Tom Levitt's OC Real Estate Blog

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

2012-02-02T10:32:00.000-08:00

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

2011-07-14T14:27:00.000-07:00

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

2011-03-24T11:11:00.000-07:00

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

2011-02-14T09:30:00.000-08:00

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

2010-10-29T10:18:00.000-07:00

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

2010-10-13T15:15:00.000-07:00

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.

10 Reasons to Buy A Home Now

2010-09-17T11:20:00.000-07:00

1. You can get a good deal; especially, if you play hardball. This is becoming a buyer's market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We're four to five years into the biggest housing bust in modern history. And prices have come down a long way– about 30% from their peak, according to Standard & Poor's Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it's mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You'll never catch the bottom. It doesn't really matter so much in the long haul. Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.
2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What's not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won't see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.
3. You'll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes too. And you'll get a tax break on capital gains–if any–when you sell. Sure, you'll need to do your math. You'll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.
4. It'll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You'll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. "You can tell the ones that have been bought," said my local guide. "They've painted the front door. It's the first thing people do when they buy." It was a small sign that said something big.
5. You'll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you're better off buying.
6. It offers some inflation protection. No, it's not perfect. But studies by Professor Karl "Chip" Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That's valuable inflation insurance, especially if you're young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.
7. It's risk capital. No, your home isn't the stock market and you shouldn't view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy–if it happens–and still managing to sleep at night.
8. It's forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won't. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn't a cost. You're just paying yourself by building equity. As a forced monthly saving, it's a good discipline.
9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of REALTORS® puts the current inventory at around 4 million homes. That's below last year's peak, but well above typical levels, and enough for about a year's worth of sales. More keep coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.
10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed–either deliberately, or by inaction. This is already happening in western Florida, and other states where bankrupt condo developments have become derelict. And, finally, a lot of the "glut" simply won't matter: It's concentrated in a few areas, like Michigan, Ohio, Arizona, Florida and Nevada. Unless you live there, the glut won't have any long-term impact on housing supply in your town.

Trends in OC June 09 to May 10

2010-06-02T11:10:00.000-07:00

The real estate market index in Orange County for the previous twelve months ending in May is 4.8, which means the average home inventory for the period was nearly five months. The average monthly sales totalled 2406. Using REALTOR.com(R) criteria, the market is described as "neutral", neither a buyer nor seller market. The attached chart represents sales in all price ranges and for all types of real estate; both condo and single family homes. In lower price ranges the index is 3.2 and less, which is a seller market. For more details, call 714-264-5964. To view the trends chart, click on the Title.

Governor Signs Home Buyer Tax Credit

2010-03-26T14:51:00.000-07:00

Governor Schwarzenegger today signed AB 183 providing $200 million for home buyer tax credits. The bill allocates $100 million for qualified first-time home buyers who purchase existing homes and $100 million for purchasers of new, or previously unoccupied, homes.

Eligible taxpayers who close escrow on qualified principal residences between May 1, 2010 and December, 31, 2010, or who close escrow on a qualified principal residence on and after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010, will be able to take the allowed tax credit.
This credit is equal to the lesser of 5 percent of the purchase price or $10,000, taken in equal installments over three consecutive years. Under the bill, purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e. repay it to the state). Buyers also must be at least 18 years old and be unrelated to the seller. First-time buyers are defined as those who have not owned a home in the past three years.

Southern California Home Buyers Fair

2010-01-28T13:51:00.000-08:00

Don’t miss the third annual Southern California Home Buyer’s Fair. Thousands of potential home buyers are expected to converge on the weekend of March 13 and 14 at the Los Angeles Convention Center for the FREE third annual Southern California Home Buyer’s Fair. The event is sponsored by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) and the Los Angeles Times.

The Southern California Home Buyer’s Fair, open 10 a.m. to 5 p.m., Saturday, March 13, and 11 a.m. to 4 p.m., Sunday, March 14, features more than 50 educational “how-to” seminars designed to help home buyers navigate today’s real estate market with confidence and peace of mind. Seminar topics range from understanding home prices and monitoring and fixing credit to applying for a mortgage and the importance of the home inspection. Several of the sessions also will be offered in Spanish.

