ForeclosesureRadar.com recently reported that as of March 2013, out of the 7.3 million California homes with a mortgage, 1.8 million were underwater. Another 225,000 homeowners had a five percent or less equity in their homes.
They defined this group as “near negative equity” because of costs associated with the sale of a home typically from six to 10 percent of the sale price leaving these homeowners effectively underwater, too. A total of 2 million are still underwater in the state of California. Of that 2 million, more than 1.1 million owe more than 25 percent of their homes value.
Raising housing prices will help lift a certain percentage of underwater homeowners into a state of positive equity and into a position where they can choose to sell. If they do choose to sell, this will help alleviate some of the current inventory problem while also increasing sales activity.
If housing prices increase by 10 percent, an estimated 415,000 homeowners or 23 percent of the negative homeowners will be returned to a positive equity state. In addition, if housing prices rise by 20 percent, an estimated 715,000 or 40 percent of negative equity homeowners will transition to a positive equity state.
Locally, per Southwest Riverside County Association of Realtors (SRCAR), year of year prices for our five city region was up 6 percent since January and 11 percent ahead of last year. Temecula is up 18 percent, Murrieta is up 16 percent, Lake Elsinore is up 26 percent and Menifee is up 8 percent – which is welcoming news for all homeowners.
Cash sales since 2008 have increased dramatically. From 2001 to 2007, cash sales ranged from only 6.2 to 8.4 percent of the total market statewide. In 2008, cash sales rose to 15.9 percent, increasing to 29.3 percent of total sales in 2012.
So far, in 2013, cash sales are at 30.2 percent. However, expect this to decline as investors are finding it more difficult to find reasonable returns as housing prices continue to rise.
California foreclosure filings have been on a steady downtrend since March 200, as government agencies have rolled out an array of programs that have successfully lengthened the foreclosure process. March 2009 saw a peak of nearly 60,000 foreclosure notices while March 2013 saw less than 10,000 foreclosure notices filed.
Just in the past 12 months, NODs were down by 65.3 percent, according to ForeclosureRadar.com. Their Director of Economic Research stated, “Proclaiming a housing market recovery (we hear almost daily in the news), based on prices alone is akin to a blind man holding the tail of an elephant and proclaiming it a snake!”
Several other factors crucial to a healthy housing market seem to be absent in California – such as a solid income and job growth, increase in home sales, and low levels of negative equity. Actual sales this year are down and nearly 25 percent of all homeowners with a mortgage are still underwater. These fractures will continue to have a drag on our market statewide.
Regardless, many state that the lack of inventory will cause home prices to jump by 20 percent or more this year. Note, as they continue to rise, return on investment will decline.Therefore, those looking for long-term real estate investments should act quickly.
If you have questions regarding this and/or other real estate matters, contact Mike Mason, Broker/Owner of Mason Real Estate DRE: 01483044, Board of Director of your Southwest Riverside County Association of Realtors® (SRCAR), Short Sale & Foreclosure Resource certified by National Association of Realtors® (NAR) at [email protected] or (951) 296-8887.