In the May 2012 issue of RealtyTrac’s Foreclosure News Report, I wrote an article comparing the foreclosure situation and overall real estate market in the state capitals of two of the nation’s largest states: California and Texas.
The real estate markets in Sacramento and Austin do have some similarities, at least on the surface.
Foreclosure activity in both cities is trending lower. Sacramento foreclosure activity has decreased on a year-over-year basis for the past four months, and overall foreclosure activity in Austin has decreased on a year-over-year basis for the past eight months.
But below the surface it’s clear the Sacramento market is rife with much more risk than the Austin market. I’ll let two Sacramento-area agents I interviewed for the story — both members of the RealtyTrac Agent Network — explain why in their own words.
“In California we need more jobs, more business creation, more manufacturing, but our legislature is preventing this with its extreme environmental policy and over-regulation of the work environment,” said Ben Richardson, Realtor and broker with Crossroad Ventures Group in Roseville, a northeastern suburb of Sacramento. “Until unemployment gets much better our situation won’t be changing. … 2012 and beyond looks pretty bleak for California and the rest of the U.S. How can I as a Realtor honestly say ‘everything is wonderful.’”
But despite his bleak economic outlook for California, Richardson warns that Sacramento does not represent a typical buyer’s market because of a low inventory of homes for sale — particularly foreclosures.
Foreclosure Inventory Shortage
“We need more inventory. I need more homes to show my buyers,” Richardson said. “We are seeing multiple offers on everything. As much as I hate to see people lose their homes in foreclosure, we need more inventory from some place.”
Richardson identified financing and conservative appraisals as sticking points for many deals.
“REO’s and short sale sellers will not look at an offer without a pre-qual letter, sometimes two letters. You can’t compete with other buyers if you don’t have that letter, or two letters. … Be prepared or one of the 15 other buyers for that home will get the house.
“We hold our breath on every deal until the appraisal comes in,” Richardson continued. “FHA appraisers look for health and safety issues — dry rot, missing stove, rotted decks, roof issues, etc. — at the house.”
Kenneth Ford, broker at HOPE Real Estate in the northeastern Sacramento suburb of Citrus Heights, said low appraisals on government-insured loans are dragging final sales prices below what some buyers are willing to pay.
“People are bidding over the asking prices and what might be considered appraised value,” he said, noting that in some cases, buyers are able to come up with the cash to cover the difference between the appraisal and the offer price, but that’s less likely with Federal Housing Administration (FHA) and Veterans Administration (VA) loans.
Ford argued that despite the strong demand from buyers, the Sacramento market is still struggling because such a high percentage of sales involve “duress situations.” RealtyTrac sales data in January shows that 54 percent of all sales in the Sacramento metro area were of properties in some stage of foreclosure or bank-owned.
In a future post we’ll look at the Austin foreclosure situation.
Sign for a free trial issue of the award-winning Foreclosure News Report to read the full article, titled “A Tale of Two State Capitals”, along and many other articles.