THE IMPACT OF THE FEDERAL STIMULUS ON THE VALUE OF YOUR HOME THE IMPACT OF THE FEDERAL STIMULUS ON THE VALUE OF YOUR HOME

In 2009, the U.S. Congress passed and President Obama signed the American Recovery and Reinvestment Act (ARRA).  You may recall the phrase “shovel ready projects” or saw the big green signs along local freeways touting infrastructure work to be done locally. The initial price tag was about $787 billion.  There first object of ARRA was to save and create jobs.  The key connection between ARRA and the value of your home lies in that one word: jobs.  Jobs means good income which potential buyers can use it to buy homes. Recently, the folks at www.propublica.org reported in where the $787 billion went during the last three years.  It’s a report card of sorts. It makes for some interesting reading. It shows who got the most help and used that help to best preserve property values through job creation and retention.

 

 -HOW DID CALIFORNIA DO?  Our state received about an average amount when compared to other states. We received about $1,700 per person or $63.3 billion. And, how did this money impact our state?   For starters, theCalifornia unemployment rate went up from 9.0% in December 2008 to about 10.9% by December 2011.  In comparison, the national unemployment rate went from 7.4% to 8.5%.  At the same time, homes inCalifornia depreciated by more than 20%.  In some areas the depreciation was over 50%  While this looks bad at first glance, the big question is where would home values and the job market be today without the federal stimulus?

 

-DID CALIFORNIA GET ITS FAIR SHARE? The most money per person went to those lucky folks inAlaska ($4,098 per person which is almost 2.5 times whatCalifornia received).  Even with a huge infusion of funds,Alaska’s unemployment rate went from 7% to 7.7%. Ouch! Almost half the states received more help thanCalifornia. Again, a question: Where wereCalifornia’s representatives inWashingtonD.C. when ARRA funds were being spent? (BTW,Florida was the least fortunate state with $1,247 per person.  It’s interesting thatFlorida andCalifornia were devastated by the housing bubble and yet received minimal help)

 

-DID CONTRA COSTA GET ITS FAIR SHARE? Our county received $476 per capita which is the second lowest amount out of 58 California counties.  OnlyColusaCounty, which had a huge unemployment rate of 23%, received less federal help. The biggest receiver of funds wasMt.DiabloUnifiedSchool District which received almost $17.6 million to help with the school district budget. Which counties did received the most help?  Look atSan Luis ObispoCounty.  SLO received $6,318 per person!  Unemployment dropped from 9.8% t o 8.8%.   The biggest single project in that county went to Sunpower Corp to the tune of $1.37 billion for the construction of California Valley Solar Ranch. It’s supposed to create about 350 jobs (that’s about $3.9 million per job created-another big Ouch!)

 

-WHAT DID CONTRA COSTA ACHIEVE WITH ITS FUNDS? Here comes the good news.  With the second lowest amount of funds to any county inCalifornia, theContraCostaCounty unemployment rate dropped from 11.1% to 9.3%.  In other words, CCC unemployment rate was down 16.2%.  The only county inCalifornia with a greater reduction in unemployment wasSanta Clara which went from 11.3% to 8.7% (a reduction of 23% thanks toSilicon Valley!) The reduction of the unemployment rate in our county during difficult times means good things for the county in general and the value of homes in particular.  Good paying jobs creates consumers who buy tires and go to restaurants and buy materials for home remodeling projects.  Good paying jobs means an increased demand for more housing units.  We should see increased home construction soon.  Those construction projects create more good paying jobs which creates more consumers to buy tire, good to restaurants etc. etc.

 

Contra Costa got the short end of the stick on the ARRA but we took that stick and created an environment to put our area in the lead during the coming economic recovery.

WHAT IS THE SHADOW INVENTORY? HOW DOES IT IMPACT THE VALUE OF YOUR HOME?

The first time I heard of a “shadow inventory” was in 2008.  At a local real estate seminar, a vice president of a major national bank commented that there was no such thing as a shadow inventory.  Actually, in 2008, there already was one; big time.  This month I want to spend time on the two questions that head this article.

WHAT IS THE SHADOW INVENTORY? The real estate shadow inventory is composed of homes which are owned by banks (called REO’s for real estate owned).  These homes are acquired by banks through the foreclosure process. They are almost always vacant.  They are called “shadow” because they have not been placed on the real estate market for sale.  If banks placed the entire shadow inventory on the active market, the increased supply of homes would devastate current values.  In an effort to preserve the value in these REO homes, banks put them up for sale over an extended period of time. As the owner, banks are charged with the responsibility of maintaining the curb appearance of these properties.  Some cities actively pursue banks who have allowed these homes to have a distressed appearance.

IS THERE A “SHADOW” SHADOW INVENTORY? Actually, I think there is.  These are homes that have been abandoned by their owners who are facing foreclosure.  Rather than remaining in the home through the entire foreclosure process, the owner vacates.  Usually, the fronts of these homes appear to be in a very distressed state. Although cities try to hunt down the real owners and force them to maintain their properties, this is often very difficult to do.

HOW DOES THE LOCAL SHADOW INVENTORY IN OUR AREA COMPARE TO OTHER AREAS?  Here is some good news! A recent SF Federal Reserve report was very encouraging for our area.  Shadow inventory is currently the lowest in the western part of theU.S. which includesNevada,California,Utah andWashington.  The lone exception at this time isOregon. The northeastU.S. has the biggest shadow inventory right now.  This includesNew Jersey (big problem!),New York,Pennsylvania,Maine,Connecticut, andMaryland. In another study by CoreLogic, it is estimated that our area will clear the shadow inventory in 2-3 years. Many areas in the eastern part of theU.S. will need 6-10 years to clear inventory. To give you a feel for numbers, right now there are about 194 homes in the shadow inventory inConcord.  In surrounding communities,Martinez has 51 whilePittsburg has 92. Regarding the potential “shadow” shadow inventory, there are 286 owners inConcord in the foreclosure process. 

HOW DOES THE SHADOW INVENTORY IMPACT THE VALUE OF YOUR HOME?  The shadow inventory can impact the value of your home in several ways.  If the banks do not adequately maintain and secure these homes, they become a blight on the neighborhood.  The distressed appearance usually includes a dead front yard strewn with garbage, broken windows and peeling paint.  These homes are prime targets for home invaders.  These invaders may live in the home while stripping it of any anything of value.  You’ve probably seen this type of home in your neighborhood.  Buyers also see these homes.  It creates a stigma which often results in lower values for the entire area.  A second problem is the significant future supply of homes for sale.  In a relatively pure supply-demand market, increased supply means lower prices.  Right now, the supply of homes for sale is very low throughout our area.  As banks continue to bring on more REO properties to the market, the value of all homes will be reduced.

In summary, the shadow inventory is real and it will continue to impact the local real estate market.  The good news is that the impact will be relatively short compared to other parts of theU.S.  Based on the current size of the local current shadow inventory, we seem to be moving toward a better, more traditional market at this time.

In Concord if you see a property that appears to be distressed and abandoned, contact the city at cleanup@ci.concord.ca.us or the 24 hour hot line 925-671-3282. 

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