Created: 12/22/2011
December 2011 - In late November, CA Attorney General Kamala Harris attended a roundtable discussion of the housing market crisis held in San Francisco, during which she heard hours of testimony given by distressed CA homeowners. According to the Center for Responsible Lending (CRL), we may be no more than half way through the foreclosure crisis, in terms of housing units yet to go through the process.
AG Harris pointed out a particularly disturbing aspect of the mortgage crisis during her comments on the roundtable, known as Dual Tracking. This is the scenario where a mortgage servicer, while processing a short sale or a loan modification for a distressed borrower, is also moving the property through the foreclosure process. Imagine a borrower who is being told that their mortgage modification is being approved and is ready to close, receiving a Notice of Trustee’s Sale and having their home sold out from under them.
This is common across the country, and especially in CA and other states that do not require judicial oversight of foreclosures. Harris called this one of her “most urgent” priorities and has been working with state and national lawmakers to solve the problem, stating that she may take the matter up with the banks directly. Previous legislation to address this serious problem has passed the Assembly and ground to a halt in the Senate. In the absence of any legislative action, all of this talk has no more than the power of a suggestion, and if past actions by the big banks are any guide, the response will be as empty as the “suggestions”.
How and why does the Dual Tracking happen in the first place, when most agree that both the investor in the mortgage loan and the borrower/homeowner would be better served financially by completing a loan modification or a short sale, rather than a foreclosure? It’s not that complicated, once we understand the situation.
The investor is often an individual, a small investment firm, or the finance/treasury/pension department of a government entity. This is the party that holds the note. The loan SERVICER, is usually one of the major banks, and they do not own the note, because they sold all these toxic notes to investors when the mortgages were funded. They have generally retained the SERVICING contract for the pooled mortgages which is a lucrative part of their business. These servicing contracts compensate the banks for certain acts and duties related to collecting the payments, disbursing them to the investor and any other payees under the terms of the contract, and also for managing any processes related to loans that go into default, such as loan mods, short sales and foreclosures.
Here is where it gets simple. The foreclosure process is the highest-paying activity that the servicer can conduct in the execution of the servicing contract. It pays much better than the loan mod or the short sale activities. So, from a strictly business perspective, it benefits the banks to favor foreclosure over alternatives. Still taking the simple view, the investors do not have a powerful, well-funded lobby in Sacramento and DC looking out for their interests. Actually it is the government that is supposed to do this.
The major (too big to fail) banks with the mortgage servicing contracts have what is probably the most powerful lobby of any special interest group. This is the same lobby that got them the taxpayer-funded bailouts in 2008 and has been covering their backsides ever since. It looks from here as if the banking lobby will prevail over the investor lobby (our elected officials) once again, unless some people get some backbone in the halls of government.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 11/22/2011
November, 2011 – As of September 30, with 3 full quarters of data, we compare trends in median price, unit volume, distressed property and days on market to quarter-ago and year-ago numbers. The trend for the recent quarter, relative to the previous quarter is “steady as she goes”, with a couple of positive improvements.
Median Price – In order to account for seasonality, we want to focus on year-to-year comparisons. As the external market forces related to the housing crash diminish, we are beginning to see normal seasonal trends emerge once again. One of the seasonal regularities is that prices tend to peak in the third quarter of each year as the summer selling season unfolds. This has happened in 2009 and 2010. In 2011, there is no significant peak in Q3, but rather a level price trend for the entire year to date.
The median price for single family residences (SFR) sold in Q3-2011 was $225,000, compared to $279,000 in the year-ago period and $225,000 in the last quarter. This amounts to a year-over year decline of 19%, and no decline since last quarter. This larger year over year decline is attributable to the fact that there was a price spike in Q3-2011, but not in the current quarter.
Unit Volume – The strongest positive trend in the Nevada County market is in the monthly number of homes sold. The total number of SFR sales in Q3-2011 was 280, compared to 233 in the year-ago period and 281 in the previous quarter. This amounts to a year-over-year increase of 20%, and essentially no change over last quarter.
This is the highest unit volume since Q4 2005, and a strong sign of an accelerating recovery.
Days on Market – In Q1-2011 we saw an unexpected spike in DOM, and it was related to a big increase in sales of distressed properties that had lingered on the market. In Q2-2011, DOM had returned to the trend line, and has dropped farther still in Q3. At 87, this is down 7.5% from 94 in the year ago period and a decline of an additional 13% since Q2, for a total decline of 26% since Q1-2011. This is a fairly normal market time for a healthy market, if anyone remembers what that looks like. Market time is now in a very positive range and the trend is improving.
Distressed Sales – The level of distressed sales (Short Sales and REO) had risen to around 50% in Q3 2009 and been stable at this level until spiking to 60% in Q1-2011. Distressed sales were 53% of all sales in Q2 2011 and have fallen further to 45% in Q3. In the current quarter, there was a drop off in Short Sales, while REO sales held relatively steady.
We are beginning to see a peak in total distressed sales in the rear-view mirror, as the fall-off gains steam. We are seeing strong performance in sales volume and days on the market, while distressed sales are decreasing. Prices have been stable for the entire year to date, and seasonal trends are once again establishing themselves.
In the Nevada County Real Estate market, we are bucking the national trends of declining sales volume and increasing marketing time in significantly positive ways. Steady as she goes!
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 9/14/2011
August, 2011 – On July 15 2011, Governor Brown signed into law SB 458 (Corbett). SB 458 extends the anti-deficiency protections of SB 931 (2010), which covered first mortgages in California, to all mortgage loans.
From the text of the bill - "This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to mitigate the impact of the ongoing foreclosure crisis and to encourage the approval of short sales as an alternative to foreclosure, it is necessary that this act take effect immediately."