The event is free to the public. In addition, the first 200 attendees each day will receive a free movie ticket (one ticket per person).

Follow this link for more info: http://www.homebuyersfair.com/

Are today’s homes undervalued?

2009-08-05T14:34:00.000-07:00

After dropping for three years, home prices appear to be stabilizing. The median national home price today is about $169,000, down almost 14 percent from a year ago and an estimated 30 percent from its peak. It’s safe to say we’ve reached the point where prices are justified by the fundamentals of the economy and may even represent an undervaluation.
Foreclosures and short sales comprise about 50% of transactions today, creating market distortions in otherwise stale neighborhoods. In determining valuations, we’re capturing only transaction prices, and the prices of those properties might be 20 % below values of other homes which have real equity in them. It is possible that widely cited projections that a third or more of home owners are underwater might be off the mark! I think credit markets are working against creditworthy households because lenders are shying away from refinancing mortgages. By not making the loans, lenders are really exacerbating the situation. What’s clear, is that the challenge today is getting credit. And, homes are undervalued.

California Housing Market Shows Signs of Recovery

2009-06-29T11:11:00.000-07:00

Many homes in the lower end of the market are receiving multiple offers, with some prospective buyers bidding well above asking prices. Inventory levels for homes priced under $500,000 stood at 3.2 months in May 2009, compared with 9.4 months in May 2008.

Some buyers, especially those in historically higher-priced markets such as the San Francisco Bay Area, are newly optimistic about buying homes and are realizing that the combination of low interest rates, favorable home prices, and first-time home buyer tax credits may not realign for many years.

Some housing economists caution against interpreting signs of increased sales activity as meaning the market has bottomed. Interest rates on 30-year, fixed-rate prime mortgages have risen above 5 percent in recent weeks and could continue to increase as fears of inflation impact interest rates. Additionally, the federal tax credit for first-time home buyers is scheduled to end Nov. 30, which may remove the incentive to purchase.

Although the median price in the state has risen for four consecutivemonths, prices in some higher-income neighborhoods still are declining. Some agents say that declining prices in these neighborhoods are a reflection of borrowers’ problems getting jumbo mortgages to make purchases.

Shadow Inventory - Heckle or Haunt?

2009-05-22T15:27:00.000-07:00

It is about as scary as the Alien, and it is very much alive. Our real estate market is enveloped by “Shadow Inventory” which is ready to pounce on us at the first indication of a market rebound.

Most market news talks about the glut of foreclosures and short sales. They represent roughly 55% of the available homes for sale today. That number is miniscule compared to the pent up supply of equity sales which are poised to come on the market at the first sign of rising prices. For nearly the last three years, homeowners have been postponing the sale of their property because prices were falling on a daily basis. Many of them simply could not afford to sell. Families were in need of more space, empty nesters wanted to move to smaller homes, many wanted to rent instead of own, plenty of retirees were weighing their options, second homes were desired by some, and investment properties were still on the wish list. All these people delayed taking any action. Now, the shadow inventory is beginning to haunt!

The shadow inventory will continue to grow as homeowners bide their time. So, what’s going happen if it breaks free? I predict a flood of new, unexpected inventory as prices move upward. What will happen then? The new inventory will stall price increases and buyers will seize the opportunity at hand. Then, prices will begin rising again because of demand. We are about to find ourselves in new real estate territory. Stay tuned, have your checkbook ready, and keep an eye on the best deals. At some point, nearly one third of the Nation’s homeowners will be ready to sell and buy something else.

On the cusp of a Seller's Market

2009-05-09T14:18:00.000-07:00

The O.C. market may have sagged as much as it is going to. Many would be buyers are under the false impression that the CA home sales statistics and trends are representative of what is going on in Southern CA. Just because a single family home has dropped to $200k in the Central Valley does not mean that similar bargains exist in Irvine. Actually, OC inventory of homes is falling rapidly and in many locales there are multiple offers. During the first four months of 2008, 1132 homes were sold under $350k. So far this year sales have reached 3638, which is an increase of 220%. Amazingly, there is only about 3 months of inventory under $350k, which makes it the beginning of a sellers market! It appears prices have stabilized in many of the popular neighborhoods. Record low interest rates are adding to the reasons for so many sales, and investors are jumping back into the market. If you are waiting for prices to drop further you may have a long, long wait! The challenge for some buyers now is not whether they will get a bargain, but whether they will get a house!

