Also serving the communities of De Luz, Rainbow, Camp Pendleton, Pala and Pauma

Dry up those tears... Real estate recovery will happen

Forecast for 2008

Tears shed over Fallbrook real estate values may be likened to a breathtakingly beautiful, greatly admired actress with one giant, sparkling-clear crocodile tear slowly trailing its way down her flawless face.

In other words, as Fallbrook property owners we should dry up our tears, because historically we’ve happily reaped fantastically high appreciation rates. Even though our market has gone through a troubled readjustment phase the last two years, indicators are there that recovery could easily begin in 2008.

Compared to the 20 percent average increase in home values we collected in 2003 and the 27 percent we happily accepted in 2004, the frustratingly stagnant home sales and slipping prices we saw in 2006 and 2007 led to grousing by many and panic by some. Spoiled little Southern Californians, aren’t we?

While some media outlets are running sensational headlines, predicting that we are destined for a recession and pointing to the troubled real estate market as the culprit, I don’t necessarily think we should jump on the doomsday wagon. My guess is some media will continue to bark that in January and February, but vital economic indicators that we need to give consideration to don’t really jive with that theory.

Have we had a rough couple of years with our property values? Yes. Should we kick ourselves for having purchased property in the Friendly Village in the first place? Hardly. Are we ever going to pull out of this slump? My prediction is ‘yes,’ and sooner than the majority of the media is saying.

Real estate always has been, and will always be, cyclic. Historically, it has proven to be a sound, long-term investment.

Something to bear in mind is that a true evaluation and forecast of a particular real estate market must consist of a significant amount of strictly local data. Most national forecasts are based on the glomming together of statistics from many different and diverse markets across the country. It doesn’t make sense to use those to predict Fallbrook’s real estate future.

How can Fallbrook reasonably expect recovery (versus doom) in 2008?

1. By definition, an economic recession is made of two consecutive quarters of contraction. Because economists said some of what transpired in 2007 was due to residential construction cutbacks, and the fact that I feel the majority of that has already occurred in our market, I expect 2008 to contain minimal contraction in our local construction industry. The unfortunate fire tragedy of late 2007 will likely provide a benefit, albeit bittersweet, to a particular critical part of our economy, providing a gentle upturn for construction in 2008. As those who lost their homes make final decisions on their rebuilding plans, determine how best to augment the cost of rebuilding a structure that may have been under-insured by today’s standards and what improvement changes they may choose to make to their property, business will begin to steadily flow to our contractors.

2. Consumer spending is down, but overall, salaries have continued to edge upward and household net worth has risen. Household overall wealth is down simply due to the temporary slip in real estate prices, but spending will continue, although I expect it to be somewhat conservative through 2008.

3. San Diego County, overall, has a solid and diverse economic picture, which I think will prove to be its saving grace. With strengths in the high-tech, biotech, tourism and service industries, we weather things pretty well. Insiders say the biotech industry in particular will continue to grow stronger in the county over the next few years, with new facilities and employment opportunities inching their way more and more up into North County.

4. The expansion of secondary education facilities into our market – the new Palomar College campus planned for the I-15 corridor, for example, will provide a benefit to our local economy in many ways. Understanding it won’t be without its challenges, with many residents concerned about the predictable increase in traffic with this development; the bottom line is it will assist in pumping lifeblood into our local economic picture.

5. Respected economist Lawrence Yun, chief economist for the National Association of Realtors, predicts that the Gross Domestic Product (GDP) growth will be positive in all four quarters of 2008. He expects the GDP readings for all four quarters to be positive: 2.2 percent in the first quarter, 2.6 in the second, 3.0 percent in the third and 3.1 percent in the fourth. (The GDP is defined as the total market value of all final goods and services produced within a country in a given period of time.) That provides a distinct spark of hope for the overall economic picture.

Yun has said he feels good about certain strategic changes that have taken place. He feels they will make a positive difference to the real estate industry. These changes can easily lead us to be optimistic about real estate market improvement by at least the second half of 2008.

One of these changes was the recent passage of the Mortgage Cancellation Tax Relief Act by the US Senate and House of Representatives. The National Association of Realtors has diligently worked over the past decade to get this accomplished.