For the full text of the bill, please see http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_458_bill_20110715_chaptered.html
What this means for distressed homeowners in California who are unable to keep their homes and who choose to dispose of the burden via a Short Sale, is that not only are they protected from a deficiency judgment in favor of the holder of their fist mortgage, but also for all junior liens secured by a deed of trust or a mortgage for a dwelling of not more than 4 units. There are exceptions where the property owner is a corporate entity or a political subdivision of the state.
Until the enactment of SB 931 & 458, it was possible for a lender to approve a short sale and still pursue the former property owner for the unpaid balance of the loan by seeking a deficiency judgment. Adding insult to injury, this process could saddle already financially distressed people with an additional debt that would follow them for years.
Recognizing that in order to speed the recovery of the housing market, as well as amend a legal structure that favored financial institutions over and above the citizens of California, first Governor Schwarzenegger and then Governor Brown have signed these important bills into law on an urgency basis. These simple laws are a sign that at least some of our elected leaders are taking the current imbalance of legal protections that favor corporate interests over the rights of the people seriously.
No matter what we see in Washington DC, where the unending hubris of our elected leaders in taking direction from the donations of corporate lobbyists, rather than the will of the voters, has brought our once great country to its financial knees, it’s refreshing to see that some people in power use it constructively in these critical times.
It has often been said that as California goes, so goes the nation. While some examples of this leadership have clearly led to undesirable results for society and economy, these two pieces of legislation have the potential to tip the playing field back in favor of the people. If California is to lead us out of this mess, as it has arguably led us into it, we’ll need more of this kind of conscious action. While we are not always able to cheer our politicians on, a guarded round of applause for Arnie and Jerry appears to be in order.Paul@PaulSieving.com or (530) 274-0906. www.PaulSieving.com
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at
Created: 7/20/2011
July 2011 – Since the beginning of 2011, we have seen some changes, some of which can be called improvements, in the process of completing a short sale in CA.
Perhaps the most important improvement for distressed borrowers is the passage of CA SB 931, the anti-deficiency bill, effective as of Jan 1, 2011. This law prohibits lenders from seeking deficiency judgments for ALL first mortgages that are retired as part of a short sale in CA.
HAFA, a federal program designed to facilitate the completion of qualifying short sales, has been adjusted to provide increased financial incentives to borrowers, lenders and agents. These are modest but important incentives that provide $3000 to borrowers for moving expenses post-sale, up to $6000 to holders of 2nd mortgages to mitigate losses, and protection of agents’ commissions from being hijacked by lenders as a requirement to close the deal.
Another important improvement is the availability of a centralized online resource for agents and lenders that provides a uniform environment for processing and negotiating the terms of short sales. This system, Equator, promises to significantly increase the efficiency of the process, allowing for greater transaction volume and shorter time frames. Every short sale that is completed is one less potential foreclosure, one less vacant home, and one less downward push on real estate prices.
In the early stages of the market downturn, the financial incentives were essentially all given to the financial institutions (lenders, insurers and securities brokers), using TARP funds, newly printed money, and future tax dollars. These incentives protected corporate interests by covering the losses incurred in the foreclosure process, essentially favoring foreclosure at the expense of alternatives less damaging to homeowners, using public funds.
This “Hot Money” flowed from the Federal Reserve to the financial institutions (at essentially zero interest), to the Treasury (in the form of bond purchases at non-zero interest), and then back to the banks in the form of outright gifts to cover their foreclosure losses. Quite a nice little game to play with trillions of our future tax dollars, isn’t it?
In the first and third of these steps, the financial institutions received essentially free money for interest rate arbitrage, and profit protection. In all three of the steps, the taxpayers incurred present and future losses. Private profits, public losses. In the words of Frédéric Bastiat, a 19th century French political economist, “Legal Plunder”.
As the taxpayers catch wise to this travesty of corporate welfare, we can understand that it’s not a conspiracy, it’s just the way the banking business has always been done.
Instead of pumping the “Hot Money” onto Wall Street and praying that the effects might trickle down to Main Street, we ought to consider the fact that reversing this process and putting the “Hot Money” on Main Street, whether any trickles up to Wall Street or not, would go much further towards healing current economic ills.
In the meantime, we have some modestly improved tools for heading off the damage that widespread foreclosures are causing. My own experience in closing short sales for local clients has been that they are working.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 7/20/2011
July, 2011 – As of June 30, with 2 full quarters of data, we compare trends in median price, unit volume, distressed property and days on market to quarter-ago and year-ago numbers. As we have mentioned, the price and distressed property trends are tightly coupled and go in opposite directions. The data from the last two quarters exemplify this effect.
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Please click on the links in the paragraph headings below to see charts of each important trend.
Median Price – In order to account for seasonality, we want to focus on year-to-year comparisons. As the external market forces related to the housing crash diminish, we are beginning to see normal seasonal trends emerge once again. One of the seasonal regularities is that prices tend to peak in the third quarter of each year as the summer selling season unfolds. This has happened in 2009 and 2010, and we will look for it again next quarter.
The median price for single family residences (SFR) sold in Q2-2011 was $225,000, compared to $269,250 in the year-ago period and $227,000 in the last quarter. This amounts to a year-over year decline of 16%, and a decline of less than 1% since last quarter. Prices are poised for a seasonal increase in Q3.
Unit Volume – The strongest positive trend in the Nevada County market is in the monthly number of homes sold. The total number of SFR sales in Q2-2011 was 281, compared to 260 in the year-ago period and 243 in the previous quarter. This amounts to a year-over-year increase of 8%, and a 16% increase over last quarter.
This is the highest unit volume since Q4 2005, and a strong sign of an accelerating recovery.
Days on Market – Last quarter we saw an unexpected spike in DOM, and it was related to a big increase in sales of distressed properties that had lingered on the market. In the current quarter, DOM has returned to the trend line. At 100, this is essentially unchanged from 97 in the year ago period and a decline of 15% since the spike in the previous quarter. This is a fairly normal market time for a healthy market, if anyone remembers what that looks like.
