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Green Shoots or Shot in the Foot

Falling-house-prices-005Forget 2010 . . . a major mortgage player predicts falling home prices till 2011.

U.S. home prices will likely continue falling all through 2010, says a report from mortgage insurer PMI Group.  According to bean counters there, home prices in 30 of the 50 biggest metropolitan areas of the U.S. have at least a 75% chance of falling through 2010 and into 2011.

That’s quite an awkward prediction, isn’t it?

Home prices could get another shot in the foot “by a demand shock of high unemployment and a supply shock of distressed foreclosure sales,” said LaVaughn Henry, senior economist at PMI.

According to the LA times, residential vacancies have climbed to 5.3 % in the first quarter of 2009 from 3.8% a year ago.

Effective rents dropped 1.7%.  Many sellers can’t sell (at least in the conventional manner for the price they want) so they are renting their homes instead, waiting for the market to come back . . . something I strongly discourage most sellers from doing. (You may want to check out my Decision Making Guide at NoteQueen.com)

Even though this may be a great time to buy and hold properties in some areas, keep in mind that you have to be able to weather vacancies and have reserves to tide you over the bad times.

There are some pockets of insulation, though.  For instance, I recently had a conversation with some Chinese friends, residents of Arcadia, and they were poking some fun at themselves.

They thought it was funny to walk outside of their home and see lots of people walking around in their pajamas, and they think to themselves, “Where are we? China?”

Then when they go back to mainland China, everyone knows about Arcadia.  If you live in Arcadia, it’s kind of like saying you live in “The O.C.”

What this means is, that Arcadia (and surrounding areas, like ours) are insulated from the price declines because as soon as something goes on the market, it gets swooped up by someone who feels really privileged to live there.

It’s pretty tough to find a good short sale or REO that makes sense for an investor, because there are so many prospective owner occupants ready willing and able to bid the price up.

As a residential and commercial property owner here in Temple City, I thank you from the bottom of my heart, China.

So, back to sellers trying to hold on just a little longer until things turn around again . . . only do this if you can hold your breath a really long time and not turn blue.

If you’ve got negative cash flow on a property, and you don’t have lots of surplus income every month to cover it, then dump that baby as soon as possible.

There may be further price pressure to the downward side, and at some point, inflation will have to kick in, stripping you of any appreciation and profit you think you’re hanging out for.

Recovery does not mean it’s party time again, it just means that you’re sober and can think straight.

If you want to maximize price point, then offer terms.  That simple.  There are so many more buyers for an owner financed property, because loans can be really difficult these days.

Always consult with your CPA, tax attorney and/or financial advisor before selling any real estate.

Dawn Rickabaugh is a RE broker with expertise in seller financing and RE notes (trust deeds).  www.NoteQueen.com  626.641.3931 dawn@notequeen.com.

July 13, 2009

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Dawn Rickabaugh


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