Tuesday, July 16, 2013

The Challenges of a Hot Market - An Interview with Neighborhood Housing Services of the Inland Empire

This blog is reposted from StableCommunities.org.

Often we hear about long term vacancies as the consequence of the foreclosure crisis, but in some areas, the speedy return of the market has resulted in other problems for those in need of affordable housing. The Stable Communities Initiative recently sat down with Dawn Lee and Beena Khakhria of Neighborhood Housing Services of the Inland Empire to hear how the return of the housing market is impacting San Bernardino and Riverside Counties in California.

Stable Communities: How has the real estate market in the Inland Empire changed over the past few years?

Dawn Lee, Executive Director and Chief Executive Officer: We were a market hard hit, harder than most, with the foreclosure crisis.

Before the crash, people came to the Inland Empire for affordability. During the boom years, they were building in the area like crazy. With the building boom we also saw rising prices, sometimes tripling over short periods. And people were buying because they felt like “I’ve got to buy a house now because prices are going to keep rising.” Then the housing crash came as well as a failing economy and a high level of unemployment.

Beena Khakhria, Director of Real Estate: In 2007, we saw a huge decline in home values which led to a lot of foreclosures and people walking away from their homes. It crippled our counties. A lot of neighborhoods were like ghost towns. There were squatter issues, people destroying homes, it was really bad. As we saw the market go down, we saw investors come out of the woodwork. The crash had made investment in real estate even more palatable for investors. It wetted their appetite and they devoured.

Around 2010 and 2011, we started to see a lot of REOs come onto the market, but without adequate systems to in place to handle REO sales. While systems to handle REOs were being mastered short sales came on and many realtors jumped on the short sale bandwagon.

SC: Was there a moment when the market hit equilibrium before tipping to the sellers’ advantage?

Beena: There was a short period of time when buyers were able to get into the market and purchase homes, from December 2011 to April or June of 2012. That was a buyers’ market, but it lasted less than six months. After that, our buyers quickly lost out. If you were coming in with 3 percent down and asking for a contingency period and inspections then you were going to lose in the bidding process.

SC: What is the current climate of your housing market?

Beena: Now it’s a seller’s market. Inventory is low. In some places where we want to penetrate there just aren’t any homes.

Dawn: It is very much a seller’s market right now. For some buyers who come to us, this is the 20th or 30th house they have bid on. But the sellers are going after cash offers where the money will be a sure thing for them. That leaves our buyers stuck.

For us, we offer homes to first time buyers and “move-up buyers” with incomes in the low to moderate range. While others working in this space may have properties sitting, we don’t. We’ll list a house and we will get offers in a matter of hours or days. Recently, a home that we were selling appraised at $275,000, the buyer had some delays in their financing and by the time the deal was complete their house had increased in value to $289,000.

At the same time, rents are going up and often rents are more expensive than buying.

SC: Can you share the story of a family you have been working with?

Beena: One family, Maria and George*, started their search with NHSIE Realty in July of 2012. As a young family, they faced the challenges of finding housing that accommodated the needs of their four children; ages in 12, 10, 7 years and 6 months. Maria was pre-approved at a purchase price of $165,000, solely on her income. Her father had gifted them closing costs and partial down payment. George had been unemployed due to a work injury and was going through physical therapy to re-enter the workforce. They had also completed an 8-hour pre purchase class and were going to utilize our down payment assistance.

By the end of October they had submitted at least 25 offers. The rapid decline in available inventory and increasing home prices began to push them out of neighborhoods they had chosen. The agents and sellers were not prepared to work with first time homebuyers utilizing FHA or any city/county down payment assistance programs. Their offers were bid out by investors each time.

SC: What is NHSIE doing to respond to the shifting market and help families like these?

Dawn: As an organization, we have taken advantage of the REOs where we could and have made those homes available to prospective buyers.

A strategy that works for us, and we wish we could expand, is the purchase of homes through First Look programs. If there is a pool of houses that are available for a period of time exclusively to nonprofits, we have a better chance of securing them for first time home buyers who will be owner-occupants.

Another program we have is Opening the Door to Home Ownership, a fee based service for people who are struggling the most. To qualify, you have to have been looking and submitting offers unsuccessfully for three or more months. We match houses from the First Look programs with a buyer’s needs and get the buyer out of the highly competitive market. We renovate the home with the intention of selling the house to the prospective, pre-selected buyer. The program comes with lots of one-on-one coaching and education to ensure the buyers are making good choices and will be sustainable homeowners.

For all our programs, we screen our families and cross qualify to ensure the property is a good fit. We provide one on one coaching, pre-purchase education and home maintenance class.

Beena: We strongly believe that buying a home is a stressful period, and when the buyer feels they are competing with others, it can become a bad situation in their personal lives. We are able to be patient with buyers and allow them to complete the purchase process. We currently have two clients who have struggled with securing financing for up to 5 months. Going through normal channels, they would have had to cancel their contract well within the negotiated contract periods.

SC: How have the key housing challenges in these counties changed over time?

Beena: We are seeing challenges in securing portfolio. We are finding that when we are buying from the First Look programs, the margins we want aren’t there. It hasn’t been easy to find the right deals that make the strategy feasible for us to purchase these homes.

SC: How have you and your staff adapted in the face of market changes? What have you learned from these rapid shifts?

Dawn: We have learned to be flexible. Before, if you were in the foreclosure department, that’s all you did. If you were in the homeownership department, that’s all you did. We have made changes that allow us to be more responsive, now all of our staff are cross trained and cross certified. We are all housing advisors, not foreclosure or homeownership counselors.

We have also trained or hired more broadly skilled staff. We will always maintain foreclosure prevention services, but we see in response to the market that we need people who can offer a variety of services to the same client.

SC: What advice would you give to other organizations trying to monitor their housing markets and adapt to shifting challenges?

Beena: Watch your market. Be very attentive to the trends and understand the challenges your buyers are facing.

Dawn: Be flexible. Evaluate what is out there and always look for new opportunities. Even if you have developed a policy or plan that is focused, don’t be afraid to adjust. Use the data you find. Listen to your market. None of this will last forever but think about how you can be impactful right now. Treat every client as if they are a member of your family.

One of the biggest challenges is visibility. As a nonprofit we are strapped to market our organization. People don’t know we are here. Most people don’t see themselves as people who need the assistance. We want them to know that we are here and we can add value to the process.

Beena: Do a lot of marketing, customers need to know who you are and the value added services you provide.

SC: Any final words of wisdom?

Dawn: This is a unique moment in time. It will be a shame if we can’t do more at this moment, and we know we’ll get back to a point when the market is flooded.

* These names have been changed to respect the family's privacy.