Distressed Sales – The level of distressed sales (Short Sales and REO) had risen to around 50% in Q3 2009 and been stable at this level until spiking to 60% last quarter. Distressed sales were 53% of all sales in Q2 2011 and have returned to the trend line.
This relative stability (absence of significant and enduring increases) is an encouraging sign of an unfolding recovery. Even more encouraging will be a measurable decline in distressed sales. We are seeing strong improvements in sales volume and days on the market, while distressed sales are stabilizing. Prices continue to decline, although at modest levels, and seasonal trends are once again establishing themselves.
In the Nevada County Real Estate market, we are bucking the national trends of declining sales volume and increasing marketing time in significantly positive ways. Next quarter we will look for the seasonal peak in prices and perhaps a decline in distressed sales, as signs of a recovery gaining traction.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 6/9/2011
June, 2011 – We have focused mainly on the overall single family market in our reporting over the last 2 years. This month we’ll take a look at the luxury market in comparison to the bigger picture here in Nevada County.
Our definition of “Luxury Market” properties is single family homes in Western Nevada County that have sold during 2010 for over $500,000. We have also limited total acreage to 40 or less.
Typically, the luxury market is driven more by discretionary sales and purchases, focused on lifestyle, whereas the overall market is driven by necessity. We expect to see far less “distress” in luxury markets than the overall markets, even in challenging times such as these. Luxury market sales are more often cash and tend to continue to be at premium prices in all market environments.
Our community has become a destination for both second home buyers and retirees over the last couple of decades, due to the many factors that make it stand out among rural markets.
The overall market for 2010 included a total of 916 sales, while our luxury market was 83 total units. This is approximately 9% of the overall market in units, and approximately 20-25% of the dollar volume.
In our previous discussions of the general market, we have noted that the portion of total sales attributed to distressed properties is the strongest driver of price declines. Distressed sales are both Short Sales and REO (bank owned property) sales. The general market in Nevada County during 2009-2010 was running from 30-45% distressed sales in 2009 to a fairly steady 50% in 2010, in unit volume.
By comparison, the luxury market was approximately 20% distressed sales during all of 2010. As with any market, the distressed sales tend to be at the low end of the price range and this holds for the local luxury market, with the highest price for a distressed property sale in 2010 at $799,000.
When we look at comparative prices, we need to choose a standard of measurement, and for this purpose, $/square foot of living space is appropriate. We’ll express it as $/sf.
For the overall market in 2010, the approximate average price of a single family home was $160-165/sf. In our luxury market segment, it was significantly higher, at around $215/sf. This is a reflection of the higher quality materials and generally larger lots that we find in the luxury segment, and also of the greater resistance to downward price pressure due to less “distress”.
Another key measure of market performance is “days on the market” or DOM. In the overall market, the average DOM for 2010 was around 95 for the first 9 months of the year and dropped to 70 in the last quarter. In general, this measure of the market has recovered to “normal” levels.
By comparison, in our luxury market, the average DOM for 2010 was 117. This is approximately 23% longer than the overall market, which is also fairly typical for this segment.
Overall, the luxury market in Western Nevada County is holding up better than the overall market, and as in any market, homes in the best condition that are accurately priced are selling quickly!
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 4/20/2011
May, 2011 – As we get rolling in the new year, the data for the first quarter is in, and we compare our trends in median price, unit volume, distressed property and days on market to quarter-ago and year-ago numbers. As we have mentioned, the price and distressed property trends are tightly coupled and go in opposite directions. The data from the last quarter has an excellent example of this effect. Click HERE to see the data table.
Median Price – In order to eliminate seasonality, we will want to focus on year-to-year comparisons. As the external market forces related to the housing crash diminish, we are beginning to see normal seasonal trends emerge once again.
The median price for single family residences (SFR) sold in Q1-2011 was $227,000, compared to $265,000 in the year-ago period and $249,000 in the last quarter. This amounts to a year-over year decline of 14%, and a decline of 9% since last quarter. This does not necessarily indicate an across the board decline in prices as we will see when we look at distressed sales below.
Unit Volume – The strongest positive trend in the Nevada County market is in the monthly number of homes sold. The total number of SFR sales in Q1-2011 was 238, compared to 184 in the year-ago period and 217 in the previous quarter. This amounts to a year-over-year increase of 29%, and a 10% increase over last quarter.
Only the second quarter of 2010 saw higher unit volume in the last 2 years.
Days on Market – Here is where it gets interesting. The average time to sell a single family home has fallen from 150 days in early 2009 to around 60 days at the end of 2010. In the recent quarter, there was a spike to 116 days on the market. This is a reversal of a 2 year trend and is a 26% increase over the year-ago period and a whopping 81% increase over the previous quarter! What happened?
Distressed Sales – over the last 2 years, the level of distressed sales (Short Sales and REO) has risen to around 50% and has been stable at this level for the last 4 quarters. The recent quarter saw a spike in this trend as well, to 60%. This is an increase of 20%, on both the annual and quarterly comparison.
In order to understand these twin spikes in distressed sales and days on the market and how they might be related to the unexpectedly steep price decline in the last quarter, I looked at the individual sales records for the quarter.
There were approximately 15% of the total sales that had been on the market for over a year, several for over 2 years, and one for nearly 4 years. The vast majority of these were distressed sales, and closed at prices well below the median, exerting both upward force on market time and downward force on sale price.
It appears as if the banks that held the notes or owned these properties after foreclosing recognized that enough is enough and got real about getting them sold. The aged inventory must occasionally be purged to keep the market healthy.
So, we will look for a drop in distressed sales and days on market for next quarter and perhaps a recovery in pricing, after what has been a very challenging winter quarter for our local market.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 4/4/2011
April, 2011 – Moral Hazard or Efficient Breach?
Efficient Breach is a legal concept in the realm of contract law. Basically, the theory of efficient breach states that if a promisor (such as a manufacturer with a delivery obligation or a borrower with a payment obligation) is better off breaching the obligation and paying any damages due to that breach, it ought to do so.
