FORECAST - It looks like it's time to saddle up the horses and ride. Market activity is up. Inventory is down. Yuba City home prices appear to have bottomed in February of this year.

Our view of the market is that;

1.	The next move in home prices will be higher.
2.	The decline in the number of homes listed for sale clearly demonstrates that the market is able to absorb the current level of foreclosures.
3.	There will not be a sudden rise in home prices in 2009 or 2010 given what we believe to be a continued large number of bank foreclosures coming onto the market.

The dramatic decline in the home prices has reduced the gap between the cost of renting and the cost of owning to levels that make sense for a large number of buyers. Additionally, low interest rates on bank CD's are enticing a large number of investors to purchase single family homes for investment. At this writing, the number of single family homes and half plexes listed for sale in Yuba City has dropped to about 140 as compared to about 300 listings one year ago and over 500 listings in September of 2006. The number of months of inventory has dropped in the Yuba-Sutter area to 2.2 months (compared to a 7 month national average). We expect that high levels of foreclosures will continue to drive the market through 2009 and much of 2010.

Prices have risen slightly in the last six months.

Here are some of the major factors we believe are now having or are likely to have an impact on the real estate market.

1. Housing inventory numbers continue to decline. The supply in the Yuba-Sutter area is currently only 2.2 months.

2. Real estate agents continue to report that a large number of homes are receiving multiple offers and offers over the listed price.

3. Renters can purchase homes with a small down payment using 30 year, fixed rate financing and experience total housing costs less than or not much more than the cost of renting.

4. The Federal Reserve has been buying mortgaged back securities. This has contributed to a steady supply of mortgage loans. Interest rates the last five years have been at their lowest levels in at least 35 years.

5. Investors can achieve positive cash flow with a 25% to 30% down payment using 30 year, fixed rate financing. Alternatively, they can receive positive cash flow in the 5% to 10% range on all cash purchases

6. Very low bank CD rates are causing many investors to look at real estate as an alternative investment.

7. California's population increases by about 500,000 people per year. This results in between 230,000 and 250,000 new households being formed each year in California. According to figures from the California Building Industry Association, there were only 23,555 new housing starts in California in the last 12 months.

8. Congress recently extended the $8,000 tax credit for first time home buyers and added a new, $6,500 credit for buyers who have owned their current residence for 5 years. The new legislation requires buyers to be in contract by April 30th and to close by July 1st of 2010.

9. California has an extremely cumbersome and expensive planning process. It takes about two to three years of studies and planning to get approval for a new subdivision. It won't be possible to create new building lots over night when the market starts to turn around.

10. Government fees remain high and will limit new home construction. These fees are being collected to pay for sewer and water connections, building permits, new parks, fire stations, police stations, schools and levee repairs. Builders are even being charged a fee that goes into a special fund for “affordable” housing. Forcing builders to pay high fees squeezes their profits even further and discourages new home construction.

11. Most knowledgeable sources expect that FEMA will put Yuba City into a designated flood zone by the end of 2011. This will further complicate meeting the housing needs of our growing population.

1. The economy is in a recession and many prospective buyers are unwilling or unable to purchase a home given the current economic uncertainty.

2. The State of California's budget problems may cause further problems with our economy. By one estimate, cuts in the State's budget could result in 200,000 lost jobs.

3. Massive Federal government deficit spending may lead to higher interest rates.

4. The Wall Street Journal reported on November 13, 2009, that FHA loans represent about 25% of today's mortgage market. It also reported that FHA's reserves fell to .56% as of September 30th possibly foreshadowing changes at FHA that will reduce their lending activity.

5. The Federal Reserve has indicated that it intends to stop purchasing mortgaged back securities by the end of March, 2010. This may have a negative impact on interest rates.

6. Many builders and banks have been forced to sell development projects at give away prices. This will reduce the cost of construction and may allow increased levels of construction in the present market environment. If so, this will be a short term phenomenon until current supplies of approved subdivisions are exhausted.

6. Current home values have left large numbers of homeowners owing more than their home is worth. This will likely result in a continuing supply of short sales and foreclosures as some of these families face financial problems associated with job cuts, divorce and major medical issues.

7. Those who have a recent foreclosure or short sale on their record will be out of the market for a significant period of time.

8. Homeowners who currently owe more than their home is worth are likely to be out of the market until home prices recover sufficiently to allow for a sale of their existing home.

9. In March of this year, the news media was reporting on a RealtyTrac analysis that indicated that as much as 70% of the bank owned homes have not yet been listed for sale. Local Realtors I have spoken to believe that lenders are still holding large numbers of homes that are not listed for sale.

10. Lending and appraisal standards have tightened dramatically in the last two years. These tightening credit standards are keeping some prospective buyers out of the market.

There are some negative factors capable of derailing the housing market's recovery. However, we have definitely turned more bullish in our recommendations to home buyers because we believe that positive factors outweigh the negative factors. Even so, it will probably take a long time for real estate prices to turn around so we do not believe there is a need to rush. The most important factors continue to be these;

1. Find a home that meets your long term needs.
2. Find a home that you can afford using a fully amortized, fixed rate loan.

You can see the latest real estate market charts in our most recent Real Estate Market Newsletter.

So, is now a good time to buy or sell?

Here are links to some of our previous market forecasts:

December 4, 2008
December 6, 2007
October 23, 2007
Septemer 5, 2007