What? A Seller's Market?

The market in Orange County continues to experience shrinking inventory (number of homes for sale) and increased purchases. Prices are inching up as well. The trend chart shown at the link below reflects the changes which have taken place over the past 12 months. What the trend chart doesn't reveal is the volume of overall buyer activity, and the increasing numbers of offers being written on the same property. Buyers have great opportunity when it comes to interest rates, but if they don't understand they are competing with more and more buyers for fewer homes, they will be sorely disappointed when the right home comes into their view. Success in owning a home is less likely if buyers continue to think in the same terms they used 90 days ago. New rules apply, and will continue to evolve over the coming year.

http://brokertom.files.wordpress.com/2012/03/irvine-trends-jan.pdf

What's Going to Happen to Real Estate in 2012?

OC sales last year averaged 2300 each month. The inventory of homes for sale peaked for the year in May and continued to decline each subsequent month. The inventory is the lowest it has been in more than five years. The Median sale price was $400,000, down 2.4% from 2010. Even so, the 42 year history showed a 6.6% compound annual growth rate, which clearly outpaced inflation during the period. How is the market poised for 2012, and how will it affect buyers and sellers? The shrinking inventory can be expected to continue despite normal seasonal increases which occur in February and March. The market index has inched below the "neutral" point and rests at 4.1, which means we are moving toward a Seller's market. Basic economics suggests that prices will begin to rise in response to fewer homes on the market, provided sales trends remain steady. Buyers will be competing for fewer homes, especially in the more affordable price ranges. Mulitple offers are likely to reappear in many neighborhoods. Sellers will be encouraged by rising prices and should begin placing their homes for sale with the expectation of obtaining a higher price. Longtime homeowners will see opportunities to downsize or cash out before capital gains rates go up in 2013. Buyers will benefit from agents who have pocket listings that are not in the MLS yet. Super low interest rates will continue througout the year and compell action among the fence sitters. 2012 could be rising from the ashes!

O.C. Home Prices Up for 2011

Orange County pricing unexpectedly went up in June 2011. The median selling price was $445k, up from $425k the previous month, and 9% for the year; according to DataQuick. The total number of sales were small in comparison; down 14% from June 2010. Last year buyers were frenzied by the HomeBuyer Tax credit. Builders of new homes saw increases in their sales too. Actually, new home sales were the best they have been since December 2007. Interest rates are on the rise, which might account for some buyers jumping off the fence and making purchases.

2010 Recap

As you prepare for the year ahead, it is important to revisit what transpired in the housing market in 2010 in order to help determine what can be anticipated in the coming year. It is evident that 2010 has been a year of transition toward stability in the housing market when looking at three main housing indicators: median price, sales and unsold inventory.The state median price, at $296,820 in November, experienced its first year-over-year decline after 12 consecutive months of gains. With a 21 percent rise above the February 2009 trough of $245,230, the median price in California could be an indication of the beginning of stability in the housing market.Year-to-date sales dropped 9.8 percent in November, consistent with our forecast of a 10 percent annual decrease. The seasonally adjusted sales in November were up 93 percent from the trough of 254,650 three years ago, and were 19 percent above the long run annual average over the past 39 years. Despite the year-to-date drop, sales figures are faring reasonably well when historical data is taken into consideration.The unsold inventory index is a good indicator of home prices; when the housing supply falls below seven months, it usually leads to price appreciation. The November unsold inventory index was 6.2 months, indicating the length of time necessary to sell the entire, current housing supply. This figure is 13 percent below the long-run average of 7.1 months and 63 percent below the recent peak in January 2008 at 16.6 months. Because this index has maintained a relatively healthy range in 2010, between 4.6 and 6.6 months, it is another indication of the beginning of stability in the California housing market.In addition to these three main housing indicators, it is necessary to also examine other factors affecting the state of the housing market, such as the type of sales, size of downpayments and types of mortgages.Other Indicators of Stability – Annual Housing Market SurveyThe breakdown of type of sales from C.A.R.’s 2010 Annual Housing Market Survey helps to paint a more accurate picture of overall market conditions. More specifically, the number of distressed sales compared to overall sales is particularly important in determining the health of the real estate market. For the past few years, we have seen significant numbers of distressed properties on the market. In 2010, the share of distressed sales relative to all sales declined to 41 percent from 46 percent in 2009. Although there are still many distressed properties on the market, this reduction is a good sign that the housing market is heading in the right direction.When comparing the various components of distressed sales, there are some noteworthy distinctions. While the percentage of foreclosures and REOs declined since last year, the percentage of short sales increased from 14 percent in 2009 to 22 percent in 2010. Short sales also tend to be higher priced and to stay on the market and in escrow longer than REOs and foreclosures. They are also in better condition because they are typically occupied and maintained during the short sale process, unlike foreclosures and REOs. Because short sales are more favorable financially for banks and we are seeing them in higher frequencies, this could lead to improvement in lending conditions, which would be favorable for the housing market.After shrinking consecutively over the past four years, the median downpayment increased 25 percent from $40,000 in 2009 to $50,000 in 2010. More buyers are now putting down the recommended 20 percent of the purchase price, compared to only putting down 12 percent in 2006. The percentage of buyers with zero downpayment has declined to 4.8 percent of buyers, compared to 21 percent of buyers in 2006. Buyers also turned to their savings, rather than creative loan products, for their downpayments in 2010. These are all indicators of a healthier environment for recovery.There has been a significant change in the distribution of loan products in the last several years of the housing market cycle; the gap between FRM, ARM and other loan products was smaller between 2004 and 2006 for new first mortgages. That gap has widened tremendously with FRMs now consisting of 97 percent of all new first mortgages. The share of first time buyers who used an ARM declined from 53 percent in 2005 to only two percent in 2010, with repeat buyers following that same trend. The proportion of transactions with second mortgages has also diminished since 2006. Consistent with the trends in types of sales and sizes of downpayments, mortgages also exhibited signs of increasing solidity.With the tightening of credit standards, FHA loans have risen in popularity and made up 29 percent of all loans in 2010, compared to only one percent in 2006 and 2007.2011 ForecastNow that the government incentives that stimulated the housing market, such as the first time buyer tax credit, have run their course, the market must operate on its own moving forward. While we still anticipate 2011 to be a transition year, as 2010 has been, it will continue moving further toward stabilization. We expect the annual sales and median price to increase two percent to 502,000 and $312,500, respectively.Although foreclosures appear to be on the decline during the second half of 2010, they are expected to remain high in 2011 as foreclosure filings rise, employment statistics remain weak and the economy continues its struggle to emerge from the recession. The November REO inventory of 112,000, according to Foreclosure Radar, translates approximately to an additional 2.4 months on the Unsold Inventory Index (UII); coupled with the 6.5 month MLS listings figure, the total UII would be about nine months. While this is above the 7 month long run average, it is well below peak levels that would trigger a significant decline in prices. This inventory is unlikely to worsen in the long run, according to the trend that we’ve seen over the past year. This means that overall, with notices of default decreasing while REOs are increasing, the market is showing continued signs of stabilization with respect to the “shadow inventory”.There are some wildcards that will prevent the housing market from reaching a full recovery in the near term: the possibility of another recession, Federal economic policies, negative equity homeowners and shadow inventory. Despite these uncertainties, there will be some tremendous opportunities in the housing market for first-time buyers, investors, long time owners and international buyers. These opportunities will pave the way to recovery in 2012 and beyond.