Such a breach is said to be economically efficient, since the breaching party is better off and the non-breaching party is no worse off relative to the contract.
Today, as we work our way through the debris of the mortgage crisis, large numbers of homeowners find themselves “underwater” on their mortgages and faced with some difficult decisions. Due to related issues of unemployment and rising costs, many of these homeowners have no choice but to default on their mortgages and dispose of the property through Short Sales or foreclosure.
Others may have the ability to continue paying their mortgages, but are questioning the economic rationale of doing so. Being “trapped” in a house or mortgage at a time when you have other plans or emergent necessities such as retirement, moving to take care of a relative, or job relocation, can tip the balance in favor of a strategic default.
Many of us personally know someone who is or has been in this situation, a friend or relative who chose to “walk away” through a Short Sale or foreclosure, even when they were able to stay current. The moral hazard, if any, was outweighed by the benefit of efficient breach.
In June of 2010, Fannie Mae announced that it would “lock out” borrowers from getting a new loan for seven years if they default on a mortgage they could afford to pay. This compares to three years for borrowers with a legitimate hardship that attempted a workout and completed a Short Sale. We have to remember that it was partly the “excessive exuberance” of Fannie and Freddie in insuring or securitizing some pretty crappy mortgages that got us in this mess in the first place, and that may lead us to question their moral authority in penalizing borrowers for being caught in the blowback.
In the practice of real estate, we have the concept of “liquidated damages”, which is essentially the same as efficient breach. If a buyer backs out of a purchase agreement for no good reason, the seller is entitled to keep the earnest money deposit as compensation for the breach of contract.
The loss of one’s home may be compared to the forfeiture of a deposit as the contractual damages for a mortgage default. The borrower’s ability (or willingness) to pay is something that the lender makes a bet on, and the risk of default is priced into the interest rate and fees. One could view these additional penalties imposed on taxpayers by the financial industry as the true moral hazard.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 3/10/2011
March 10, 2011
An important message from the CALIFORNIA ASSOCIATION OF REALTORS®:
I write on behalf of the CALIFORNIA ASSOCIATION OF REALTORS®, whose 170,000 members continue to witness the devastating consequences the home foreclosure crisis is having on California’s families, neighborhoods, and communities on a daily basis.
The number of families affected by foreclosure is staggering. During the past three years, more than 640,000 Californians have lost their homes. With the number of homeowners who owe more than their home is worth hovering at 30 percent, experts predict there will be many more foreclosures in 2011 and 2012. Unless we take immediate, aggressive action to assist these homeowners, any meaningful recovery in the housing market and overall economy will continue to be delayed.
Tragically, only a fraction of those who face foreclosure will remain in their homes when all is said and done. Those whose incomes and financial circumstances meet strict guidelines may qualify for a loan modification that will reduce their monthly payment to more affordable levels. Yet the federal Home Affordable Modification Program (HAMP) is expected to prevent only 700,000 to 800,000 foreclosures nationwide before it expires at the end of 2012, and the program does little to help those homeowners who are unemployed or otherwise no longer able to meet their financial commitments. Their last hope is to sell their home, which often means convincing their lender or the investor who “owns” the loan (and, in many cases, the holder of a second mortgage lien and the mortgage insurer) to accept a “short sale.”
With a short sale, homeowners with a proven hardship negotiate an agreement to sell their home for less than the balance owed. Although not every homeowner or mortgage is eligible, those who are able to finalize a short sale avoid a foreclosure on their credit record and can move on with their lives. Last year, 20 percent of home sales in our state involved short sales.
Short sales can play an important role in our state’s economic recovery by accelerating the pace of home sales and reducing the inventory of bank-owned homes on the market. There are other benefits as well. Homebuyers who can qualify for a mortgage at today’s low interest rates also are able to purchase a home at below-market prices. Banks get a nonperforming asset off their books and avoid the headaches associated with disposing of assets they don’t want to own in the first place. Neighborhoods have fewer abandoned homes, and local businesses have more customers with money to spend.
Unfortunately, many homeowners are unable to successfully negotiate a short sale. According to a recent survey of 2,150 California REALTORS® who have assisted clients with a short sale, only three out of five transactions closed – even when there was an interested and qualified buyer.
What’s the problem? For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures. Many homeowners have second mortgages, which further complicate matters. Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process. Poor and slow service by many banks and servicers has only exacerbated the problem. Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times. These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure.
Increasing the number of closed short sales by speeding up and streamlining the short sale process is one important way we can help California families avoid foreclosure and move our economy closer to recovery. That’s why the California Association of REALTORS® is taking steps to enable more families to arrange a short sale. Recently, we advocated for improvements to short sale guidelines established under the federal Home Affordable Foreclosure Alternative (HAFA) program. We’re meeting with major banks, U.S. Treasury officials, government-sponsored entities (including Fannie Mae and Freddie Mac), and others to urge them to standardize processes, comply with federal guidelines, improve communication with other stakeholders and increase staffing with the goal of eliminating service issues. We’ve also offered our members training in every aspect of the short sale process so they can assist their clients.
But we can’t do it alone. That’s why we’re focusing the spotlight on short sales and calling on regulators, elected officials, nonprofits, business organizations, companies, and individuals with a stake in California’s economic future to resolve this issue and others that get in the way of a recovery. It won’t be easy, and some compromises will be required. The important thing is that we need to act today. Our families and our communities can’t wait any longer.
Sincerely,
Beth L. Peerce
President
CALIFORNIA ASSOCIATION OF REALTORS®
Created: 2/24/2011
January, 2011 – With the close of another challenging year in our local real estate market, we look at the data for signs of a recovery, and more importantly, any trends we can spot! We have converted from a monthly data set to a quarterly one, and as a result the graphs are more informative and less noisy.
Overall, the Nevada County market fared better than most of California and better than many parts of the US in the past year. We’ll look at the last two years and the overall trends as well as the differences between 2009 and 2010.
