Help Chico Home Sales, Drink More Pale Ale!

While the governments ‘buyers tax credits’ may be helping get some Butte County buyers into the house shopping mode experts are predicting that jobs will determine whether people will remain in a buying mood after April 30.

Lawrence Yun, Chief Economist of the National Association of Realtors in an article in REALTOR Magazine states “The health of housing for the second half of the year is dependent on jobs, and on this point the picture is mixed. Although we expect GDP growth of about 3% this year, job growth will lag and we could see unemployment worsen to about 10.5% in the second quarter before it improves.”

According to the website SimplyHired, Chico has an unemployment rate of 12.3%, compared to the national average of 6.9%, and jobs have decreased in Chico by 39% since June 2008. If these numbers are true we here in the Chico area have a ways to go before winter turns into spring for real estate sales.

So, our question is...how much do we need to increase our consumption of Sierra Nevada Pale Ale before they have to go on a hiring spree?

“SOLD! To the man in the white hat” . . . Buying Chico Area Homes at Auction

To say that the Real estate business is evolving is an understatement these days, as everyday is a new learning experience even for seasoned real estate veterans. An example of that evolution is the trend toward real estate auctions. Real estate auctions are actually a recycled phenomena, and a natural progression of the industry in light of the huge volume of bank owned properties. They are an effective tool for moving large a number of homes rapidly.

Lenders – owners of foreclosed upon homes, contract with an auction company to sell off a property. The auction company posts big signs all over the house letting prospective buyers know of the upcoming event. These days auction offerings are marketed at the auction company’s website with photos and some basic information. A long list of terms and conditions accompany the listing – read carefully and get a second reading by your realtor. Yes, Realtor…your realtor can assist you before, during and after the auction – the auction company will often offer a 1% fee to your agent if they accompany you to the auction and many buyers are offering to pay their agent an additional 1-2% to help them investigate the property, determine a good price and a bidding strategy. You’ll want to know that the title will be free of damaging liens and encumbrances, if the auction company doesn’t guarantee clean title be sure to have your local title company investigate ahead of time (there’s a fee for this service). You may also want to arrange to have a home inspector or contractor walk through the home to point out any potential construction or maintenance problems before you start bidding. The auction company will typically pool a bunch of properties in your area, perhaps as part of a larger event with properties in other nearby cities. The bigger auctions will allow both on-line real-time bidding along with live bidding at the auction.

A client of mine watched the process last weekend from the comfort of her Durham home (the auction was held in Sacramento). She and her husband were mildly interested in a couple of properties but mainly just wanted to learn the process. Here were some of the results for Chico area properties:

A property on Saurat in Chico, which had been recently offered for sale through a Chico real estate brokerage at $279,000, required a minimum bid of $99,000. The bidding went to $190,000 - $89,000 under what it had previously been listed for! The Chico area buyer was thrilled and offered to pay his agent that accompanied him 2% for assisting.

A remote 5 acre property with a clean but small home on Doe Mill Road in Forest Ranch had previously been on the market for $159,000. The minimum bid was $25,000. The property ended up fetching $120,000 at the auction - $39,000 under the last asking price.
The caveat to these sales is that they are ‘subject to bank approval of price and terms’, in other words, the bank can still void the sale if they don’t like the price….stay tuned for more on whether the buyers actually got their house at their price or not!

Responsible Choices, Unresponsive Lenders

People in our community are trying hard to hang onto their homes, in many cases the lending institutions are not helping, case-in-point:

A Chico man in an industry heavily impacted by the downturn experienced a ninety percent income reduction beginning in 2006. Sensing the market collapse he and his family sold their newer home and bought a fixer in a modest location. After working a couple of low-paying retail jobs his wife eventually secured a middle management position. They’ve cutback on everything: hair-cuts, cable, food and clothing. With all of these adaptations their monthly bills still exceed their income.

For over a year they’ve petitioned the lender for a loan modification. Dozens of calls, four applications, and reams of supporting paperwork have yielded claims by the lender of lost files, inaccurate records of phone conversations and correspondence. The bank claims that estimates of the family’s monthly expenses are over-stated because grocery costs exceeded $400 per month.

With their debt growing this family must again try to make the most responsible decision. Absent a workable modification they are left with the options of short-sale or foreclosure. The home is worth $140,000 less than they owe. Why would the bank choose to take this loss rather than make changes to a loan that would eventually pay them back all of their principal with a profit?

If we want to avoid the scourge of foreclosed homes more pressure must be applied to the lending institutions to actually help troubled borrowers.

Who’ll be Buying In Butte 2010-2019?

