Looking for that Silver Lining…

It’s the fall of 2011 and if you’re one of the many investors in the real estate market, reading the daily headlines can be hazardous to one’s health. Or so it would seem.

HOUSING: Defaults hit high for 2011 in August” North County Times September 15, 2011

“INLAND: Economic downturn may mean fewer residents” Press-Enterprise September 15, 2011

Yikes! Guess we should all just crawl under a rock somewhere and hope it all goes away soon. Not really. Actually there is some good news behind the numbers in these stories. For instance, according to data from ForeclosureRadar, Notice of Defaults (NODs) in Southwest Riverside County rose 80 percent in August compared to July. But,what the headline doesn’t tell is that rate was 12.6 percent lower than August of last year. Looking at the larger picture NODs have been steadily declining for the past 20 months. Why should we be interested? NODs are the first step in the foreclosure process, and a forward-indicator for real estate values.

According to ForeclosureRadar, the steep rise in NODs in August had a lot to do with banks (they name Bank of America in a quote) stepping up on foreclosure processes after recovering from the recent scandal where some bank officers were caught rubber stamping foreclosures without review. So the good news is that NODs continue to decline, which eventually will lead to fewer foreclosures and more stable real estate values.

Actually, there’s another point of view that looks at higher rates of NODs and eventual foreclosures as good because they expedite the process and the quicker we get rid of all bad real estate loans, the sooner we will be back on track for an increase in home values.

One of the things we bank on at Rancon is the area. Southern California is an inherently strong real estate market, however, the California Department of Finance is revising its population projections for So Cal, and most interestingly for us, the Inland Empire. Based on the latest information from the Department of Finance, the Southern California Association of Governments (SCAG) is about to release a new forecast for Riverside and San Bernardino counties that shows population growing to 4.94 million residents by 2020. The state had previously (2007) predicted 5.4 million residents by that date.

Population projections are historically “inexact,” according to the article in the Press-Enterprise and adjustments are routinely made every couple of years or as the result of a bump in the economy. The revised State projections will be released in 2012, or 2013. John Malson, acting Chief of the State Finance Department’s Demographic Research Unit was quoted in the article as saying: “This is not just a tweak, but a major overhaul (in the projected forecast).”

According to Malson, Riverside and San Bernardino counties (The Inland Empire) will “show the most growth” in the state during the projected forecast period.

Hans Johnson, a senior fellow at The San Francisco-based Public Policy Institute of California, noted in the same article that the Inland region’s proximity to the relatively built-out Los Angeles, Orange and San Diego counties and its historically lower housing prices bode well for future growth.

He said that Riverside County will grow faster than San Bernardino because of its developable land and commuting distance to job centers in the other three counties. He also said that the area will add jobs at a much faster rate than LA or Orange counties because more companies are choosing to locate and expand in an area that has more affordable land.

So, all in all, the southwest Inland Empire, our area of expertise, is mired in the bog of the real estate quagmire just like everywhere else. The difference is that our area holds a unique geographic position in the path of growth, and there are opportunities here for those with foresight and vision. Headlines are designed to get your attention, but you have read the whole story, and between the lines, to get the big picture.

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