Real Estate Trends to Watch for Mar Vistans

FROM REAL ESTATE MAGAZINE

Jobs, foreclosures, option-adjustable-rate mortgages, and interest rates are among the top trends that could dictate what will happen in California's housing markets this year. Here's what you need to know to make sense of how these trends could affect the real estate market.

1. Market Fundamentals

Three market fundamentals that turned positive in 2009 could be good indicators this year as well.

First, home prices have fallen lower than replacement costs in many markets. This means a home can be bought for less than the cost to build it. Second, home prices are "a lot more attractive" relative to rents than they have been in many years; and third, inventory of for-sale homes has "dropped very dramatically," says Richard K. Green, director of the USC Lusk School of Real Estate in Los Angeles. That suggests some markets have stabilized, although homes priced at more than $1 million may be an exception. "There is still a lot of pain left to come" in that segment of the market, Green warns.

2. Jobs

"Painful" describes the employment picture and the outlook for wage hikes and job security. Moreover,
housing may now be less sensitive to traditional jobmoving patterns, observes Stefan Swanepoel, a real

estate trends expert, author, and speaker in Aliso Viejo. Home sales that involve corporate relocations or

year-end job changes may be moribund until the employment situation improves.

3. Foreclosures

Jobs are an important factor in foreclosures, though "not everyone who has lost a job has lost their

house yet," Swanepoel says. Homeowners who've lost a job may have had to live on lower wages or one

income, or may have had to tap into their savings or retirement accounts to get by. "If they don't get a

decent job or a good job soon, I can see their houses still coming on the market in foreclosures or

short sales," he says.

Another trend to watch is that some homewners have dodged foreclosure even though they haven't

made their mortgage payments, according to Sean O'Toole, chief executive of ForeclosureRadar.com.

"We don't have the political or societal will to foreclose on [that many] people, but nor do we have the will to bail out those homeowners who can't afford their payments," O'Toole says. That stalemate

has slowed the pace of foreclosures, which may mean fewer opportunities for REALTORS® to list and
sell those homes, he suggests.

4. Lenders and Loans

Home loans are crucial to healthy housing markets, so REALTORS® need to keep an eye on national

lenders that originate loans locally, Swanepoel suggests. "As they digest the companies they've acquired and find out what loans they have, what loans they are servicing, and what their exposure in certain markets is, they might change their rules and terms and conditions," he warns. Tougher requirements for loans insured by the Federal Housing Administration (FHA) could have an effect on housing as well.

5. Interest Rates

Interest rates could turn out to be the ultimate wild card. How long the Federal Reserve will keep interest

rates low is an unanswerable question on which hangs the future of housing. The Fed's ability to maintain low interest rates is "the greatest risk to the real estate industry right now," says O'Toole. "If interest rates go to 8 percent, this market is over."

6. Option-ARM Recasts

Low interest rates have taken the sting out of adjustable-rate mortgages (ARMs), but the paymentoption

variety is still watch-worthy because a recast to make up negative amortization can result in an enormous payment shock, Green notes. "You could set up a fairly simple example where interest rates don't go up at all, but the payment doubles," he says. "If that loan was originated with a 90 percent loan-to-value ratio and you are piling up principal, you could be deeply underwater and unable to make the payment." Aggressive loan modification programs have blunted the expected blow from option-ARM recasts, but many homeowners still owe more than their home is worth and 30-day delinquencies have continued to climb, O'Toole observes.

That suggests more homeowners may throw in the towel. "Strategic walk-aways from negative equity

and/or due to job loss are going to be a bigger issue because modification programs and low interest

rates likely have taken up the slack from the reset/recast issue," he explains.