HOME PRICES ARE TOO LOW – ESPECIALLY IN THE TEMECULA WINE COUNTRY!

The broken link between income and sales price.

If you bought a home in the last six to seven years your have dramatically felt the change in the real estate market. The market changed from one where we felt we knew the rules to one where some participated in bending the rules. While this group was a minority, their decisions helped fuel a unsustainable increase in property values that has impacted us all.

I use to be able to forecast the demand for homes because there was a required link between income and home value. This link was broken by lending practices during the boom years. We had loans such as SIVA (Stated Income, Verified Assets), moved on to SISA (Stated Income Stated Assets), then NINA (No Income, No Assets) and then way NINJA loans – yes you got it No Income, No  Job, No Assets. With no link between income and home price, prices went too high to be sustained.

Liberal lending practices and our emotions helped fuel increasing prices (I have to buy or I will be left behind). As the saying goes, “a rising tide lifts all boats”. Unfortunately, the same is true when the tide goes out.  Today, overly restrictive lending practices. job losses and emotions (fear and doubt) have lead to price decreases that are beyond that necessary to adjust for the unsustainable prices set  at the peak of the market.

Today we have another problem that is just as serious.

Home prices are no longer determined by a price set between a Willing Buyer and a Willing Seller. Most sales today are either REO’s  (bank owned homes taken in Foreclosure),  or a Short Sale (homes sold a less than mortgage value with the permission of the bank). For example, so far this year here in the Temecula Wine Courtry, 59 percent of the sales have been either REO or Short Sale, last year it was 78 percent.

There are few standard sales here in Temecula and most of those that are taking place are “Investor Flips”, homes purchased at a significant discount in auction or directly from the bank and resold as a profit. Of the 28 Standard Sales here in the Wine Country this year, a good percentage is likely to have been sold by investors.

What does this mean to you? In the past, an appraiser would only use a sale between a willing buyer and willing seller – even a home price influenced by a divorce was eliminated from consideration. Today, with foreclosure and short sale homes dominating sales, appraisers use them as their main source of pricing.

The problem is that with a profit motivated seller removed from the picture, prices are lower than would normally be the case. Even when we find a motivated buyer and establish a mutually agreeable price, apprisers may come in so low in value that the sale is either lost or the price negotiated down. There is increasing concern about what is taking place in appraisals. Lets hope something takes place to stop these practices or we will never be able to stop the downward spiral in prices.

Unfortunately, those of us who remain in our homes and continue to pay our mortgages have seen our home values fall too far. While the home prices that developed during he housing boom between 2003 and 2006 could never be supported in the long term, today’s home values are below the historic norm for our incomes.

Christopher Thomberg of Beacon Economics illustrates the relationship between the estimated median sale price and the median price that could be supported if the median price was constantly in line with incomes. Today, homes are priced below their supportable prices in a normal market. In this example, incomes in 2010  will support a price of $292,000 while forecast sale price is shown as $249,000. Beacon predicts a slow rebound in prices with the first real appreciation starting in 2014-15.

The bottom line, if you don’t have to sell. Don’t over react to current market conditions. The market seems to be bottoming out and we can expect slow appreciation to return. In my professional opinion, current values understate fair market values significantly and once consumer confidence returns, I predict the rebound will be faster than predicted by Beacon. This is especially true in high priced homes such as we have here in the Temecula Wine Country. Future blogs will explore this issue.

In my professional opinion,  the value in many of the home on the market today are well above the “averages” based  on recent appraisals.

If you can hold on to you home – do so. The market today is far too heavily weighed by emotion, low appraisals and the difficulty of finding financing for homes in this price range than the true balance between demand and supply.

Follow my blog here on Temecula’s Neighborhood Expert and I will earn your trust. Call me discuss questions. You can reach me by  email at Robert@TemeculasNeighborhoodExpert.com or click on the Contact form on the header of the Home Page and fill out your question – I am always on-line and my goal is to answer any request within 90-minutes of receipt and no case,  later than 24-hours.

Robert Deane is a realtor serving the Temecula  Area. He lives in and specializes in, the Temecula Wine Country

Real Estate has been central to my life for over  30-years.  I have held executive positions with two major homebuilders and California’s two largest land developers – The Irvine Company, developer of the Irvine Ranch, and Newhall Land, developer of Valencia. In these positions I learned from the brightest minds in the industry and  had the advantage of multi-million dollar budgets to  perfect my knowledge of all aspect of home design, marketing and sales. I have managed the marketing and sales of thousands of homes in all market conditions.

I have brought those skills and a continuing passion in real estate to the resale home market. I am a licensed agent (License Robert Owen Deane – ID Number 01881999)  with Keller Williams Realty. I specialize in Temecula, the Temecula Wine County, and Murrieta but can be of assistance to you in other communities in South West Riverside County.