Demand for O.C. Homes back at 2005 levels

2009-04-27T11:27:00.000-07:00

The latest O.C. home inventory report says demand, as measured by the number of new pending O.C. sales over the prior month, is up 33% in a year to 3,553 — high for the year. The last time demand exceeded 3,500? August 2005.

Demand has literally taken off over the past four weeks. It is almost as if somebody turned the demand switch to its “on” position. Can this be the stimulus package at work? Are the lower interest rates working? Could the recent uptick be attributed to pent up demand? Is the public at large feeling a little bit at ease given the recent improvement on Wall Street? It is most likely a little bit of everything at work.

It would take 2.97 months for buyers to gobble up all homes for sale at the current pace vs. 3.40 months two weeks vs. 6.55 months a year ago vs. 7.75 two years ago. Homes listed for under a million bucks have a market time of 2.34 months vs. 14.51 months for homes listed for more than $1 million.

Just 19 days worth of O.C. foreclosures for sale!

Chart data, as of last Thursday, for listings; deals pending; market time in months; last Thursday vs. 2 weeks ago, a year ago and 2 years ago …

Sales in O.C. Leap 45%

2009-04-01T11:11:00.000-07:00

Inventory of available homes has been steadily declining, but still consists largely of short sales and foreclosures. First Quarter saw sales rise by 45% compared to the same period last year. The average sale price, however dropped 30% to $454,572 for a 3 bedroom, 2.5 bath, 1641 square foot home. Total sales in Orange County reached 5,458 homes. It is still a buyer's market, but for all intents and purposes the majority of short sale listings are really not available for sale. Overall, the trends suggest that we are beginning to climb out of the housing abyss. Low mortgage rates and low prices are a boon to buyers and investors.

Home Sales Are Inching Up

2009-03-18T12:47:00.000-07:00

Orange County’s median home price inched up $5000 in February, which saw the first month over month increase in prices since June of last year. The median price in O.C. was $375,000, a nearly 1.4% rise from January, according to DataQuick Information Systems. Median prices overall are down 28% from a year earlier, and are off nearly 42% from their all time high in June 2007.

Sales continue to increase, driven mainly by discounted sales of foreclosed homes and short sales. O.C. sales rose 28% from last year, and 4% from January’s performance. County wide there were 1,879 sales in February.

The median price in Southern California was $250,000 in February, which was unchanged from January, and a 39% decrease from a year ago. Southland sales in February were up 41% from a year ago. The market could be signaling the beginning of a recovery, but it is too early to say with any certainty.

Foreclosure resales, where a foreclosure had occurred at some point in the prior year, made up about 56% of all Southland sales in February. Jumbo loans of more than $417,000 made up just 10% of sales in February.

Residential Income Market

2009-02-20T12:23:00.000-08:00

OC rents are expected to rise 2.3% in 2009, to an average of $1574 per unit. The Southern California cost of living in rental housing rose 4.5% last year, which was the smallest increase in about eight years according to the CPI. Vacancies are also expected to rise slightly by about 1% to a total of 5.9% on average. Apartment construction will exceed last year's levels. Irvine and south Anaheim are expected to see the most new construction with 1600 units in Irvine and 1000 in south Anaheim. A greater number of unsold condos have hit the residential market which will likely compete with multi-unit rentals. The strongest demand for rentals will be near the large business districts such as Newport Beach, and Tustin. Vacancies in these cities are projected to be 3.5 to 4.5%.

Orange County Trends Over Past 12 Months

2009-02-01T09:18:00.000-08:00

O.C. seems to be recovering in sales. Year over year inventory is 15,234 which is down by 23%. Buyers are getting off the fence and steadily buying up the inventory. Total number of homes sold was up 20%. This link has a chart which describes the trend. http://members.cox.net/tomlevitt/jan08.pdf

Too Scared to Buy in this Housing Market?

