Last evening I gave a presentation at the Rental Housing Association for their first Sacramento Real Estate Investor Forum.  It was a great meeting of about 50 investors and I was very pleased to be asked to talk to them about the current Sacramento real estate market and how it relates to investors trying to purchase REO's and Short Sales.  I thought I would give you the highlights of the presentation.

First, we covered Why Buy Real Estate NOW?

1.Historically Low Prices at a Great Value! •Real Estate can be purchased well below replacement value of the structure alone!

2. Incredibly Low Interest Rates!

3. Shadow REO inventory Coming!

I gave them a couple of examples of real live deals I have helped investors with in the past couple of months.  You can check out those deals - Working with Investors.  Since REO's and Short Sales are the largest part of our market currently, we spent a few minutes discussing the advantages & disadvantages of both.

REO (Bank Owned):

Advantages: Low List Price-usually 5-10% below current market, Unemotional Seller-cares about "net" to bank and Vacant - can close quickly

Disadvantages: No disclosures/no property history, No repairs, Heavy competition currently-not uncommon to see 20+ offers at this time

Short Sales:

Advantages: Usually in better condition as seller still has stake in property, last one standing-investors can wait out the acceptance time from the bank, while 1st time homebuyers usually will move on, and could have built in tenant

Disadvantages: Long acceptance period, and again limited to No repairs-seller has no money and bank won't do repairs

Then we covered the state of the real estate market in Sacramento at this time -

Real Estate is localized so it's important to an investor to understand your local market.   In Sacramento County, our prices have declined by at least 2% per month for the past 12 months...in some areas we have been declining by 3% per month.  The lower end appears to have stopped declining at this time. At the height of the market, August 2005, Sacramento median home prices were $387,000.  Today Sacramento Median home value is $163,350.  Our prices have dropped over 50% from the height of the market.

Preforeclosures (NOD's & NOT's) had been increasing for 1st 3 months of 2009.  In May 2009, Realty Trac reports that preforeclosures are down 6% from April 2009, but up almost 18% from May 2008.

And how long will these trends continue?  Option ARM and Alt-A mortgage resets become a much bigger issue in mid 2009 as the trouble shifts away from the sub prime.  Credit Suisse analysts are forecasting 8.1 million homes will be in foreclosure by end of 2012 - 16% of all households.

So the big question is - Have we hit the bottom?  When will we know that we have reached the bottom? The media will start reporting it 3 - 6 months after we have actually hit the bottom. 

People who buy during the buyer's market are the smart ones.  This is where you will build wealth.  If you wait until the media reports that we have "hit bottom", we will be back in a seller's market and you will have missed your opportunity. 

The REO Inventory has dried up in most zip codes in Sacramento County over the past few months...we are seeing multiple offers on REO's and Short Sales often within the first 2-3 days they are on the market..  This has been fueled by the lender and state imposed moratoriums on REO's.  Is this about to change?  Is this an illusion?  Is this a false bottom or have we actually reached the bottom? 

We have been hearing and seeing "the shadow inventory" for some time now in Sacramento.  Just driving through neighborhoods, reveals a large number of homes unsold but yet vacant.  Due to lender and California moratoriums these homes have not yet come on the market.  What do these numbers look like?  This is just one zip code area - 95823.

Realty Trac as of 6/15/09                                              1,085 Bank Owned

Less Active Listings - Metrolist                                         -    53 Active REO

Less Pending Listings - Metrolist                                      -   129 Pending REO

Difference -Total Shadow Inventory                                       903 STILL TO COME ON MARKET

Plus the Preforeclosures Realty Trac as of 6/15/09               851 NOD's

And if we look at all of Sacramento County -

Realty Trac as of 6/15/09                                              10,031 Bank Owned

Less Active listings - Metrolist                                           -  717 Active REO

Less Pending Listings - Metrolist                                       - 1,681 Pending REO 

Difference - Total Shadow Inventory                                     7,633 STILL TO COME ON MARKET

Plus the Preforeclosures Realty Trac - as of 6/15/09           9,397 NOD's

What does this mean to the Sacramento investor?  OPPORTUNITY IS COMING.  Now is the time to get your ducks in a row, so that you are ready to take advantage of the coming opportunities.

For more information on market statistics or prices in the Sacramento area, contact Lori Mode at (916) 405-5765 or Lori@ModeandDurhaM.com or visit our website at www.ModeandDurhaM.com.

If you are interested in finding out more about investing in the Sacramento area, make sure to check out our Sacramento Investor Boot Camp.

 Search all Sacramento homes here!                                           

Lori Mode & Bruce Durham, Keller Williams Realty, Elk Grove

                       www.ModeandDurhaM.com