So you’ve decided to wait to sell your home until prices go back up? You’ll be hearing lots of predictions on what’s to come, most fortune-tellers are saying that prices still have not hit bottom. These same soothsayers are projecting that once the rebound does occur, prices will begin to rise slowly. How should you prepare for that day when it does arrive?

According to an article distributed by RISMedia, there are 4 major demographic developments to watch for in the coming decade:

Aging Baby Boomers (55-64 years old) – Butte County has long been a retirement destination for metro California retirees, in 2008 15% of the county population was over age 65. While the new wave of retirees are less predictable in their housing preferences, look for them to move away from traditional retirement housing scenarios, opting instead for mixed age settings that suit a higher activity level. Walkable neighborhoods near suburban town centers also suit this age group.

Younger Baby Boomers (46-54 years old) – This age set will have a more challenging time moving due to the poor equity positions that the housing crash has contributed to. When they can sell it’s predicted that they will be looking for somewhat the same situation as their older counterparts.

Generation Y (techies) – Look for Butte County’s percentage of home ownership to dip from the current (2000) 60.7 percent, as this group has had their home ownership dreams tempered by the reality of market changes. Rentals that serve their connectivity needs and are close-in will be of the most interest to this group, so apartments, townhomes and rental housing that meets these needs will be in the highest demand.

Immigrants – As of the 2000 U.S. Census 7.7% of Butte County residents were foreign born and in 2008 people of Hispanic descent made up 12.9 %of the county population. As these groups grow by both internal (births) and external (immigration) methods, their preference for clustered housing will benefit larger homes and those in neighborhoods with strong communal opportunities.

“All of these groups have some characteristics that reflect a desire to live in more pedestrian-friendly, transit-oriented, mixed-use environments that de-emphasize auto dependency, whether the location is urban or suburban. Among the majors factors driving urbanization: 1) growth of two-person households and single households without children (among both baby boomers and Generation Y); 2) a halt to baby boomer migration to the suburbs; 3) the likelihood of Generation Y to rent rather than own; and 4) public policies encouraging compact development.”

Based on these factors look for developments that follow the ‘new urbanism’ model best demonstrated in Chico by Doe Mill Neighborhood and other projects by New Urban Builders.

Fears, Tears and a New Resolve.

Are Butte County homeowners distressed about the mortgage crisis? If our February 11 Loan Modification Workshop was any indication, the level of frustration has reached the boiling point. We received 30 phone calls about the workshop and had 16 homeowners attend. What was intended to be straightforward presentation on the mechanics of applying for a modification, quickly evolved into an opportunity for bitter borrowers to vent their anger over the treatment that they have received from the major lending institutions.

Some cried, some groaned, some shouted, we listened. Once feelings were aired we got down to the business of explaining the problem, defining eligibility, detailing the options, providing contact information and filling out forms. By the end of the nearly two hour session attendees had developed a sense of direction. Regrettably, some participants determined that they were likely ineligible for a modification, others were buoyed by new possibilities and alternatives, a few concluded that perhaps it was time throw-in-the-towel, more left with a new resolve to hang on to their homes.

What we learned from this workshop was to allow homeowners time to share their stories, we all gleaned a new understanding of the depth of the challenge with each personal account and were able to target topics requiring more information. We will include this information in our next workshop, the way things are going we expect a full-house.

What to do About #2, or Can a Second Mortgage be Modified?

When we talk about loan modifications it may sound like we’re departing from the local, Chico perspective…nothing could be farther from correct. We recently mailed flyers to ONE HUNDRED Butte County homeowners who had received Notices of Default from their lenders within the last month. Local issue? We think so!

The conversation about loan mods has focused on first mortgages, but according to Credit Suisse Group in a Wall Street Journal article “About half of seriously delinquent borrowers have a second mortgage”. In fact, it seems to us that the second mortgages are one of the biggest parts of the problem. Consider this: a home sold 4 years ago in Chico for $500,000, the buyer put almost nothing down (common practice at that time), the first mortgage was for 80% of the value (at that time) or $400,000, a second mortgage covered most of the rest or approximately $100,000. Since then, local home values have dropped 20%-50%. The home is now worth maybe $350,000. The first mortgage holder only stands to lose $50,000, while the second stands to lose all $100,000.

So at 6% the payment on the first is app. $2400 and on the second app. $600, in other words: one-fifth of the home-owners monthly nut is the payment on the second. Modifying the first by a couple hundred dollars is great, but if the $600 doesn’t change, a loan modification may not solve the problem.

Because of that the Obama administration went back to the drawing board last year to revise their foreclosure prevention program to address adjusting second mortgages in addition to the plans original goal of modifying firsts.

