Are All Housing Markets Local?

Is the California Housing market ahead of the US Market?

Reports on the US housing market do not necessarily reflect what is happening in California. Existing home sales in California rose 57 percent year-over-year in August 2008, compared to an 11 percent decline for the nation. Statewide sales have increased 85 percent since reaching bottom last October, yet national sales have remained virtually unchanged over the same period. Movements in home prices over the past year have played a large role in driving California sales. The statewide median price declined by 40 percent in August compared to a year ago, while the US median price fell 10 percent over the same period. Yet, the supply of homes for sale in California is considerably lower than the corresponding national figure: 7 months versus 10 months. In short, real estate markets tend to be much more local than nationwide statistics or even statewide statistics can illustrate.

In fact, local market patterns frequently differ from state and national trends. Differences in housing markets become more apparent when you compare neighborhoods, communities, and counties. For example, in some markets home prices may have fallen by large margins, even as much as 50 percent from their peak. But other markets have experienced small declines, and a few markets have registered slight increases on occasion in recent months. The same is true of the share of distressed sales in different markets. In some areas, distressed sales (Short Sales, Foreclosures, and REOs or bank-owned properties) account for as much as three-quarters of market activity, while distressed sales in other areas may account for fewer than ten percent of the market.

Many areas reporting a large share of distressed sales of late have had a run up in building and home sales in recent years. It is important to note that for the most part, differences in the mix of homes for sale in the market are driven by local conditions. Even within a city, individual neighborhoods or subdivisions may be behaving quite differently. Because of the barrage of information out there with respect to real estate, it is best to turn to the expert in your local real estate market when considering purchasing or selling a home. In the end, while national and state trends are important, they do not necessarily reflect what is happening in the neighborhood or community where you want to buy or sell a home. Be sure to contact me to get the latest information in YOUR market when thinking about buying or selling a home!

Real Estate Related Laws Affecting You

Emergency Economic Stabilization Act – The $700 billion approved by the Congress will allow the Treasury to purchase troubled assets from financial institutions, help mitigate foreclosures, strengthen FHA insured refinance loans, and extend tax exempt debt forgiveness on home loans until 2012.

Debt Relief Forgiveness from State Income Tax - Beginning September 25, 2008 the debt forgiveness on home loans also applied to state income taxes. Under California law, the maximum qualifying debt is $800,000, not $2 million. The maximum exclusion is $250,000. California law applies only to debt discharged in 2007 or 2008.

Tenant Victimized by Domestic Violence Can Terminate Tenancy - Beginning September 27th, a tenant can terminate a tenancy upon giving a 30 day notice to terminate, if the written notice informs the landlord that domestic violence is the reason. A copy of the restraining order must be included with the tenant’s request.

Home Sales Doubled

Orange County seems to be defying all the market trends found in other parts of the U.S. Since January of this year, homes sales have jumped from 1056 to 2313, which is more than double! Absolutey amazing. In that same time frame, the inventory of homes for sale fell by nearly 7%. With higher demand and lower supply, prices are likely going to stabilize, but they are still declining. The average sale price fell by 13.3% to $526,380 throughout Orange County. The time it took to sell those homes declined as well by a whopping 24%; down from 89 days in January to 68 days in September. If these trends continue for the next six months, the O.C. real estate market will be a lot less scary. CLICK HERE to see trend graph.

Has Orange County Finally Hit the Bottom of the Real Estate Market?

In some areas, foreclosures are increasing, housing inventories are higher than normal, and even well-qualified borrowers cannot receive mortgage loans. Many homeowners and home buyers also are becoming increasingly concerned about when the housing market will reach bottom. Although some areas, such as the Inland Empire and the Central Valley appear to already have experienced the bulk of their price declines, other markets such as San Francisco and Southern California may still see home values decrease a little further, according to some analysts. A few economists are comparing the current real estate cycle to the 1990’s but the origin this time is much different. Then, a higher rate of unemployment and other economic factors triggered the downturn. The current market declined at a quicker pace, but has shown marked improvement in 2008. In July home sales remained above the 400,000 level nationally for the third consecutive month. Affordability has increased dramatically. So, are we at the bottom in Orange County? For all intents and purposes, probably.

