Thursday, May 7, 2009

Stress Test Reveals There’s More Work to Be Done By the Banks But The Local Real Estate Market Continues to Thrive!

This week the results of the long-awaited Stress Test on the banks were released. What the government hoped to accomplish through this Stress Test was to determine how much more capital the banking sector would need to withstand the recession—much of which was caused by residential mortgages and other consumer loans such as credit cards. The result was that 10 of the nation’s 19 largest banks will need to raise a total of $74.6 billion in capital. The Stress Test revealed that banks like Goldman Sachs and J.P. Morgan seemed to be better positioned than Citigroup and Bank of America.

At this point, according to Kiplinger, “The stronger banks will actively do what they can to return any money borrowed from the government to get out from under restrictions on dividends and executive compensation. Their ability to sell common stock to the public is far better than their weaker counterparts, who may have to privately sell stock to investors or raise capital with so-called mandatory convertible preferred shares.”

According to industry analysts, it seems that until the banks get back on their feet, credit will continue to be tight. That leaves the Federal Reserve responsible for filling in the gaps with its own lending programs aimed at jump-starting lending.

On a brighter note, however, the real estate sector of our economy continues to show some positive signs—a good symbol that the programs that the government has put in place are helping. USA Today reported earlier this week that “More homes for sale are attracting multiple offers as buyers pursue lower-price homes and banks low-ball asking prices to attract competing bids on foreclosures.” It’s exactly what we’ve seen locally. Just as I revealed in an earlier blog posting, the first time, entry level home buyer market is fueling this recovery. It’s something we certainly forecasted and it’s finally coming to fruition. Now, we’re seeing, in many markets, multiple offers on starter homes and even some frustrated buyers who are scratching their heads and wondering what happened to the buyer’s market. We warned that the change could come before we knew it and in some price ranges, it might’ve already come and went.

Here are some links to some interesting, positive news stories from the week:

Now, let’s take a look at this week in real estate:

  • Davis County—Our Bountiful office reports that April closed out with another strong week of sales, though it is important to point out that there are still challenges once deals are under contract and seeing them through to closing can be difficult. Current production seems to be steady but not increasing. We have had many inquiries from buyers about seller finance and lease option opportunities. We have seen some walk-in traffic. One buyer this week will be able to take advantage of nearly $20,000 worth of incentives on new construction as the builder will pay all of his closing costs, the state will give the $6,000 incentive and the Fed will kick in another $8,000 tax credit. Couple that with a 5% or lower interest rate and that buyer is feeling like this isn’t such a bad time to buy!
  • Salt Lake County North—Our Salt Lake office reported that sales are strong as buyers are gaining confidence in the market and seeing many of the buyers taking advantage of the stimulus grants for first time home buyers and the state Home Run Grant. With inventory shrinking we are seeing multiple offers that are closer to list price stabilizing the market. An estimated 20% of our sales are currently short sales or REOs and as this inventory is removed from the market we should see prices start to rise in the coming months. Our Union Heights office is reporting more activity each week. There is increased activity in almost all price ranges. Very active market; we’re seeing more and more multiple offers. Our Sugar House office reports that the market seems to be steadily picking up thanks to low interest rates. Buyers are starting to jump off the fence. We may see more investor activity with the new Home Path Loan.
  • Salt Lake County South—The Draper office had the most under contracts in one week year to date. We also had the most closed transactions in one month year to date. Draper is starting to see a rise in activity. The Jordan Commons office reports lots of activity on listings up to about $275,000, which is where the multiple offers are. Listings that have been sitting awhile are getting showings and offers. Some Agents are seeing "lowball" offers from both investors and owner occupants. Many people are looking for a deal. West Valley City is out of grant money at the moment, but hopes to have more in July or August. Sellers are being more realistic about what they have to do with pricing and condition to get their homes sold. Good, positive feedback from sellers and buyers.
  • Salt Lake County West—Our West Jordan office reports that several Agents have reported that when they are taking a buyer back for a second showing on a property, they discover that it's already gone under contract. Buyers, it’s important to be aware!
  • Tooele County—Our Tooele office reports that we had 26 accepted offers which marks the sixth week in a row of 25+ accepted offers. This is very good for our area. We should see a jump in closings as a result.
  • Utah County—No information reported.
  • Weber County—Our Ogden and South Ogden offices report that the market seems to be picking up with sales ranging $94,500 to a large land transaction for $1,750,000. Things are looking up!

What do we do with this information? Spread the word! It’s one thing for me to talk about a recovering market but it’s another when even the most pessimistic analysts are doing the same. The stories above share the real story. All of our offices are reporting similar stories and as I visit our offices and talk with our Agents, I’m hearing the same scenario: the market is changing.

The window of opportunity has been open and it has been inviting buyers in for months. Now, the buyers are acting and if you were sitting, cooling your jets, it may be time to start your engine! Don’t wait until you’re kicking yourself and saying, “I should’ve bought a lot more real estate.”

Until next week,
Make it a great one,

Dan Christensen
President
Coldwell Banker Residential Brokerage Utah

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