According to the article “Under the revised plan, mortgage-servicing companies that participate in the loan-modification program for second liens must automatically modify the second mortgage when the first mortgage is reworked. The government will share in the cost of reducing the interest rate on second mortgages for five years. As an alternative, it will pay holders of second mortgages to extinguish that debt.”

So, if you have been agonizing over a loan modification because you think it still won’t get your monthly payments where they need to be, there’s hope that your second may be reduced or removed as well.

Your Tax Dollars at Work . . . Making Bankers Rich

An informative video is worth a thousand words so I'll let this one speak for itself. Feeling sorry for the banks yet? Despite this information we're still hosting our Loan Modification Workshop this Thursday night, sounds like they might have better luck with a Short-Sale!
Video Marketing and Mortgage News Designed for Mortgage and Real Estate Sales

Drive a Little...Save a Lot?

We’ve heard the hypothesis (in fact we’ve perpetuated it) that homes are significantly more affordable if a buyer is willing to drive to the outlying areas outside of Chico to purchase…but is that true? To test this theory lets look at average sales prices in: Chico, Durham, Orland, Forest Ranch, Oroville and Paradise.

For the purpose of this comparison we applied the following parameters: Sold prices of all homes on under 6 acres between June 1 and August 31 of 2009. We chose sold prices because ‘for sale’ prices can range from ridiculously over-priced to strategically under-priced…SOLD prices being the true market value. Many homes in the outlying area are by nature on larger parcels, to make sure that they were included we set the bar at 6 acre lots or less. And we chose the window of June – August as representing the busy summer buying season to obtain the greatest number of comparables.

Because the size, quality and other features of the homes varied so much, rather than focus on price we decided to compare COST PER FOOT. Averaging the cost per foot eliminates the disparity of size etc. and gives us a good waypoint for comparison. Foreclosure and distress sales brought the average down across the board.

Leading the list of most affordable communities was Oroville. At slightly over $86 per foot the Butte County seat had lower prices than much of the rest of the state.

Next was the Glenn County community of Orland at $116 per foot. During the heyday of the real estate boom Orland underwent a hasty transformation from rural hamlet to bedroom community as many Chico families sought lower priced homes in exchange for a 20 minute commute. Outside of the town’s core however the country feeling still prevails.

Paradise, long a retirement haven just 15 minutes from Chico averaged $128 per foot, significantly lower than the nearby wooded ridge community of Forest Ranch at $145 per foot.

Durham, a sought after location because of it’s high performing schools and rural charm came in at $163 per foot, providing a small price discount by way of the seven mile drive from the much larger Chico

There were 210 sales of residential homes in the area immediately in and around Chico during that period, far more than in any of the other areas we compared. The average price per foot was $172, infinitely more affordable than L.A. or the San Francisco bay area, but at the top of the pile for Butte County.

So, here was a ‘myth’ that proved true. For a home-buyer on a budget, that doesn’t mind the commute, shopping for a home in the outlying communities within 20 minutes of Chico might be the key to making home buying a reality!

Mad as hell? . . . You're Not Alone!

Are there many people in the Chico area needing loan modifications? If response to our LOAN MODIFICATION WORKSHOP is any indication the answer must be yes. In just a few days of promoting it we already have ten signed up. Here’s what they’re saying:

“thank you so much for doing this, it is sooo needed, we’ve been getting the run-around from our bank for months…we’re hoping this helps”.

“please put me down for FOUR…I’ve been telling all of my friends that are in the same situation about it”.

“thank you for offering it…we really need it”

People are frustrated, people are ANGRY! Good, honest, hard working people, especially those that have suffered a loss of income due to current economic factors are TRYING LIKE HELL to pay their bills each month and KEEP THEIR HOMES. Putting aside the fact that their homes are worth only 70%-50% of what they paid for them they are willing and wanting to hang on to their homes, but in many cases their monthly debt now exceeds their monthly income. They try to get the banks to work with them but the behemoth institutions either don’t want or aren’t equipped to help. Homeowners send in application after application only to have a different, confusing response to each attempt. Often the response to a loan modification request is to ask the borrower to INCREASE their monthly payment!…WHO WOULDN’T BE ANGRY?!

Our LOAN MODIFICATION WORKSHOP is NOT a silver bullet, and there’s a possibility that a loan mod. request may still be denied even after following the procedure recommended. But there’s a chance. The workshop will provide a framework, an outline of how best to proceed based on the Making Home Affordable guidelines, and we’ll provide a few extra suggestions to try to help make it work. Follow the link in the sidebar for more details on the workshop.