Home Buying Slump Ends

Fueled by falling home prices, buyers got moving in July and pushed sales up 23 percent over last year in Orange County, ending a 33-month home buying slump. DataQuick reported that last month’s sales jumped to 2,799 houses, condos and new residences, topping the July 2007 number by 408 units. The last time O.C. home sales exceeded the year-ago pace was September 2005. The median price was $461,000 – down 28 percent in a year and the lowest median since January 2005. Orange County’s median – the price at the midpoint of all sales – has fallen $184,000 from the all-time high of $645,000 reached in June 2007. That’s equivalent to a price drop of $431 per day for the past 13 months. With sales on the rise, and inventory declining, many buyers are convinced that we have hit that magical period of time where we are at the bottom of the market. There are plenty of bank owned homes at very good values, plus short sales. It is not uncommon for multiple offers to occur on the best priced homes, so be prepared to bid against someone else!

Should You Buy a Home Now?

Recent economic developments indicate that California may be the first state to find the bottom based on the increase in sales volume in the previous three months. In Orange County the number of sales has risen each month since January. As a matter of fact, sales are up 140%. Although approximately 40% of the transactions were foreclosures, short sales, and other distressed properties, the increase is allowing the market to stabilize by depleting some of the excess inventory. Some experts believe that once a neighborhood’s median price declines to 50 percent from the peak value that homes in that neighborhood will no longer depreciate. Median price in Orange County is hovering at $566,000 and has been pretty stable so far during 2008. Plenty of buyers are wondering if now is the right time to purchase a home, or should they wait for the “bottom of the market.” The ever elusive “bottom” too often escapes buyers simply because it is not a point in time; but rather a period of time that is observable only after prices are on their way up again. It is important to keep in mind that real estate is cyclical and is best viewed as a long term proposition.

Housing Economic Recovery Act of 2008

To qualify for the housing assistance program, homeowners must live in their home and have loans that were issued between January 2005 and June 2007. They also must be spending at least 40 percent of their gross monthly income on all household debt. Borrowers do not have to be in default, but they must show proof that they will not be able to continue making their existing mortgage payments.

Prior to receiving an FHA-backed mortgage, homeowners must first pay off any other debt on the home, such as a home equity loan or line of credit. Borrowers also are not permitted to take out another home equity loan for at least five years, unless it’s used to pay for the necessary upkeep of a home and is approved by the FHA. Total debt cannot exceed 95 percent of the home’s appraised value at the time of appraisal.

The program is voluntary, so the original lender(s) must agree to rework the loan before a homeowner starts the application process. Each loan must be underwritten by an FHA-approved lender and will be evaluated on a case-by-case basis. Homes will be re-appraised and banks will verify income statements, bank accounts, job histories and credit scores. There will be little up-front costs for borrowers/consumers receiving a refinanced loan.

The legislation will assist an estimated 400,000 homeowners facing foreclosure, many of whom reside in California, by allowing them to refinance their current mortgages with a Federal Housing Administration (FHA)-backed loan. The bill also will permanently increase FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas. The bill permanently increases the conforming loan limit to $625,500. C.A.R. has long advocated for higher conforming loan limits. In February, the Economic Stimulus Act of 2008 was signed, temporarily raising the conforming loan limit in high-cost areas to $729,750 from $417,000 until December 31, 2008.

Here are some of the key bill provisions:

A temporary increase in mortgage revenue bonds to refinance subprime mortgages.
New regulator for Government Sponsored Enterprises (GSE) to restore investor confidence in GSE loans and help the market and economy stabilize.
First-time home buyer tax credit, which allows first-time home buyers to receive a tax refund worth up to 10 percent of a home’s purchase price, up to a maximum of $7,500. The refund serves as an interest-free loan and the homeowner is required to repay it in equal installments over 15 years.
Temporary raise in the loan limit for the Veterans Affairs home loan guarantee program to the same level as the economic stimulus limits until the end of 2008.
Adjustment to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), allowing sellers to provide the non-foreign affidavit to a qualified closing entity and not just the buyer.
The setting of minimum requirements for mortgage originators, which mandates fingerprinting of loan originators and establishes a nationwide loan originator licensing and registration system. The requirements do not apply to those only performing real estate brokerage activities unless they are compensated by a lender, mortgage broker, or other loan originator. States will have the ability to implement more stringent laws.
The creation of a National Affordable Housing Trust Fund to help cover the cost of the FHA rescue plan for the first five years and develop affordable housing in subsequent years.