In the past, individuals who have experienced a true economic loss from the sale (declining market) or loss of their home (foreclosure) have had to pay an income tax on the loan amount forgiven. Now, with this tax relief bill, any debt forgiven on any mortgage debt, secured by a principal residence, will not be taxed. Good news for those who have been through enough already.

While 2005, 2006 and 2007 were fraught with foreclosures (see statistics with this article) due to weak underwriting standards of past loan orginizations, Yun says we’ve weathered the worst of the credit crunch already – with those attractive but deadly adjustable rate loans that came back to bite borrowers. I would hope so, given the fact that over those three years 481 mortgage defaults took place in Fallbrook and 71 in Bonsall.

In addition to those discouraging numbers, 135 homes in Fallbrook and 18 homes in Bonsall were categorized as ‘REOs,’ not sold in foreclosure but nonetheless taken back by the lender.

Speaking of foreclosures, welcome to the new generation of investors who have discovered their first opportunity to amass more real property holdings and posture themselves to strategically start building some significant wealth. They’ve been pretty busy lately.

“It’s not all gloom and doom,” said Chris Hasvold, managing partner of Coldwell Banker Landmark Group. “There are lots of opportunities right now to buy at great prices.”

Seasoned investors and those young wannabe land barons know real estate is, and will remain, a valuable commodity in Southern California.

When asked what strategies his agents at Coldwell Banker Landmark Group use to help investors, new or seasoned, Hasvold’s comments go back to the fact that real estate is always ‘local.’

“You have to work with a local broker,” he advises. “Outside brokers don’t know the neighborhoods. Sellers have this belief that because buyers are coming from out of area, if they list with an out of area broker, they will bring buyers to them. That is not the case.”

Hasvold, whose business has evolved from the roots of the Wayman Company dating back to 1917, says local brokers are essential to handle the special circumstances of rural living in an unincorporated part of San Diego County.

“It’s due to the special circumstances – private roads, septic systems, situations with property title, easements – that city brokers are not experts in,” Hasvold says. “I’ll put my agents up against anybody, anywhere, when it comes to expertise.”

While you may or may not be interested in adding to your real property portfolio, if you desire a change in your primary home, there really isn’t any reason to wait, because whether you are buying or selling, the local market has the uncanny way of always providing a level playing ground.

“If you’re buying and selling in the same market, it doesn’t matter if the market is down,” Hasvold notes. “You sell your house for less, but you are buying up for less. It’s actually a great time.”

With 30-year fixed rate mortgages hovering in the low six-percent range, we agree.

“Sometimes sellers can’t understand that,” Hasvold says. “I think it’s a mistake for someone to look at their home as simply an investment. If you love the home, buy it. When the right house is available for your family, you need to buy it, because that may be the opportunity you’ve been waiting for. Historically, property will go up in value.”

The statistics bear out Hasvold’s advice. The median price of homes in Fallbrook* has looked like this: $285,000 (2000), $317,500 (2001), $349,900 (2002), $420,000 (2003), $535,000 (2004), $595,000 (2005), $592,250 (2006) and $560,000 (2007).

Regardless, Hasvold says many buyers are still sitting on the sidelines, thinking prices will drop further. It’s quite possible that the beginning of Fallbrook’s recovery in 2008 will take more than a few by surprise.

“It’s because of the public’s perception from news media – giving the impression that prices will continue to drop for a long time,” Hasvold explains. “Historically, that is not the case. I believe when people understand this is the time to buy, that’s all it’s going to take.”

Hasvold also agrees that exciting changes with FHS legislation will help homeowners by increasing loan limits, reducing or eliminating the statutory minimum cash down payment, and give FHA increased flexibility, in addition to strengthening the loss mitigation program.

“That will help those who need to refinance out of an adjustable [mortgage] re-qualify, get a better rate and avoid foreclosure,” he said. “It will also allow new buyers to secure better rates and terms.”

All in all, ours is a valuable, thriving market and recovery can realistically be seen on the horizon.

In a Southern California town where gently rolling hills dot the landscape, moderate temperatures are taken for granted and the sands of some of the nation’s most popular beaches are an easy drive away… tell me again, who doesn’t want to live here?

 

Reader Comments(0)

 
 
Rendered 03/11/2024 06:03