The Shadow Knows!

I am not really old enough to remember the old radio program "The Shadow Knows," when it was a regular radio feature.  But I did hear it when it was replayed on a oldies radio station. What I am talking about today is shadow inventory, what it is and how it will affect real estate prices in the Boise area real estate market.

Shadow inventory is determined in general terms,  by adding the local area's number of REO (REO stands for real estate owned, meaning property repossessed by banks, investors or government insuring agencies such as HUD or VA,) listings that are not yet on the market with the percentage of loan modifications that are expected to redefault.

According to the National Association of Realtors, Idaho has one of the lower levels of shadow inventory. That is good news for Idaho home owners although surprising for many of us that are daily invovled in the Treasure Valley real estate market.

I'll include the graphs and maps for your review. Figure 1 shows the states with the highest levels and figure 2 shows those states with the lowest shadow inventory levels.





Following is the map is the estimate of the number of months it would take to clear the shadow inventory by states.



This estimate is based on 2010 existing home sales, so any change in the rate of sales will impact the rate of clearance. So the shadow knows, but do we know?

 

No House is an Island

I have some clients that had their house on the market a couple of years ago, it is an older home on some acreage in the Kuna area. After a time on the market they decided they would not sell their house for what it is was actually worth at that time. Now these home owners are not in the situation of being upside down with their mortgage like so many other homeowners, as they still had equity in their house. I am a firm believer that people should only sell their homes when they want to, or in some cases when they need to, but what bothered me about these folk's decision to wait is they are also wanting to turn around a buy another home in our area. While their property has indeed declined in value dramatically and I understand it is difficult to accept the lower value, the type of home they are looking to buy is also worth much less today. As they wait for the value to increase on their house, the potential houses to buy are going to increase in value at the same rate, so nothing has really been gained. Instead, they are staying in a house that longer fits their needs and wants. I believe it would be much better in this situation to take the loss on the sale, gain it on the purchase and live where one wants to live. Maybe a house isn't an island but it can be a your castle!

Idaho's Delinquent Loans

Much of my real estate activity in the Boise, Meridian and Nampa markets consists of distressed properties. Homes that are either short sales or bank repos. According to the National Association of Realtors, Idaho is one the harder hit areas of the country. They published a map showing the percentages by state of the share of sales that were distressed sales.



So they are showing Idaho above the median with 44%. Perhaps there is consolation in knowing there are states worse off than us, but not much for those homeowners involved.

Nampa's pink, now vacant house.

Whether I am walking a neighborhood in Nampa, or driving through some suburbs of Boise, it is easy to see the large number of vacant homes. Some have for sale signs, some have the notice of trustee sale taped to their doors while others are just sitting there looking lonely. One home I notice is by Lincoln Park in Nampa, whenever I go by it I think of the people I sold it to over 20 years ago. (If you are wondering how I did that when I said I have been selling for over 16 years, I did sell real estate for a couple of years prior to that.) It was pink at the time and they did not want to look at it due to the color. (Pink houses are reportedly the hardest color house to sell, and as recall I sold two pink homes that year.) We looked at every other house in Nampa in their price range but they would not look at that pink house! Finally, I previewed the home and convinced them they needed to take a look, they loved the inside and decided they could paint it as soon they moved in. They purchased the home and I did notice it stayed pink for a couple of more years. The family then did a major remodel and painted the exterior.  I would drive by and notice how much the house looked lived in and loved with the play set in the backyard, flowers bordering the front and cars in the driveway. I don't know how long they lived there but no one lives there now and yes the house looks lonely. Hopefully soon some new family will call this no longer pink house their home.

Is It Time To Buy Idaho Real Estate?

Whether the Boise or Nampa real estate prices have bottomed out is a question on many people's minds. There are many signs that indicate that the bottom is near, while others are not so clear. I will talk more about those another time. But one thing that needs to be considered is the total cost and not just the price. I read an interesting article from the KCM Crew that I am including here.

Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. Like them, we also believe that prices still have some room to fall in most markets. However, we disagree that waiting is a good financial decision. The buyer should not be concerned about housing prices.They should be concerned about cost.

The cost of a house is made up of the price AND THE INTEREST RATE they will be paying. Two different pieces of news released yesterday highlight this point.

PRICES

The National Association of Realtors (NAR) released their 4^th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.

A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.

INTEREST RATES

The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:

“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”

So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?

The price is the same. It just costs more.

Let’s show you what the news means:



By sitting on the sidelines for the last 90 days a purchaser lost:

• $89.44 a month


• $1,073.28 a year


• $32,198.40 over the thirty year life of the mortgage

If you buy a $340,000 home, double all these numbers.

Bottom Line

Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year.

Finally Blogging!

Hello everyone, (although no one is out there yet,) I finally begun what I have considered a long time. This blog will cover the latest real estate happenings in the Boise, Nampa, Meridian and surrounding areas. Also I will post other Treasure Valley happenings and maybe some restaurant comments (I love trying new places.) I will also include whatever other observations I may have. I hope to have it informative, interesting and hopefylly even a bit fun. I hope you will find it useful and come back to visit regularly.