Real Estate Market Tid Bits

On July 11th the U.S. Senate passed the housing stimulus bill which allows the Federal Housing Administration to refinance troubled mortgages, even those that are under water, as long as banks agree to take a loss. FHA will be able to help as many as 400,000 homeowners. The bill is in conference committee for bipartisan revisions before it goes to the President.
The FED chairman reassured Congress that Fannie Mae and Freddie Mac are in no danger of failing. He said the two mortgage giants are adequately capitalized. Even so, the weakness of the dollar is having an effect on the companies, making it difficult for them to raise capital. The soft housing market is the central issue according to cautious investors.
Investors with cash are the real kings in today’s market. Some are calling this housing market the best for investors since the early 80’s. Investors are negotiating volume deals on whole subdivisions of distressed properties for literally pennies on the dollar. What we are seeing today dwarfs the 80’s by nearly 10 times! People who have cash positions are likely to do extraordinarily well. It’s just crazy the prices you can buy right now with cash.
30 year mortgage rates fell to 6.42% recently. Rates have been on a wild ride since the start of this year, and were as low as 5.57 for a short period. That’s a swing of over $1100 a month on a $350,000 loan.
Even though sales are down and foreclosures are booming, some experts are saying that the rout is near the end of its course. You wouldn’t know it based on reports in the mainstream media. Recent data suggest the real estate market pessimism is somewhat overblown. Lot’s of pundits and media types are ignoring some of the key facts supporting the reality of an improving market. Stay tuned! By the way, there is no sign of a slump in the San Francisco real estate market.

Is O.C. Real Estate on the Road to Recovery?

According to the Southern California MLS, home sales in O.C. for the first six months of 2008 are down 17% compared to the same period in 2007. At present there are 19,900 homes available for sale with an average price of $615,250 which is 16% lower than this time last year. The average sale price was $587,400. Since January it has taken 82 days to sell compared to 76 days in 2007. Declining inventory of homes may portend an earlier than expected recovery of the O.C. real estate market. Expectations of continuously increasing loan rates have been prompting buyers to write offers now rather than waiting for further price declines. Perhaps the worst is behind us in Orange County! Click Here for Details

Socal Home Sales Rise in April

Southern California homebuyers stopped looking and started buying again in April. Foreclosures and homes priced under $500,000 were clearly the best sellers, and reflected a 22% jump in sales over March. Even so, sales were off 19% compared to April 2007. The affordability index has changed dramatically due to lower prices and drops in interest rates. A year ago, $100,000 annual income was needed to qualify for a median priced home of $496,120. Inventory of homes for sale has declined significantly in certain price ranges and in certain cities. As an example, in Irvine there were 695 homes on the market in April priced under $800,000. Essentially that means there was only five months of homes for sale, which is described as a “neutral” market. More than six months of inventory is considered a “buyers” market.

The Housing Crisis is Over (sort of)

The grusome headlines coming fast and furious in the press and on TV suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the market is bottoming right now! How can this be? All the subprime problems, foreclosures, short sales, and so forth seem to be getting worse. Well, I don’t think we are going to return to the boom of 2005 anytime soon; maybe another 15 years. The facts are pretty clear, though. The trends are no longer getting worse. Remember, home sales peaked in 2005. New home sales are down 63% since then. Housing starts are off by 50%. So what’s going to stop the decline? The same thing that caused the bust; affordability. Buyers can afford homes again; price wise and loan wise. In real terms, the median price is now at a point where it only takes about 30% of monthly income to afford a home, compared to the high point of nearly 60%. Buyers are buying again! Orange County demand is beginning to grow again, and that’s a cheerful sign.

Foreclosure Opportunities are Very Real

This real estate market offers great opportunities for buyers. Prices have fallen dramatically, mortgage interest is favorable, and there are plenty of homes to choose from. Many homes are “short sales” and many others are bank owned foreclosures. Foreclosures offer the best possibilities for buyers. Only about 10% of short sales wind up selling before they become foreclosed by the bank. Here are some pointers:

Buyers need to be pre-approved
Many banks want the buyer to finance through them
Expect competition and multiple offers
Banks won’t accept offers contingent on the sale of your home
Best deals are generally the homes that have been on the market the longest
Foreclosures typically sell 10-20% below asking price
Make sure to pay for an inspection
Banks don’t usually make repairs or corrections
Banks will make counter offers
Some banks want offers submitted by a REALTOR®
Generally, banks want to close in 2-6 weeks.