2009-01-09T09:33:00.000-08:00

Plenty of buyers are not just sitting on the fence; they are tied to the fence when it comes to writing offers on homes. The biggest worry most have is whether home prices will fall even more, thus fearing they will have spent too much money on a home. Waiting to find out could cost you more than you think! By the time buyers recognize the market has hit bottom, it will already be on the way up again. One way to avoid this impasse on buying is to understand the benefit of extraordinarily low interest rates available today, and lost opportunity costs of not having the tax deductions associated with owning a home. Here’s an example. Suppose you buy a $400,000 home with 5% down payment and take out a 30 year fixed loan at 6% interest. The monthly principal and interest would total $2278. Okay, let’s say you wait another year for the price to drop 10%, but the interest rates go up to 7%. The monthly payment will be $2275; a whopping big savings of $3 per month. Hardly worth the wait, and for a year you lost the deductions for tax and interest which amounts to approximately $16,000, or $4000 after tax. Another thing to keep in mind is the shrinking inventory of homes for sale. As it declines further, the buyers will be competing for fewer homes which may cause prices to stabilize, or even increase slightly.

Are All Housing Markets Local?

2008-10-24T09:17:00.000-07:00

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

2008-10-13T08:55:00.000-07:00

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

2008-10-03T12:17:00.000-07:00

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?

2008-09-22T09:22:00.000-07:00

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

2008-08-21T12:11:00.001-07:00

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?

2008-08-11T10:19:00.000-07:00

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

2008-07-30T14:33:00.000-07:00

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

2008-07-18T12:36:00.001-07:00

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?

2008-07-02T11:28:00.000-07:00

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

2008-05-23T10:28:00.000-07:00

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)

2008-05-08T13:12:00.000-07:00

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

2008-04-16T14:34:00.000-07:00

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

2008-04-04T13:38:00.000-07:00

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

2008-03-24T15:11:00.000-07:00

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

2008-03-17T14:22:00.000-07:00

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?

2008-03-11T14:40:00.000-07:00

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

2008-03-03T13:20:00.000-08:00

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

2008-02-25T13:15:00.000-08:00

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?

2008-02-19T14:31:00.000-08:00

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

2008-02-08T14:47:00.000-08:00

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

2008-01-11T10:10:00.000-08:00

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.

Best 10 Real Estate Markets in the U.S.

2007-12-14T10:37:00.000-08:00

Orange County, California is not one of the best real estate markets in the U.S., but Utah has three cities in the top ten. The best city, Wentatchee, Washington is experiencing significant price increases through the first three quarters of 2007; 15.7 %. Wow! In comparison, O.C. closed sales in November 2006 compared to November 2007 went up 11.3%, while prices only went up an average of 1% over the same period. Of course, some O.C. cities are doing poorly while others are doing well. If you want a list of the top ten U.S. cities, or details on your city in O.C., contact me by email, tom@tomlevitt.com or call me at 714-264-5964.

California Foreclosure Process

2007-12-12T15:16:00.000-08:00

The current real estate market poses some hearty challenges for everyone; especially, property owners having difficulty meeting their loan obligations. The process usually begins with what is called a “Notice of Default.” There are numerous possible outcomes leading all the way to a Trustee Sale. If you find yourself in the unfortunate circumstance of falling behind in your mortgage payments, or real estate property taxes, it is wise to talk to your bank or taxing authority to see what special arrangements they may be willing to work out with you. If you are interested in either listing or buying foreclosures, or other similar properties, I can help! Simply call me at 714-264-5964, or email tom@tomlevitt.com . This link provides a simple to understand process chart depicting how foreclosures work in California. Chart

Who will the Fed's Suprime Mortgage Plan help?