Median Price – In order to eliminate seasonality, we will limit the comparisons to year-to-year. The fact that we can actually see the seasonality in the price graph is a positive development! When the external market forces are very strong, seasonality gets buried. In a more stable market, seasonal trends emerge.
From $317,500 in Q4 2008 local median price declined to $271,750 in Q4 2009, a drop of 14%. From Q4 2009, an additional decline to $249,000 in Q4 2010 took place, a drop of 8.4%. Clearly, the rate of decline is stabilizing, compared to a 20% decline for the comparable period from 2007-08, the steepest drop in the current cycle.
From Q1-Q3 this year, prices rose steadily from $265K to $279K, a gain of 5%, showing typical seasonality. It is also the seasonal declines in Q4 of each of the last 2 years that is responsible for the overall downward trend in recent prices.
Unit Volume – The strongest trend in the Nevada County market is in the monthly number of homes sold. Beginning in Q1 2009 at a monthly rate of around 40, volume nearly doubled for Q2 2009 to 76 and has been fairly steady since with a peak monthly volume of 87 in Q2 2010. Historical data indicate that 80-100 units per month are typical in our market.
Sales volume has returned to near-normal levels, and some seasonality has emerged, although much of the activity is at the lower end of the market.
Days on Market – The average time to sell a single family home has fallen from 150 days in early 2009 to around 60 days at the end of 2010. The inventory is being absorbed by market demand.
Distressed Sales – From a pre-boom low of 5% or less, the level of distressed sales (Short Sales and REO) rose to double digits in 2008, and has since risen steadily to around 50%. The current trend is up, and this is the primary factor in a sustainable recovery. As long as half of our sales are distressed properties, prices are going to be under pressure and are unlikely to begin rising again until the level of distressed sales falls below 25%.
As we head for the close of 2010 and into 2011, we are entering the 3rd year of a slow recovery in the real estate market, following a 3 year plunge in prices. As 2011 unfolds, we are facing 2 major obstacles to a recovery in the real estate sector of the economy. Lending standards have been extremely strict over the last year, with the major financial institutions preferring to invest in government bonds and currency arbitrage, rather than follow the directives of the Federal recovery initiatives. In addition, the large inventory of distressed properties has not yet peaked and begun to decline. Only when these underlying economic challenges are met, will a sustained recovery develop.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 11/29/2010
November, 2010 – With most of 2010 behind us, we look again to the three trends that define the current market cycle. As the recovery gains steam, we look for signs of strength in pricing, unit volume and a decrease in the proportion of distressed property sales.
Median Price – After starting at $265K in January and rising intermittently to $300K in August, prices have fallen for the last two months to $230K. This is a new low for the current downturn, a decrease of 17% month over month, and 13% year to date. We are nearly 30% below the year ago median of $320K, and the price trend has turned from positive over 6 months to negative in the last 2 months. Some of this is surely seasonal, and just how much we will have to wait until spring to see for certain.
There has been a sustained uptrend in median price, although we are seeing a short term downturn over the 2 months ending October 31. Coupled with the decrease in distressed sales it argues favorably for the beginning of a recovery, at least in our local market.
Unit Volume – The strongest trend in the Nevada County market is in the monthly number of homes sold. Since a recent low of 53 in January, each of the first 6 months of 2010 has been higher and June saw 109 homes sold. This was the largest monthly number of homes sold in our market in the last 5 years! Since June, monthly volume has settled back in around 80 units. For comparison, the high point of the current cycle was in Q2-2004 when 155 units sold and the low was in March 2009, when only 38 units sold.
There has been a significant increase in unit volume over the last 18 months, more than at any other time since 2004.
Distressed Sales – In a normal or rising market, the percentage of distressed sales (Short Sales and REO) is quite low, usually 5% or less. After rising into the double digits in 2008, the percentage of distressed sales has been between 40 and 50% since mid 2009, with occasional peaks of higher levels in the summer of 2009 and early this year. As the current high inventory of foreclosed homes is disposed of over the next several months, a decrease in distressed sales will remove some of the downward pressure on prices.
As we head for the close of 2010 and into 2011, we are entering the 3rd year of a recovery in the real estate market, following a 3 year plunge in prices. As 2011 unfolds, we will see if the sharp downturn in median prices over the last 2 months is purely seasonal, or is an indicator of continued weakness in pricing.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 11/8/2010
November, 2010 – On September 30, 2010 Governor Schwarzenegger signed SB 931, which will become effective on January 1, 2011. SB 931 is anti-deficiency legislation pertaining to short sales.
Short sales are used by distressed homeowners to avert foreclosure and involve selling the property on the open market with the lender's consent for a price that is less than the amount owing on the loan. Short sales are also a key factor in minimizing the number of foreclosed homes, which can help to prevent undue declines in property values. The more distressed property owners that can accomplish a short sale (SS), the fewer bank owned (REO) properties will flood the market and depress prices.
SB 931 prohibits recovery of a deficiency (the difference between the sale price and the higher amount of the outstanding loan), on a loan secured by a first deed of trust after a short sale for a residential property of four units or less. What this means is that the holder of the note cannot pursue the former property owner for the unpaid debt.
Until the passage of SB 931, this protection only existed for purchase money loans (both first and junior mortgages used to purchase property), and did not apply to refinanced mortgages of any kind. Now, all first mortgages that are disposed of in a short sale are considered “full settlement” of the debt.
What this means for homeowners that are facing default and the possible loss of their homes is that a short sale where only a first mortgage exists (or when the first and second are both purchase money), can be accomplished without the threat of a deficiency action. This removes an onerous consequence and will contribute to an increase in successful short sales and an accompanying decrease in foreclosures.
In our Western Nevada County market for single family homes, the number of REO sales has been between 20-35% of total sales in the last 8 months, while the number of short sales has been between 15-25%. Total distressed sales (REO+SS) has been between 40-50% in this period.
