Yesterday I attended a conference hosted by the California Mortgage Association. As a member I have access to information directly from economists, assemblymen and women, government agency representatives, attorneys and my peers in the business, all present at this quarterly seminar.
What I can share with you from the keynote speaker is that by nearly all measures the economy is getting better and will continue to do so over the next 2-3 years. It is not a recovery as robust as in the past where a recession took place and the next following quarters saw growth of up to 5%, we are seeing more like 3% GDP growth. None the less, banks and other lending institutions are slowly loosing up lending restrictions in order to lend funds out to borrowers who are qualified.
California real estate values have remained flat in some areas, some small appreciation in the costal areas (1-3%) and still declining in certain inland areas, but overall the real estate market here is slowly recovering. Overall pricing for homes is at about 1999 levels. Having that in mind, it is a good time for buyers who have a job (California has 12.5% unemployment) to buy a home. In 2006 when an average home price peaked close to $600,000.00, the affordability for somebody moving here from say Texas or back east was nil. Having housing more affordable in our state is essential to our recovery. If housing prices shoot back up to the levels of 2006 and the recovery is still slow, there would be no buyers and the economy here would suffer greatly. So don’t expect real estate values to be at 2006 levels for many years. The typical pattern of 3% appreciation should return after the inventory of foreclosure properties are sold off in the marketplace. Banks still have a large inventory of foreclosure properties to sell and a large amount of foreclosures to complete, but we have seen the worst peak of it. So flat pricing for now, then hopefully by 2012 we return to the typical 3% appreciation per year pattern.
With keeping in mind that real estate values are not going to rise much any time soon, it is very important to be careful when carrying back a Note. Make sure you require the borrower to place at least 20% cash down payment when buying your property. Make sure to have a note that is at least partially amortizing, a late charge provision, a due-on-sale clause, also you might think about having the property taxes paid with the mortgage payment 1/12 at a time each month because if your borrower is like many, its difficult to come up with those extra funds each April and December. Using a “belt and suspenders” approach won’t let you get caught with your pants down in case you have to take the property back and sell it again.
If you carry a note and want to sell it, we are just a click or a phone call away. We would love to hear from you.