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By Steve Since mid-2012, the real estate market nationally and here in Sacramento has been marked by very low inventory of homes for sale. Statistics from local Boards of Realtors indicate that there has been only a three week supply of available homes for sale. These are being chased by a far larger pool of prospective buyers ranging from individual first time buyers seeking a loan up to huge money-backed investors paying cash for everything they can get. It;s a simple rule of economics that when the demand exceeds the supply, prices rise and that has certainly been the case in real estate. Last year, the price of residential homes in Sacramento skyrocketed up 18%. Many people, including a great many in the media, have applauded this as evidence of an economic recovery. But, if the increased prices are the result of a supply-demand imbalance, the question is what will happen to prices if balance is restored. We may soon find out.
Prior to 2012, the real estate market was very scattered. Prices were uncertain, jobs were still falling, and owners were struggling to get elusive loan modifications to keep their homes. Those that couldn’t – millions of them – were losing their homes either through short sales or, even worse, foreclosure. Two events in 2012 changed the market:
1. National Mortgage Settlement. In February 2012, California and most states reached a Settlement of the “Robo-signer Scandal” concerning lenders’ fraudulent foreclosure practices. This Settlement was called the “National Mortgage Settlement”. In that Settlement, the big banks – BofA, Wells Fargo, Chase, Citi, and GMAC/Ally – agreed to pay $27.5 Billion in reparations, primarily through principal reductions on owner-occupied home loans. This created two effects: 1) people who might have otherwise put their homes on the market for a short sale held off hoping that they might get some of the Settlement money; and 2) Lenders cut back on foreclosures fearing further legal actions against them. This shrunk the homes for sale market with reduced short sale and REO listings leading to today’s severe inventory shortage.
2. Home Owners Bill of Rights. In July 2012, California passed a series of laws which took effect January 1, 2013 and were collectively called the “Home Owners Bill of Rights” HBOR for short. The two major components of HBOR were: 1) a ban on “Dual Tracking” stopping the lender practice of foreclosing while loan modification was being negotiated; and …read more

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