Any changes that may bring about a reduction in the number of REO properties will directly contribute to restoring stability to our market. Governor Schwarzenegger is to be commended for taking this important action to facilitate a recovery in the real estate market.
We have seen the Federal Administration make some “suggestions” to the banks that they should take certain actions to ease the deleveraging crisis. The Federal Making Home Affordable program, and the HARP, HAMP and HAFA sections are great ideas, but they do not have the force of law or regulation, and the banks are mostly ignoring them. It is refreshing to see our state officials taking some concrete action and making laws that will actually force the banking industry to eat their share. More, please!
Paul Sieving is a short sale specialist Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 10/1/2010
December, 2010 (updated)– One of the major factors preventing a more robust recovery in the national real estate market is the apparent scarcity of mortgage financing, even for those buyers that are well-qualified. We have all heard stories of people we know who have steady income, money in the bank for a down payment and good to excellent credit scores who cannot obtain mortgage financing.
We also hear from friends who are successful in obtaining a mortgage loan who are in essentially similar financial condition. So what are the main factors that can make or break a mortgage loan? A few of the most common are:
- Poor property condition. The buyer may be willing to buy and repair the property.
- The appraisal comes in below the agreed purchase price, making the proposed new loan “underwater” from the start. Nobody wants that deal, lender or buyer.
- Poor financial condition of the buyer, where there is a legitimate problem with income, credit score or assets. These loans should not be funded.
What about those cases where the price and condition of the property are appropriate and the buyers’ financial condition meets current (very conservative) guidelines? It can seem almost random which of these loans are funded.
Currently, our Federal government, in concert with the privately held Federal Reserve, is maintaining a low-rate environment, ostensibly to promote and encourage mortgage lending as part of the recovery effort. The problem with this structure is 2-fold.
First, the current rates, while extremely attractive to homebuyers, may be too low to address the risk factors and to provide appropriate returns to those who invest in mortgage securities. Second, there are extremely low-risk alternatives for the “too big to fail” (TBTF) banks and other public lending institutions to realize good returns.
Here’s what it looks like: The Fed prints some money (our future tax dollars) to stimulate the economy, makes it available to lending institutions at the Discount Window at the Federal Overnight rate (currently around ½ %), and “strongly suggests” that the lenders actually lend this money in the mortgage market, thereby stimulating the real estate sector of the economy.
The banks, always looking for the best return at the lowest risk, are still bruised and bleeding from the crisis (self-abuse IMHO), and gun-shy about mortgage lending. So what do they do? They take that ½ % money they borrowed at the discount window over to the US Treasury and buy T-Bills that yield from 2 - 3 ½% for a risk-free return of 1 ½ - 3%. Compared to making a potentially risky mortgage loan, it’s a no-brainer.
Also, the Fed was recently forced by congress to release an accounting of what was done with $3.3 Trillion of so-called “stimulus” money in 2008-2009. It turns out that during the hottest part of the mortgage crisis, TBTF financials (as well as certain other well-connected corporations) were taking daily draws on this taxpayer-funded bailout fund in order to cook their books to show a profit.
The question is, how does this happen? The answer is, collusion between the Fed, the US Treasury and the TBTF banks, using our tax dollars, freshly printed money, and a fat ration of continuing greed to eat our lunch.
Something needs to change, in order to lock off the revolving door between the corner offices of banks, the Fed, the US Treasury, Wall St. lobbying firms and other high government offices through which passes this procession of financial manipulators. It’s like a mutual aid society, except they are using other people’s money.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 8/26/2010
August, 2010 – Sounds like someone clearing their throat, getting ready to say something important, doesn’t it?
Making Home Affordable is part of the current Federal Administration’s effort to stabilize the housing market and help struggling homeowners get relief and avoid foreclosure. The three major components each address a separate area of this critical challenge facing the housing sector of the US economy.
HAMP – The Home Affordable Modification Program provides eligible homeowners the opportunity to modify their mortgages to make them more affordable. The eligibility factors are primarily about the homeowner and their documented difficulty in continuing to pay their mortgage. Mortgage balances above $729,750 are not eligible. The program reduces monthly mortgage payments by reducing the interest rate and less frequently, the principal balance.
Only about 19% of the mortgages in serious difficulty have been modified under HAMP. For modifications made in 2008 and 2009, 53% were again delinquent or in some stage of foreclosure and only 41% were still performing as of March 31, 2010.
Clearly, this has not been an effective program for restoring stability to the housing market. The mortgage servicers and investors are generally not willing to make modifications that reduce monthly payments in any meaningful way.
HARP – The Home Affordable Refinance Program gives homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. Eligibility for this program is limited to residential one-to-four unit properties where the mortgage is a Fannie/Freddie mortgage with loan to value ratio between 80-125%, and is current. In 2009, there were approximately 200,000 refinancings under HARP, far short of the original goal of helping 5 million homeowners.
This Federally defined eligibility is merely a suggestion, and only the loan servicer can determine if the borrower qualifies. Again, the kink in the pipe is a result of reluctance of mortgage servicers to co-operate with these Federal “suggestions”, which would reduce their current receipts and margins.
HAFA – The Home Affordable Foreclosure Alternatives program is the program of last resort for homeowners who are not eligible for (or have not been able to stay current on) HAMP or HARP. HAFA offers homeowners, their mortgage servicers, and investors an incentive for completing a short sale or deed-in-lieu of foreclosure. With these options, under HAFA, a homeowner leaves their home to transition to more affordable housing and alleviate the mortgage debt they owe.
The eligibility for HAFA is generally restricted to purchase money loans and homeowners who are either not eligible or have failed to complete the trial for a HAMP, have become 2 months delinquent on their HAMP, or request a short sale or deed-in-lieu. HAFA was only fully implemented on April 5, 2010, so it is premature to evaluate its effectiveness in preventing foreclosures.
