and notices of default (down nearly 7% over the same time interval) in San Diego County.

This may indicate a stabilization of the housing market, but it will require several months of improvement to be sure. There was, however, no let up in the rising delinquency rate. It is possible that this may reflect an increasing amount of mortgage loan restructuring and/or short sales replacing foreclosures, but it may be that banks are simply too overwhelmed with delinquencies to respond promptly with notices of default.

The key to the stabilization of the residential real estate market will be stabilization or improvement in unemployment. As has been the case recently, there has been a shift in the preponderance of troubled properties from neighborhoods with a lot of subprime loans to higher income neighborhoods, indicating that the primary driving force for delinquency is now unemployment.
Still, the news is encouraging that the market may be bottoming out. Meanwhile the foreclosure and short sale proliferation has put downward pressure on prices and provided a bargain market for buyers.