I DON’T HAVE A PROBLEM, YOU HAVE A PROBLEM

25 percent of loan defaults in certain states are driven by strategy, not necessity.  They are leaving their home behind not because they can’t pay, but because they don’t want to.  In California, the fastest growing category of loan defaults is made up of people with high FICO scores.  The bailout mentality of 2009 appears to have created a moral disconnect.  Future generations will be paying for selfish behavior, not predatory lending. 

MORE CREDIT DEFAULTS TO COME

Mark Green, CEO of FICO, predicts the next six months will lead to more mortgage and credit card defaults.  “I’m a notch less sanguine than some financial observers are,” said Green, in an interview with Bloomberg. 

DISTRESSED PRICES ARE THE NEW NORM

Distressed sales increased to 33 percent of all home sales nationally last month. The high inventory of distressed properties on the market is now heavily influencing buyers’ perceptions of home prices.  Buyers are beginning to treat every home as if it were in foreclosure waiting to happen. 

EXTERIOR IMPROVEMENTS GIVE THE MOST BANG FOR YOUR BUCK

Eight out of the top 10 home improvement projects that returned the most money for resale were exterior remodeling projects under $14,000.  This figure is from the results of the 2009 Remodeling Cost vs. Value Report based on a REALTOR survey.  This confirms the importance of a home’s curb appeal and first impression.  Other improvements in the top ten included finishing the attic bedroom and minor kitchen upgrades.

A 30-day snap-shot by price range

Homes Sold in the last 30-days

Total = 788

Under $300,000

555 units or 70% of all transactions

$301,000 – $500,000

177 units or 22% of all transactions

$501,000 - $1,000,000

50 units or 6% of all transactions

$1,000,000 and Above

6 units or less than 1% of all transactions

Let’s do a deep-dive into the Q2 Real Estate numbers recently released by the Salt Lake Board of Realtors.

Transaction Volume:
Transaction volume was down -4.31% compared to the second quarter in 2008. This is a telling statistic because the second quarter is generally one of the strongest selling seasons for Salt Lake City real estate. The WFRMLS shows a drop of only 2% (2,642 sold in Q2-2008 and 2,595 sold in Q2-2009). Either way it sounds like bad news, right? We actually think it’s good news. Considering the drastic 27% drop in the same quarter from ’07-’08, we believe this is clear evidence that this one component of the market is beginning to stabilize.

Inventory:
The most reliable indicators of a market correction can be found in supply & demand measurements. It’s a widely held belief that market equilibrium is somewhere around a six-month inventory. A move to a 5-month inventory is a move closer to a Seller’s Market. The Salt Lake County absorption rate is now hovering around 7.02 months. The current inventory of single-family homes in Salt Lake County is now at 6,076.

Two very significant factors have contributed to this huge inventory reduction in Salt Lake County. First, the number of new listings added in Q2 decreased by 
-21.55% from the same quarter in’08. Second, there was a drastic decrease in inventory that began to take shape in the first week of March that trimmed a whopping -22% off of the inventory. Disgruntled sellers perhaps? We’re not sure, but it will have a very positive effect on those who are in a must-sell situation.

Distressed Properties:
There will be no true price stability until we clear the inventory of distressed properties. Currently there are 1,282 properties listed under a Short-Sale or Bank Owned status. This represents 21% of the total inventory of homes for sale. While we would like to believe that we are seeing some price stability in the lower-end of the market, we can’t overlook the fact that 62% of the Short-Sale inventory is priced under $250,000. Price stability can be pegged closer to homes priced under the $200,000 threshold. Furthermore, price stability appears to be greatly influenced by the supply of distressed properties in the immediate neighborhood.

The Millennials, a.k.a Generation Y is propping up the Salt Lake housing market according to Businessweek (June 29, 2009).

Affordable pricing coupled with the $8,000 federal tax credit has created a flurry of market activity in Salt Lake City from first-time home buyers. There are currently 2,580 homes listed at or below $200,000 in Salt Lake County. At the current sell-through rate, this represents a mere 4.2 month supply (a bonifide Seller’s Market).

Homes priced over $500,000 will remain in a glut through 2010. There’s currently an 11.7 month supply of inventory. With rising unemployment and a broad freeze on payroll, there is no light at the end of the tunnel for this market segment.

To complete this housing-market Oreo, we’ve been witnessing a pent-up demand for “unique” luxury homes in or near Salt Lake City under $1.5 million. Not in Draper…not oridinary. Priced right, of course.

A 30-day snap-shot by price range

Homes Sold in the last 30-days

Total = 985

Under $300,000

731 units or 74% of all transactions

$301,000 – $500,000

201 units or 20% of all transactions

$501,000 - $1,000,000

48 units or 5% of all transactions

$1,000,000 and Above

5 units or less than 1% of all transactions