Andy Krotik: Outlook not good for early 2009

Andy Krotik

Real estate in its simplest form is supply and demand. That ingredient usually has the most impact on value. Although demand by buyers remains consistent, bank-owned properties just keep coming and coming.

Last month in Merced County there were 479 property sales. That's respectable activity for a county of just under a quarter-million people. The challenge: there were nearly an identical number of foreclosures, 470. Demand for housing locally has been consistent the last nine months, far exceeding 2007 numbers.

The number of bank foreclosures has also increased substantially when compared to November a year ago. Year-to-date there have been slightly more foreclosures in Merced County than property sales: 4,443 foreclosures, 4,427 closed property sales. I believe foreclosures will continue to outpace property sales in the first quarter of 2009.

Here's why:

On July 8 the state Legislature and Gov. Arnold Schwarzenegger enacted SB 1137. The new nine-page law was designed to protect property owners threatened by foreclosure. It comes with new noticing requirements, mandatory loan modification attempts and due diligence requirements by banks before they foreclose.

It's supposed to slow down bank takebacks. It was also coupled with a populist message by the governor asking for a temporary "moratorium" on foreclosures. Legislators may have outsmarted themselves, however, as many believe all they have done is pinched the hose.

Brace yourself -- another wave of foreclosures is coming. True, workout programs can benefit homeowners, but statistically 70 percent are back in default within six months. Most believe this has simply delayed the inevitable. Fact is some people just don't want to own a property that's worth less than half of what they owe.

Some are simply making a business decision. That's not to say there aren't awful situations where a property owner truly gets in trouble. But to ignore the other component is naive.

In the end, the oversupply of repos has put downward pressure on prices, which have benefited first-time homebuyers. Currently, 69 percent of those making the median income can qualify for the median price of a home here in Merced County.

Some 85 percent of today's buyers are first-timers. They are getting fixed FHA loans. The other 15 percent are investors who are coming back into the market, swooping up what they feel are fair prices. In short, rentals pencil once again. If you can buy and hold, most feel in the end it might be a good investment.

Relief for renters in foreclosures is on the way. Fannie Mae announced Dec. 16 that renters who occupy properties being foreclosed on may soon have the option to lease directly from Fannie Mae. That's right -- the feds are indirectly getting into the landlord business. According to the recent announcement evictions, will be halted until Jan. 9. Final details are pending. Fannie Mae also offers relocation assistance to some renters trapped between the banks and the former owners.

Fannie Mae is also launching a new financing program to liquidate their dilapidated properties. Because so many properties are in tough shape, The Home Path Renovation Program which starts Jan. 5 will allow buyers to repair properties, with set-aside monies after close of escrow. Details can be found at In short, Fannie Mae wants to reduce the amount in their inventory.

Monthly Tidbit: If you snooze, you lose. One of the biggest complaints I hear from first-time homebuyers these days is that their offer didn't get accepted because the bank received several offers. If you remember one fundamental fact about banks, it's this: Banks aren't in business to give buyers a good deal. They are in business to minimize losses, period. If there is more than one offer on a property, they will take their time deciding. They want a bidding war.

There are basically two ways to get a deal on a bank-owned property. First, be the first one to make a qualified offer, which includes documentation of your ability to get a loan, and provide evidence of down-payment funds.

It's not uncommon for properties in desirable areas to have several offers and to sell over the asking price. But if you're the only one making the offer, you're well-positioned. So act fast. if you like, write it up posthaste.

The other way to get a good deal usually comes in finding a property that has a less than desirable location, condition or if it's been on the market for an extended period of time. If the property doesn't qualify for typical financing, it can be ripe for a steal. More than ever, cash is king. It's not uncommon for banks to take a lower cash offer, instead of higher offer that requires the property and buyer to qualify.

Andy Krotik is sales manager of Coldwell Banker Gonella Realty in Atwater. Sources of information for this article were obtained by Gonella Realty research, CAR, NAR, DataQuick and Realty Server MLS. He writes every month.