The obvious defect in all of these Federal “suggestions” is that they lack the force to have a significant impact on the continuing foreclosure crisis. What might be more effective is a transition to a regulatory (rather than suggestive) basis for implementation, or a transition to applying the incentives to the homeowner side of the equation, rather than continuing to grease the greed of “too big to fail” financial institutions with TARP (Tax Assets Ripped from the People) funds.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 7/14/2010
July 13, 2010 – With the first half of 2010 behind us, we look again to the three trends that define the current market cycle. As the recovery gains steam, we look for signs of strength in pricing, unit volume and a decrease in the proportion of distressed property sales.
Median Price – After rising consistently from $256K in January to $280K in March, prices eased in April and May to $259K, then turned sharply upward in June to $288K. This is an increase of 11% month over month, and year to date. While still 10% below the year ago median of $320K, we have a rising trend over 6 months.
There is a sustained uptrend in median price, and coupled with the decrease in distressed sales it argues favorably for the beginning of a recovery, at least in our local market.
Unit Volume – The strongest trend in the Nevada County market is in the monthly number of homes sold. Since a recent low of 53 in January, each month of 2010 has been higher and June saw 103 homes sold. This is a year to date increase of 94%, a month to month increase of 29% and a year over year increase of 16%. Everywhere you look, it’s up! The figure of 103 in the month of June compares to the high point of the current cycle in Q2-2004 of 155 units and to the low in March 2009, when only 38 units sold.
There has been a significant increase in unit volume over the last 18 months, more than at any other time since 2004.
Distressed Sales – In a normal or rising market, the percentage of distressed sales (Short Sales and REO) is quite low, usually 5% or less. During 2008, as the number of homeowners facing challenges increased dramatically, this percentage rose into the double digits. While distressed property inventory has been relatively constant at around 20% of total, unit sales volume has been mostly well above that for the last 18 months, reaching as high as 60% of total units in August 2009. In January and February 2010, it has been around 55%, declining to 42% in March and 41% in April. After a slight rise to 49% in May, June saw 39%.
In the month of June 2010, our market saw 10 sales between $500K and $1MM, and 3 over $1MM. This encouraging activity in the upper market, coupled with a decline in the distressed sales, is another strong signal of the recovery getting some traction.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 7/13/2010
June 16, 2010 – In the first quarter, we saw increases in both median price and unit volume, compared to a recent low for both in January of this year. There was a corresponding drop in sales of distressed properties. It is this writer’s opinion that at this point in the market cycle, median price and distressed sales are tightly coupled. In other words, a sustained recovery in prices will come when the percentage of distressed sales subsides.
The clear recovery trend of the first quarter has given way to mixed signals in April and May as the expected seasonal “bounce” wanes.
Median Price – After a strong increase in Q1-2010, from $256,000 to $280,000, median price fell through April and May to $258,500. As can be seen from the distressed sales trend below, this bears out the relationship between these two trends.
Unit Volume – In the first 3 months of 2010, volume grew from 53 to 69 units per month. That encouraging trend has continued in April and May, reaching 80 units. This is the second highest volume since the recovery began, topped only by 89 units in June of last year. This is an increase of 134% over the 38 units/month in early 2008, the local market bottom for sales volume.
There has been a sustained increase in sales volume in the first 5 months of 2010.
Distressed Sales – After falling significantly from 55 to 41 units (25%) in the first four months of 2010, sales of REO and Short Sales have risen again in May to 49 units. As this type of transaction accounts for a greater or lesser proportion of total sales, we expect to see prices move in the opposite direction.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 6/17/2010
May 22, 2010 – This writer usually serves up an article right from the spreadsheet, and gives readers the truth “By the Numbers”. Once in a while, we might want to think about some different, less technical aspects of the real estate profession. Especially in these challenging times, it is worth thinking not only about what our objectives are, but how we approach them.
There is a range of approaches to accomplishment in this profession, just as in any other. Leaving aside the obvious aspects of running a business profitably and efficiently, keeping track of details and offering success to our clients, how do we relate to the people we must work with while we uphold the best interests of our clients?
The way I look at this question, it is a balance between facilitation and advocacy. Our ultimate goal is to facilitate an agreement between a willing buyer and a willing seller. In other words, to create a meeting of the minds about value and translate this into price and terms. In doing this, our clients depend on us to use our experience to supply answers and solutions to the challenges that inevitably arise in each negotiation or transaction.
We are sometimes called upon, or simply called, to turn up the heat and take a strong position of advocacy for a particular interest of our client, whether it is price, timing, allocation of expenses or some other aspect of a transaction. It’s important to be conscious of just how we execute this advocacy and do our best to avoid internalizing any sort of emotional or inappropriately competitive aspects, or reacting to those of other people. The minute we start putting our own interests into the process, we begin to lose sight of the best interests of our clients.
The more effectively we are able to externally examine and discuss these emotional aspects that are inherent in every negotiation, the more clearly we can keep sight of the objective we set out to accomplish. Facilitation and advocacy are two of the many tools in a Realtor’s® kit and it’s important to know which one to put in our hand at a given time. It’s even more important to choose the right one to lead off with.
Are we going to come out smiling or come out swinging? If we want to work with good people, we want to be good people to work with.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the
Created: 4/23/2010
April 16, 2010 – With the first 3 months of 2010 behind us, we look again to the three trends that define the current market cycle. The recovery, or at least the end of the beating, will be marked by sustained upturns in price and volume, and a corresponding downtrend in distressed sales or REO and Short Sale properties.
Median Price – After settling around $300K for the first half of 2009, local pricing for single family homes went through a typical seasonal decline in the 4th quarter. In the first 3 months of 2010, prices have risen consistently from $256K in January to $280K in March, an increase of 9.4%. From February to March 2010, the increase was 4.7%. The year-over-year change from March 2009 was a decline of 3.8%, indicating at the very least, fairly stable pricing over the longer term.
There is a short term uptrend in median price. If this proves sustainable over the longer term, the recovery may get some traction.
