Multiple Offers on Foreclosures Drive California Home Prices Up

An interesting phenomenon is happening in the beleaguered California housing market. Banks, with growing Real Estate Owned (REO) or foreclosed inventories are getting multiple offers on their properties. Motivated buyers wanting to get into a home while the prices and interest rates are low are offering more than asking price in the hopes of outbidding other potential California buyers. And the homes in many cases are selling for more than the original asking price.

Low mortgage rates are helping to spur the buying frenzy. Mortgage rates in California continue to hover around the 5% for owner occupied homes. 30-year Jumbo loans (loans over $561,201) are currently at 6.125%. However, buyers must now have a FICO score of at least 740 to get these rates. In the past, buyers needed a FICO score of 620 to get the best rates which in some cases is making it more difficult for buyers to qualify for affordable loans.

The First-Time Home Buyers $8,000 tax credit is also impelling buyers to make offers now. The tax credit expires December 1, 2009.

California’s median home price is $253,040 in March up from $247,590 in February – a 2.2% increase. Unsold inventory is a little over 5 months for the state of California as a whole. The largest supply of unsold inventory is in the $1,000,000 + price range.

Even though the buying frenzy and the stabilized home price are a positive sign, California may not be out of the woods yet. California’s Association of Realtors Chief Economist Leslie Appleton-Young stated “While these are welcome signs, it remains to be seen whether home prices have stabilized. While we still face continued weakness in the general economy and expect continued foreclosures, the increased incidence of multiple offers indicates that first-time home buyers and investors are responding to dramatically improved housing affordability. Low mortgage rates and house prices, coupled with the federal first-time home buyer tax credit, is having a definite impact on the California housing market.”

In this tough California market and with all the foreclosed properties, pricing a home accurately is critical in the selling success. Using comparative market data on recently closed homes as an indication of a home’s value is unrealistic because that data is old. Using current homes on the market to set the price or value of a home today is more realistic. As the banks are finding out, pricing a home 10% - 20% under market value can incite buyers to make offers instigating a bidding war.

Author Andee Nast is a California Mortgage broker. You are welcome to contact Andee at andeen@charter.net or 1-800-694-2265 extension 15 or on my website www.andeeallen.com.