Here’s a video covering the above points: http://www.youtube.com/watch?v=R4SjURUCQDE

Summary Sales for Q1 2008

The average sale price during the first three months of 2008 was $604,508 which represented a decline of 11.6% compared to the same period in 2007. Total sales dropped 38.6% and the time on market rose10.4%. These are all solid indicators of the adjustment taking place in resale homes across O.C. The experts tout that we have been in a recession for the past 4 months and will likely continue for the balance of the year. I think it has less to do with the recession and more to do with lending and buyer confidence. About 20% of the homes seem to fall into the category of short sale or foreclosure, which really plays nicely into the buyers’ market. Overall, I say the market has great opportunities for buyers and investors alike. Real sellers will sell and real buyers will buy as they always have. For details on foreclosures and auctions call 714-264-5964, or email tom@tomlevitt.com .

Paying a Broker to Sell Your Home Faster

One thing is for sure. Real estate agents are in the business of sales; and, salespeople are driven by the prospects of commission compensation. So, knowing this, why do many sellers try to hire the lowest priced agent? Think about it! Who will work harder, smarter, and more effectively than someone who stands to earn more as a result? You got it! The agent who is properly compensated will most likely get the job done faster, and probably net you more money in the sale process. In today’s competitive “Buyer’s” real estate market, commissions are ranging from 5% to 10% depending on the circumstances of the property. In the old days of the “seller’s” market, 4% commissions were very common. With all the homes on the market, what will be the differentiating factor that will cause more buyers to take a look? Bank Owned, Short Sale, and other distressed properties will be popular for sure. How then, can equity sellers get their homes sold? The key is paying the Broker to get the job done. The best Brokers will offer tiered payments to accomplish what you want. Some will even offer guarantees. If you have questions about how to craft your sale in a “market-smart” way, give me a call.

Why Now is a Smart Time to Buy Real Estate

The Wall Street Journal recently stated that buyers should take control of the current buyers’ market and flex their muscles by making the most of the power of their dollars. Not only is this good advice for first-timers, it is also good advice for investors. The advice is solid, but not revolutionary. Buyers’ markets have always offered these kinds of opportunities for those who are properly prepared to act. Smart first-timers will realize that what they buy is a place to live and not merely an investment. Lenders want buyers to minimize their gross monthly income dedicated to mortgage, taxes, etc. Buyers should not plan on stretching beyond 28-42% because lenders won’t approve the loan. Investors are going to need a strong debt coverage ratio of 1.25. Buyers should be in it for the long haul and expect to hold the property for 5-7 years. Buying now, is smart because interest rates are continuing to rise. Foreclosures offer particularly good opportunities to buy undervalued properties. Foreclosures are abundant and so are Short Sales. For details on available properties call 714-264-5964.

Will Interest Rates Refuel the Housing Bubble?

The Federal Reserve has been on a tear lately with interest rates. Could we be in for some of the same unintended consequences stemming from the aftermath of the 2001 stock bubble and the September 11th terrorist attacks? With the economy possibly heading into a recession, the Fed has been following some similar steps by cutting Fed funds rates in order to help revive the economy - partly by making home buying financially enticing. Will the same behavioral patterns emerge? There are, no doubt, significant market variations, but let's replay the key factors.
The Fed started cutting rates from 2001 and the mortgage rate fell by 2.5 percentage points by summer of 2003. ARMS fell from 7% to 3.5%. Housing demand rose, home prices accelerated, and inventory fell. Global capital providers were eager to provide financing, ratings agencies gave their blessing on subprime products, and no documentation loans proliferated. Then, from 2004, the Fed began to tighten and rates escalated. Buyers started to back away, flippers quit, inventory rose, and home prices began their decline. Fast forward to mid-2007. A lack of market liquidity and foreclosures forced the Fed to cut rates. Can it happen again? Probably not. Global lenders have been burned and are not going to make the same mistakes. Now it will take a lot more than a heartbeat to get a loan. Borrowing rules are more rigid. The good news is that buyers with income and money for downpayments will be able to get good deals on houses. Though, watch out for rising rates. What's your opinion?

