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By Patricia Reynolds
Business Journal Writer
The Northern San Joaquin Valley has experienced a decrease in home foreclosures over the past three consecutive months, but while the news may be reason to speculate that the area’s real estate market has finally hit bottom, it is unclear whether the drop-off represents a turn-around or a temporary delay in upcoming foreclosures.
Local real estate businesses agree that a recovery does not appear to be imminent. Verdia Howard, broker and co-owner of Weeks Real Estate in Modesto said the signs of a real estate resurgence aren’t yet present.
“A dramatic decrease in the number of REO’s (Real Estate Owned) and short sale properties for sale would be an excellent sign that prices will start to stabilize and begin to eventually start to increase,” she said.
Howard said the current inventory of listed properties consists primarily of foreclosures and short sale properties. For the market to rebound, she said, banks must deplete their real estate holdings.
“The market has to rid itself of all these distressed properties before a recovery can begin,” Howard said. “At the present time, I have not seen any real signs that the real estate market is in a recovery period.”
Suzanne Robinson, a Certified Residential Specialist with PMZ Real Estate, also in Modesto, said her analysis of the market yielded the same results.
Robinson has recently conducted research in Modesto and Stanislaus County on behalf of a buyer. She found that about 72 percent of homes that closed escrow were bank-owned. The rest were short-sale properties and traditional sales.
Area professionals believe that market conditions won’t change drastically for the next several months.
“The outlook for the next six months is actually more of the same,” said Susan Dorrity, Loan Officer with Modesto’s California Mortgage Associates. “We haven’t seen the bottom of the foreclosures yet.”
Robinson agrees and foresees at least another year of market turbulence.
“There is still another ripple of foreclosures coming,” Robinson said.
When many people purchased their homes, the terms of their loans varied as to when the interest rates would readjust. The market will have to absorb foreclosures resulting from upcoming adjustment on loans, she said.
Along with persistent uncertainty, however, come unique opportunities. Howard, Robinson and Dorrity believe the current market environment offers hopeful homeowners and investors the chance to access a market that may not have been available to them in the past.
“This is an excellent time to invest in real estate,” Howard said. “It has been many, many years since the prices of properties have been this low. Not only are the prices good, so is the selection.”
First-time buyers can now find affordable homes, according to Howard. The price point for quick sales in the Central Valley seems to be from the low $100,000’s to about $340,000, she said.
Robinson said this low pricing also has spurred innovative kinds of buying.
“We are seeing a new buffet of buyers. People are purchasing homes now for their children and even grandchildren,” she said.
Some are using cash from their savings accounts to purchase investment properties, getting a higher return from rental income than from bank interest, according to Robinson.
Although pricing is soft and may decline further, Dorrity urges those ready to buy to take action now.
“My advice for anyone interested in buying into real estate, whether as an owner-occupied residence or as an investor, your time has come and it is now,” she said. “Don’t wait until the values increase to make up your mind.”
While area real estate is rife with opportunities for purchasers, the tightening of credit has changed the market’s dynamics.
“The most difficult sales I see are with first-time buyers that come in with a small down payment,” Robinson said.
Bank-owned properties are priced aggressively to encourage buyers and stimulate multiple offers, according to Robinson.
“I have submitted offers that have competed with up to 18 other offers,” she said.
Robinson said successful buyers are those who come in with the largest down payment, strongest credit and a willingness to accept a property as-is.
Pre-qualifying for a loan is also a necessity. Weeks Real Estate assists clients in obtaining pre-qualification letters in advance. Foreclosure sellers require every offer written must have a pre-qualification letter attached, Howard said. Pre-qualifying clients before going out to see property is a method sellers have been applying to the market.
Dorrity said that lending institutions are returning to the way they structured loans ten years ago.
“The bottom line is borrowers must now truly qualify for their payments and show a good credit history. FICO scores are very important,” she said.
If potential buyers are in a position to purchase, they should contact a loan officer and let them pre-approve the loan. The purchase contract must be accompanied by a lenders’ pre-approval or the sellers will not look at the offer, Dorrity said.
As the market readjusts and attracts quality buyers and investors over the next several months, these local real estate professionals remain optimistic.
“Out of the negative comes the positive,” Robinson said, regarding her view of the real estate upheaval.
Dorrity couldn’t agree more.
“The next six months are going to remain tough and we, as over-indulgent Americans, need to man-up, tighten our belt buckles, and do all we can to ride out this recession, knowing there is always a light at the end of the tunnel,” she said.