Several regions across California have notably high volumes of vacant homes that will not likely decrease in the short term. According to the Research Institute for Housing America, areas that experienced the most drastic price drop in recent years will experience a long-term housing overstock: Modesto, Stockton, Fresno, Riverside and San Bernardino.
The overbuilding of the Millennium Boom and subsequent foreclosure crisis of the Great Recession have left these areas with myriad empty homes and, as a result, the threat of increased criminal activity. Economists predict the hardest hit areas won’t experience full recovery until 2030.
first tuesday take: The California real estate recovery is still waiting for employment to pick up. The state won’t see a return to the number of employed Californians at the December 2007 peak until late 2016, with 300,000 to 400,000 jobs added annually by 2013. As potential homebuyers and tenants acquire a steady income once again and lenders are finally forced to clear out their shadow inventory of foreclosures and real estate owned properties (REOs), vacancies will begin to fill.
Generation Y will enter the market in full force around 2018 to 2021. These first-time homebuyers will increase the demand for properties and take up occupancy in a large number of these vacant properties. [For more information regarding vacancies, see the November 2010 first tuesday article, Nobody’s home: California residential vacancy rates; for more information regarding Generation Y homebuyers, see the November 2010 first tuesday article, Generation Y is still chasing their dream of homeownership and the October 2010 first tuesday article, The demographics forging California’s real estate market: a study of forthcoming trends and opportunities — Part I and Part II.]
In the mean time, neighborhoods run down by the increased presence of empty homes need extra care and attention from the government and the lenders, who own the properties. The Neighborhood Stabilization Program (NSP) is a federal aid program devoted to preserving neighborhoods hit hardest by foreclosures nationwide. Over $3.9 billion have been invested in rehabilitating neighborhoods, but the program has not yet adequately addressed the plight of California communities. Increased funding and attention to this program by the California government needs to be encouraged. It is vital to stabilizing neighborhoods, unless they are to be bulldozed down as some now are. [For more information regarding the Neighborhood Stabilization Program, see the California Department of Housing and Community Development.]
Once the real estate market recovers, don’t expect a return of the abnormalities of the Millennium Boom anytime soon. Sellers must again learn to price their homes based on real estate fundamentals, not on market bubble expectations. Listing agents are responsible for steering their sellers away from pricing their homes at past peaks (or even last year’s prices) and encouraging them to focus on the price a buyer is willing to pay for their home in today’s market. Only then will the real estate market be back to normal. [For more information regarding accurate pricing, see the December 2009 first tuesday article, The flat line recovery: a side-effect of sticky housing prices.]
Re: “Housing bust creates new kind of declining city” from the LA Times