Unit Volume – The recent trend in volume is similar to the price trend, with an increase in units sold in both of the last two months. March volume was 69 units, compared to 62 in February, and increase of 11.3%. Compared to March 2009, when only 38 units sold, we see an annual increase of 81.6%, indicating that the absorption rate has increased dramatically in the last year.
There has been a significant increase in unit volume over the last year and the last quarter, more than at any other time since 2004.
Distressed Sales – In a normal or rising market, the percentage of distressed sales (Short Sales and REO) is quite low, usually 5% or less. During 2008, as the number of homeowners facing challenges increased dramatically, this percentage rose into the double digits. While distressed property inventory has been relatively constant at around 20% of total, unit volume has been well above that for the last 15 months, reaching as high as 60% of total units in August 2009. In January and February 2010, it has been around 55%, declining to 42% in March. This is a decrease of 30% from the August high. In March 2009, 31.6% of sales were distressed.
There have been recent reports in the regional media about a significant increase in median prices over the last several months, and it has been attributed to a shift in sales activity from the lower priced valley markets to the more expensive coastal and mountain resort markets. This writer believes that any increase in prices is more likely correlated with a decrease in distressed sales, regardless of specific location.
Locally, we are seeing less dramatic price increases than California as a whole, although the trend is there. The unfolding of the summer market will reveal whether the apparent turn in the market is real or simply a seasonal effect.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR and current Treasurer of the Grass Valley Chamber of Commerce, while serving our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 4/6/2010
April 6, 2010 – The challenges we are facing today in the mortgage market, a liquidity crisis and the hangover from rampant price increases driven by easy credit, are going to take some time to unwind. There is a consensus that two major behaviors are largely responsible: excessively exuberant creativity on the part of the securities and investment industry in devising novel vehicles for enabling liquidity, and a shift in the mortgage industry from lending money to selling mortgages, some of them just as creative as the investment vehicles, both driven by personal greed.
When the profit model shifted from long term quality in the loans that were written to short term volume to fill the huge pipeline created by the securities industry, the crash became inevitable.
The usual sources of funding were crushed when the bubble burst, and will take years to recover. In the meantime, the remaining banks that are solvent and government sponsored programs will be the mainstay until the alternative sources of capital have recovered.
What this means in the near term is that qualifications will be more stringent and the cost of borrowing will increase. Gone are the days when loose standards of fiduciary responsibility enabled the writing of so many doomed mortgages. We hope such days will not return, and that when the pendulum eventually swings back, it will settle in a sensible range.
What we have today is an environment where there are mortgage products available to all segments of borrowers, as long as the more stringent qualifications are met. A combination of credit score, income and assets (down payment) that enables qualified borrowers to pay a reasonable price for property and reasonable fees to lenders will restore a healthy market. We are all going to have to work harder to make this happen, and it will be worth it in the long run.
In our local market, we are seeing a recovery in unit volume that seems to be sustainable, and an apparent halt to the steep price declines of the last few years. It is still a fragmented market, with retail sales, short sales and REO sales each having their own market forces, and there is something for everyone who is qualified to buy. Local mortgage lenders are cautiously optimistic that the market will improve.
Shelley Mortara of Nevada County Mortgage advises: “It''s important to meet with your loan consultant and provide the requested financial documentation as soon as possible. In a buyers market, it''s critical to have your credit approval in place prior to negotiating an offer on a home."
Tom Smith of Falcon Financial adds: “The rates are very low for the right people with the right home. The current underwriting guidelines give the lowest rates to borrowers with 740+ credit scores. Homes that are in poor repair or unique in some way will present appraisal challenges.”
In every market, there are real people with real dreams, making them come true.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, has been Chair of the MLS Committee, a Director of NCAOR and Board Chair of the Grass Valley Chamber of Commerce, while serving our community as a real estate professional for over 10 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
Created: 3/2/2010
March 2, 2009 – Today California residential real property taxation is primarily regulated by Proposition 13 and Proposition 8.
Proposition 13 – Limits the property tax rate to 1 percent plus voter-approved bonded indebtedness, and defines taxable value as the lower of the property's Factored Base Year Value (FBYV) or market value on lien date, January 1. Factored Base Year Value is the market value of the property when it was acquired by the current owner, plus the value of any new construction, plus an inflation factor of no more than 2% per year. Taxable value can increase more than 2% in one year if the property experiences a change in ownership, new construction or received any temporary reduction in taxable value in a prior tax year.
Proposition 8 – Amended Proposition 13 to provide for declines in value. Prop 8 requires the Assessor to enroll the lower of either: (1) the Factored Base Year Value, or (2) the market value as of the annual lien date January 1. Prop 8 reductions in value are temporary reductions that recognize the fact that the market value as of the January 1 lien date of a property has fallen below its current Prop 13 factored value.
Once a Prop 8 reduced value has been enrolled, that property’s value must be reviewed each year as of the January 1st lien date, to determine whether its market value is less than its Prop 13 factored value. Prop 8 values can change from year to year as the market fluctuates. When the market value of the Prop 8 property increases above its Prop 13 factored value, the Assessor will once again enroll its Prop 13 factored value. In no case may a value higher than a property’s Prop 13 factored value be enrolled.
Properties enrolled under Prop 8 provisions are not subject to the 2% annual increase limitation that applies to those enrolled under Prop 13 provisions.
The 58 counties of CA take different approaches to Prop 8 enrollments. Some are pro-active and some are relatively passive, requiring the action of property owners in order to start a Decline in Value reduction. Due to the economic issues faced by local government, staff cuts and increased workloads at the Assessor’s Office can affect the expedience of the process.
In general, if a property was purchased between 2003 and 2008, it may be eligible for enrollment in Prop 8. In order to make an initial determination, it’s a good idea to call your Realtor®, as the Assessor’s office may be somewhat overworked, as explained above. In either case, the initial determination will look at what price was paid for the property, the current assessed value and the current market value.