Orange County Median Price History

During the past 41 years, the median price in Orange County rose from $27,000 to $410,00 despite a series of sharp annual increases and declines. Even so, the compound annual growth rate has been 6.86% over the period; not bad when considering the dramatic economic downturns plus the O.C. bankruptcy. Home ownership has proven to be a wise and reliable choice over the long term.

OC Median Home Price on the Rise

According to the California Association of REALTORS®, the median price of an existing Orange County home (excluding condos) moved back above the $500,000 mark in September, while the pace of sales remained sluggish. The median price was $510,530, a nearly $11,000 or 2.2% increase from August, and a 2.8% increase from the prices homes here were selling at a year earlier. The area’s median sales price now is up about 21% from the recent bottom of the market, seen in January 2009. Prices are still off more than 31% from the peak of the market, when the median sales price for an OC home topped $747,000 in April 2007. The number of OC home sales in September was up 1.6% from a month earlier. Sales were down 10.4% from a year earlier. Including condos, the median price of an OC home sold in September was $445,000, a jump of more than $16,000 or 3.7% from a year earlier.

Foreclosure Moratorium Blues

In late September and early October some lenders and servicers began voluntarily halting foreclosures in select states while they reviewed their foreclosure processes.
So far, only Bank of America has extended its foreclosure moratorium to California, where the vast majority of foreclosures are conducted without a court order. Foreclosures in the other 23 states are processed through the court system.
Non-judicial foreclosures in California, however, do have legal requirements that lenders must follow. For example, California law requires that lenders for certain mortgage loans made between Jan. 1, 2003, and Dec. 31, 2007, attempt to make contact with borrowers to discuss options for avoiding foreclosure at least 30 days before filing a notice of default. Lenders also must sign a declaration in the notice of default stating that they tried to contact the borrower, made contact with the borrower, or fall within an exception (such as a bankruptcy filing).
The lenders and servicers that have placed their foreclosure moratorium on properties in the 23 states where courts are involved in the foreclosure process include: Goldman Sachs Group Inc’s Litton Loan Servicing, Ally Financial Inc.’s GMAC Mortgage unit, JPMorgan Chase, and PNC Financial.
These lenders/servicers have only temporarily halted their foreclosures while they review their foreclosure process. This is in response to findings that questioned whether some lenders/servicers were following the correct procedures to foreclose on a property.
This halting of foreclosures is a voluntary action taken on the part of these lenders/servicers and has not been mandated by either the states or the federal government.
Some members have begun to report the immediate impact of this moratorium on transactions that involve foreclosed properties. Delays in escrow and the removal of listed foreclosures are temporary results of this moratorium.
The immediate impact on the market will be the slowing of home sales, which could put upward pressure on home prices in the short term. The long-term effect on the market is uncertain at this point as it depends how long the moratorium remains in place.
Assuming the moratorium is lifted in the next month, the flow of REOs to the market should resume, but the uncertainty created by the moratorium may cause hesitation on the part of buyers.
Federal agencies, including the Office of the Comptroller of the Currency, the Federal Housing Administration, and the conservator of Fannie Mae and Freddie Mac, have asked lenders and servicers to review their foreclosure processes. This review would apply to all states including those like California where the vast majority of foreclosures are non-judicial.
The participating lenders and servicers believe their internal review processes should take anywhere from a few weeks to 30 days to complete.