Half way to recovery or half way to more pain?

Mortgage Default California leads the country in categories like: number of mortgages in default, number of loans underwater…

A recent report from Trulia.com had some good news for the real estate market when they declared that we are near the half-way mark of the real estate and housing recovery. This news falls right in line with what the national media has been constantly reporting on for the last 12 months or so, that the real estate market is on its way back. Although I agree to a point that real estate markets in some areas of the nation are seeing recovery, I must keep in mind what is happening here in California.

California leads the country in categories like: number of mortgages in default, number of loans underwater, number of foreclosures, etc.  The state’s fiscal house is in distress as well; historic lows in revenue, coupled with historic highs in unemployment leave California’s real estate market with nowhere to go but down. What are the drivers of real estate sales? What drives real estate values up? What makes someone go buy a house? What makes someone go buy a vacation home? Well usually when things are good: a promotion at work, a wage increase, a better job, etc. causes people to go out and buy real estate. Happy times like marriage, birth of a child, etc. also cause people to start looking into buying a home. And this will always be so.

On the other hand, when did a lay-off notice ever make someone who is renting an apartment perhaps want to purchase a home and get a huge mortgage debt burden along with it? When did someone who was just relieved of their assembly job and has no other skills or abililities think, “You know, this is a great time to buy that vacation house I’ve always wanted.” never, if ever. What is my point? Until our economy is healthy here in California, our real estate market will remain sick.

It is true, California is seeing an up-tic in sales and average home price for the moment, but I am not so easily convinced, why? Investors, local and non-local, have been buying up homes in California at a rate not seen in generations. What does this mean for the market you ask? Data shows that neighborhood values increase and remain more stable when more homeowners live in the homes as opposed to renting them out to tenants. Data shows that homes that are non-owner occupied, or rented, suffer damage and disrepair at a despairingly huge number when compared with owner occupied homes.  Data also shows that neighborhood home values tend to decrease as the number of non-owner occupants increases. Over the long term, these neighborhoods that have been overrun by investors will see home values stagnate sooner and drop in value more drastically than neighborhoods that are mainly owner occupied. I don’t have a crystal ball, but this is how I see things turning out.

It took Congress, hundreds of law-suits, government sponsored programs, new laws, and just about everything else you can think of to get the national real estate market to limp past the point where the market was over a decade ago, keep in mind all this without an employment and economic recovery! The only way I can see this state making it through to the other half of this recovery is only if the employment and overall state economy improve and once again take their places as the true foundations of neighborhood real estate strength and stability. California still has a lot of work to do.

Noel Berrios

Realtor and Mortgage Relief Expert