This week The Norris Group Real Estate Radio Show presents Part 2 of I Survived Real Estate 2009. Rick Sharga joined RealtyTrac in 2004. He is responsible for branch management, corporate positioning, investor relations, and marketing communications. He has appeared on virtually appeared on every TV show in America.
Foreclosure activity has increased. Since January 2005, we have had 43 consecutive months in which our foreclosure numbers have increased. In 2009 of July, we had over 361,000 U.S. households received a foreclosure notice. 2005 was the last time we saw anything resembling normal foreclosure activity. In a normal market place, about 1 percent of all first and second loans will end up in foreclosure. In 2005, we had about 500,000 foreclosure notices and 100,000 REOs. In July of 2009, we had 75,000 REOs. We are dealing with foreclosure levels that are six times what they would be in a normal market, and the REO levels are 10 times what they would be in a normal market. The people responsible for managing these assets are overwhelmed, and the rules are frequently changing for them. The legal system is trying to help this problem by creating moratoriums, which do nothing more than delay the inevitable.
Last year, 2.3 million households received a foreclosure notice. California accounts for about 1/3 of that foreclosure activity. Up until the last six months, REO activity was occurring more often than all other forms of foreclosure activity. It is now lagging behind the other types of foreclosure. About 1/3 of the properties scheduled for foreclosure are being delayed at auctions.
In Cleveland, a home owner was arrested for failure to pay taxes on a house that he thought had been foreclosed on six months earlier, because the bank started the process then decided that they did not want any more properties, but by that time the owner had already moved out.
There is a “shadow inventory” of about 400,000 to 500,000 REOs that have not yet been put on the market for sale. We will have to get rid of those homes before things get back to normal.
60 percent of all foreclosure activity is found in 6 states. We are now having a wave of unemployment related foreclosures in places including Idaho, Utah, and Arkansas.
There are about 60 to 100 billion dollars worth of Alt-A and option-ARM loans that are going to reset early this year. They are going to default, and they have been defaulting at numbers worse than sub primes. The big wave of those loans will not hit until around the second quarter of next year.
Unemployment is going to pass 10 percent. There will be 1 foreclosure for every 6 to 10 jobs lost. We have lost 7 million jobs since the beginning of the recession. We are setting records for personal bankruptcy filings. Foreclosure properties today are worth more than they were about 1 year ago. Studies from the NAR and CAR show that as foreclosure numbers increase, prices go down.
The builders have said that if we do not keep new housing starts between 200,000 to 300,000 new units per year, for the next 3 years, then we will not get the inventory balanced. Right now we are at a 500,000 to 600,000 unit rate.
The MBA’s delinquency rates are running faster than RealtyTrac’s foreclosure activity rates. That tells us that there is a lot of pressure coming onto the market.
RealtyTrac believes that there will be 3.4 million homes receiving a foreclosure notice this year. Rick believes that option ARMs are going to reset at record levels next year. Option ARMs are usually on properties that are upside down, so the programs made to prevent these from foreclosing will not work. Rick believes we will stabilize in 2011. We will not see normal churn levels until about 2012.
The next speaker was Jon Young. He has been in the real estate and home building industry for over 30 years. He and his partners are responsible for the building of over 3,500 homes in the Inland Empire. He is the current vice president of the CBIA, and he serves on the board of the NAHB.
Home builders have been hit very hard by the down turn. This year, Jon believes that only 40,000 new units will be built. That is the lowest number of new units since the early 1950s. In 2004, we saw a 15 year high of nearly 213,000 units built. In just five years, new home starts have plummeted 80 percent.
The construction of one singly-family home generates around 2 to 3 jobs, 330,000 in economic benefit, about 16,000 in state tax revenue, and 3,000 in local tax revenue. If the housing market does not get better then the state will not get better.
Jon has focused on 5 goals for this year. These were: extending the expiring map act, develop and fee reforms, solving the credit crunch, reducing unsold inventory, and extending the home buyers tax credit.
CBI sponsored an extension that would require any viable project to the beginning of the entitlement process. Since this bill was signed, hundreds of expiring subdivision maps. Impact fees are a burden on the business. The profit margin has been reduced so much that it makes the cost of building unfeasible. AB1084 will help to make sure that builders are being charged a fair amount, if it is passed. CBIA is supporting a bill which will give the state bank authorization to help home builders get financing for construction. CBIA is also supporting a bill that would require CHFA to provide funding for the purchasing of these homes. CBIA also sponsored the home buyer tax credit which provided incentive for new buyers to buy. The home sales increased dramatically through this program. The program has done so well that the franchise tax board decided to end it, because they have already allocated $100,000,000 dollars. We also had a Federal tax credit for 8,000 dollars, which will end in November of this year.For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.