John M. Lee: Real estate update

I spent a few days at the California Association of Realtor's (CAR) Business Meeting at San Diego in January snooping around to get the latest news on what is happening in the industry.

The mood was more upbeat this year because everyone feels the worst is behind us. Most attendees believe the real estate market bottomed out in the first half of 2009 and we are treading at the bottom of the cycle with nowhere to go but up. Most regions in California were reporting that sales activity and prices increased 2 - 5 percent in 2010 from 2009.

In the outlying areas, home sales have been increasing due to better pricing because of the influence of bank foreclosures and distressed property sales. This shows that when prices are low enough, buyers will make the purchase. Also, add in the fact that interest rates are at historic lows, hovering in the sub-five percent range, so affordability is very high. It is too tempting for buyers to resist.

Since we peaked out in prices a few years ago, buyers and sellers have come to accept the new market reality that prices have dropped, and are willing to move on with their lives. Some sellers who have been holding off selling realize that it will take a number of years for the market to reach the peak prices of 2007, and opt to sell instead of waiting. Buyers realize that prices might not drop any more, and decide to get in now instead of renting forever.

We are still seeing a high number of foreclosure and distressed property sales at inland areas, some as high as 50 percent. In San Francisco, we have been fortunate in that only about 15 percent of our sales fall into this category, which helps to sustain our prices. We have reasons to celebrate!

A primary focus this year is to help the banks and government formulate policy on how to work with owners on short sales and loan modifications. There are constant horror stories on how banks deny short sales or owners being foreclosed on even though they were performing on their loan modifications. The story is different in every case and both sides have their stories. The only definitive conclusion is that the process is not working. CAR has formulated a special task force with the sole purpose of influencing the bank and/or the government to streamline the process and, hopefully, develop uniform guidelines for all to follow.

There was lots of talk about how and what we as an industry should propose to Washington regarding taxes and the mortgage interest deduction. There was constant debate on whether raising taxes and thus letting our government spend the money to stimulate the economy is the right way to go; or reduce taxes so consumers will have more money to put back into the economy. Washington will be debating the elimination or phasing out of the mortgage interest deduction once again. This disproportionately hurts the population in high-priced areas, such as California, so our delegates were strongly against this proposal.

With the interest rates decreasing these past years, most property owners have refinanced their homes. But with refinancing, they might have lost their non-recourse loan status. California is a non-recourse state, meaning that on financing, the property is the sole security for the loan. So, if the borrower does not pay the mortgage, the only security is the property and the lender may foreclose on it, but cannot go after the borrower on any of the other assets he or she might own. But, with refinancing that provision goes away. CAR will be sponsoring legislation to do away with this lender escape clause.

There were many things going on in this meeting as real estate practitioners from all over California came together to discuss, debate and set the policies of the association, and to exert its influence at the state and federal levels. Overall, it was a productive meeting and we are all hoping that the changes we are putting in place will help stimulate the real estate market, thus helping to strengthen our economy.

John M. Lee is a director for the California Association of Realtors and specializes in the Richmond and Sunset districts. For real estate questions, call him at (415) 447-6231.