Ignore the Headlines

Buyers would be smart to ignore a lot of the scary headlines regarding the condition of the housing market, and also the warnings telling them to wait before buying a home. Why do I say that? If someone is buying a home to live in, there are obvious tax advantages that compel them to buy. But, the biggest point to consider is: how long should a buyer wait before buying? Trying to time the market is futile, and guessing when it will bottom out is just as futile. Consider this. Let’s say a buyer wants to buy once the market drops another 10%. If today the home they want is $500,000, and they put down 20% with a 30 year fixed loan at 5.5%, the monthly P&I payment would be $2,271.16. Waiting a year the house will be only $450,000 but interest rates are likely to be higher; let’s say the rate becomes 6.25%. The payment next year would be $2,216.58 which is an annual savings of $655, but the lost interest deduction on $21,728.96 will easily wipe out any savings. So, tell me again why a buyer should wait?

Don't Fear Falling Home Prices

If we keep our income at current levels and home prices go down, we are actually richer; we can buy more housing for the same dollar, and for a smaller portion of our disposable income. So, what's wrong with falling prices? I believe there is a misconception that houses will always appreciate. Sometimes people will imagine that it is possible to have continuously rising home values and affordable housing. The problem is that the two don't happen at the same time! Some say "life just isn't fair," and they are probably right. Even so, you either get high home prices or low home prices. And I happen to think that lower home prices are what we all really want, and therefor shouldn't be afraid of lower prices. Most of us care about our children and grandchildren, and want them to be able to buy affordable homes. Why would we want high prices? What I want is economic growth and reasonble appreciation that keeps me ahead of inflation. If we can get through the mortgage and subprime problems with fewer casualties, that will be wonderful; but, I fear there will be many casualties inspite of anything the Fed might do. When all the proverbial dust settles, I think we will get back to affordability in most of our neighborhoods, and that will be good for all of us.

Is Orange County Real Estate Really That Bad?

Read local newspapers, watch TV, listen to the radio and what do you find? The drum beats would lead most people to conclude that O.C. real estate is in the tank; or, soon to be. This week I thought I'd test that hypothesis and see what has happened since January 2005 in the market for homes priced below $1 Million. What I found was interesting to say the least. I looked at Days on Market for sold homes, average sale price, number of homes for sale, and total sales. Here's what unfolded:

January 2008 compared to January 2005

* Sold homes were on the market an average of 85 days; nearly 29% longer than in 2005

* The average sale price was $448,640; which was down 10.5% from 2005

* Number of homes for sale was 15,583; 126% more than in 2005

* Number of sales was 925; down 63.6% from 2005


Heres what I make of the data: In three years, prices have only receded about 11%. Does this mean sales are in the tank, or just a bit damp? The other measures make perfectly good sense. More homes and fewer sales will naturally extend time on market. Fewer buyers in the market place due to tighter money and less appreciation means fewer sales. I ask you; is it really all that bad? Let me hear your opinions on this. View a brief video from this link http://www.youtube.com/watch?v=IN8lhrlqmC8

Market Matters

Here's some good info to help you keep recent market events in perspective:

1. The main constraint on real estate activity is the lack of funds available for less than best qualified buyers. That means at least 35% of the buyers are out of the market!
2. Historically, mortgage rates for Jumbo loans were only 0.2 to 0.4% higher than conventional loans. Now the difference is as much as 1.2% Ugh!
2. There is a dearth of qualified buyers.
3. The Senate passed the Stimulus Package which, if signed by the President, will raise the conforming loan limits in high cost states such as California. This is good news!!
4. Days on market for homes has risen from 67.2 days to 72.1 days. Not bad!
5. The inventory today in Orange County is over 9 months. If no new listings come on the market, it will take at least 9 months to deplete all that inventory.

How To Get a Quick Sale in a Slower Market

An analysis of the real estate market in Orange County shows that even in a slow market some houses sell quickly — for the same reasons they do in a booming market. Here's an example: In the city of Irvine, there are 95 single family homes on the market priced below $800k, and they have been on the market an average of 92 days. During the last three months, the average home was priced $697k and sold for $651k in 70 days. This means the typical home sold for 6.6% less than the avergage market price, and about 25% faster. Proper pricing makes a difference.