Good news continues to flow in that benefit the California real estate market, Interest rates are at the lowest level in recorded history. The largest institutional banks settled for a staggering 25 Billion dollars with the Federal government for inappropriate foreclosure activity and now the California Homeowners Bill of Rights is completely implemented.  All have led to a resurgence in the California real estate market that will benefit homeowners as prices should continue to increase due to the positive economic factors.

But probably the best news is that foreclosure activity is down 65% from January 2012.  Couple this with the banks being much more active in “working things out” with delinquent homeowners and with the Homeowners Bill of Right instructing California lenders to stop the process of dual tracking will only lead to more future positive news for homeowners and real estate professionals throughout California.

Our Assessment of The Fed’s Monetary Policies for 2013

Federal Reserve – There is probably no agency or government department at the State or Federal level that has more effect on our daily lives than The Federal Reserve Bank which is responsible for setting Federal monetary policy.

Monetary policy is set by the Federal Reserve Bank in several ways:

  • The Fed increases and decreases interest rates
  • The Fed also increases or decreases the money supply

Currently the Chairman of the Federal Reserve Bank is Ben Bernanke and he oversees the Federal Open Market Committee which is the division of Federal Reserve Bank that sets monetary policy. Currently the Federal Reserve Bank’s monetary policy is focused on lowering interest rates and expanding the money supply.

A short explanation is in order here.

Lower Interest Rates

Lower interest rates are easy to understand as lower rates lead to additional buying power for products that normally require financing, such as cars and houses. Lower rates equate to lower monthly payments. When people have “additional” buying power due to lower rates they are empowered with added purchasing power which leads to a possible imbalance in the supply/demand ratio, which normally leads to an increase in prices, which is currently happening to the price of houses.

With interest rate at historically low levels, more people are able to qualify for real estate mortgages and are able to buy higher priced homoes than if interest rates were at higher levels. Also when interest rates are at such low levels potential buyers develop the attitude that “they don’t want to miss-out” on the low mortgage rates so even if they were not intending to purchase a home for a year or more in the future they often move up their buying plans to get in on the low rates. The effect of this psychological mindset contributes to additional supply/demand imbalance.

Expansion of Money Supply

The second way that the Federal Reserve Bank sets Monetary Policy is through the expansion and/or contraction of the money supply. Currently the policy is to expand the money supply by many of billions of dollars per month. This is often termed “printing money” and is accomplished by contracts the Federal Reserve Bank sets up with the United State Treasury Department through the buying and selling of bonds, where money is really created out of thin air. This monetary policy can lead to inflation as has happened many times in the past. The main reason that consumer prices have not currently increased is due to the continuing effects of the recession and the anemic economic recovery that the economy is experiencing.

In the near future interest rates will begin to rise from their historic lows and the demand for real estate will decrease which will put downward pressure on home prices. If money supply policy continues unabated (The Fed continues to pour billions into the economy), inflation could rear its ugly head which historically leads to higher real estate prices. When the two opposite forces are compared, the drop off in demand due to increased interest rates should more than offset the inflationary pressure on real estate prices.

Our conclusion is that while real estate prices are currently going up there appears to be a ceiling that will be determined on any increase in mortgage interest rates.

Caution is advised in over optimism about the current increase in real estate prices.

Good news to benefit California – Big Banks Settlement

 

Big Banks Settlement – Good news continues to flow in that benefit the California real estate market, Interest rates are at the lowest level in recorded history. The largest institutional banks settled for a staggering 25 Billion dollars with the Federal government for inappropriate foreclosure activity and now the California Homeowners Bill of Rights is completely implemented.  All have led to a resurgence in the California real estate market that will benefit homeowners as prices should continue to increase due to the positive economic factors.

But probably the best news is that foreclosure activity is down 65% from January 2012.  Couple this with the banks being much more active in “working things out” with delinquent homeowners and with the Homeowners Bill of Right instructing California lenders to stop the process of dual tracking will only lead to more future positive news for homeowners and real estate professionals throughout California.

The restrictions on “Dual Tracking” is the process of one department at the bank foreclosing on the property while the other department attempts to work things out with the homeowner.  This was tantamount to helping someone while at the same time stabbing them in the back.  It just wasn’t the right thing to do to people who were experiencing hardship due to many factors, this being possibly the largest factor being the downturn in both the national and California economy. It is now considered illegal for California banks and their foreclosure companies to employ such a process on homeowners.  The great news is that so many struggling homeowners are going to be able to keep their homes and this will prevent or minimize the vacant homes in neighborhoods all over California.

It is so nice to be able to report good news after so many years of month after month of reporting so much bad news. Big Banks Settlement!

California Real Estate Prices Rising 20.9% Year-Over-Year

 

California Real Estate Prices – Good news has finally come to the California real estate market.  With many of the foreclosures that occurred due to the irresponsible lending policies of state and federal chartered banks now behind us prices are now finally starting to rise.

As of March 1, 2013 California real estate prices have increased 20.9 over prices from a year ago.  In addition, sales activity is at a six year high and shows no indication of slowing down due to positive current economic factors.  First time buyers and investor confidence are significant factors in leading to the improvement in values.  It’s important to keep in mind that even after the current increase in values that the current medium sales price is still down 37% over the all-time high set in early 2007.

Most every market gauge indicates prices are up significantly over the past twelve months, even after adjusting for the type of properties sold, size, location and sales prices.

The current low inventory of available house or sale has also contributed to the increase in values.

I will have more positive news about real estate market in the days ahead.