2007-12-08T12:58:00.000-08:00

The Fed's plan is designed to help as many as 1.2 million homeowners who are heading for trouble paying their subprime mortgages, but aren’t yet in foreclosure, haven’t already refinanced, or those who are more than 60 days delinquent on more than one payment over the past year. All the others won’t benefit from the Fed’s plan. The initiative is supposed to help stabilize falling home prices and stem foreclosures. Many charge that the plan amounts to a bailout for financially reckless homeowners. Others think the plan does not go far enough. The contention is sure to continue. Actually, the housing crisis has spread beyond the relatively small subprime universe. Prime adjustable loans which are not covered in the plan, hit their highest rate since 1972, and accounted for nearly 20% of the mortgages starting foreclosure in the third quarter! Whatever your personal opinion on the plan, one thing is for sure, the housing market isn’t likely to improve for quite some time. Let me know what you think. Post your thoughts to this Blog.

It's not over yet!

2007-08-29T15:36:00.000-07:00

You’ve seen and heard the bad news about home mortgage delinquencies and foreclosures which are on the rise nationwide. In some areas they are at record levels. While I wish I could assure you that the bad news is over, I can’t; because, I think it is likely to continue well into 2008. I think it is almost guaranteed, given anticipated interest rate resets on adjustable loans. Also, something that has been almost completely overlooked in the news is the effect energy costs are having on buyers’ decisions. Home energy prices have been rising for quite some time. Also, vehicle gas prices have had an effect on where people buy, and how far they are willing to drive in order to get their “dream home.”

Okay, so much for the gloom. Here’s the good news. Jobs and exports are way up. Fortunately the U.S. economy continues to expand and provide jobs despite the setbacks related to the housing market. There were nearly two million job gains over the past 12 months, and an average wage increase of 4% which is generating $700 billion in additional income for households this year! That easily offsets the negative impact of rising mortgage payments due to resets. Exports grew by nearly 7% in the latest quarter which shaved off a big chunk of our trade deficit. That translates to almost 1 % more in GDP! Here’s the bonus: the weak dollar will almost assure the U.S. of much stronger expansion due to exports over the coming years. These are all important to the real estate market. Don’t overlook what corporate profits are doing. They are solid, and double what they were in 2000; now at $1.5 trillion. The impact can be seen in the stock market which has been bouncing all over, but is still holding on strong compared to the great year of 2000. There are no predictions of recession, and that is what everyone should find joyful to their ears.

Okay. Where does this all lead us? Soft home sales for now; but, healthy job growth, and higher incomes will lead to more people wanting housing. Home prices will be going back up again. It is just a matter of how soon, and how much. I think mid to late 2008 will reveal my prediction. If you have a different opinion, let me know.

Holding Mortgage is Risky for the Seller

2007-07-13T14:26:00.000-07:00

In today's market, most sellers have plenty of equity, which allows them to consider holding a portion of the buyer's mortgage. This is frequently referred to as a "seller carry back." The belief is, that these loans can yield an attractive rate of return for the seller. I don't consider them to be very good investments unless a seller can obtain a higher price on the sale. Although the rate may be high, second mortgages are riskier than first mortgages. Borrowers who get into trouble sometimes stop paying on the second while gambling that the holder of the second won't do anything about it. Forcing a foreclosure is costly and won't guarantee recovery of the second loan. Another problem is that mortgages must be serviced and few sellers are equipped to do it effectively. A higher price might overcome these negative factors. For example, if the seller can raise the price from $700,000 to $720,000 by providing a 9% second for $35,000, the ratio is 57% which is a great investment if the buyer repays. If not, the seller stands to lose up to $15,000. As a rule of thumb, I would not even consider a carry back unless the borrower's FICO was 750 or more. If the buyer puts more money down, I might consider a little lower score.

What's going to happen the second half of 2007?

2007-06-29T15:50:00.000-07:00

For the past two years now, real estate has been slowing down in terms of sales, and price increases have pretty well come to a halt. In some areas of Orange County, prices have fallen back to where they were this time last year. I think this summer we will find more and more sellers putting their homes up for sale, and being more reasonable about prices. The ones who are just "testing" the market, will take their homes off the market by the end of the year. Interest rates will hold steady, or perhaps decline a little; which will encourage buyers to come back into the market when they see how interest rates improve their personal affordability. I believe prices will probably keep up with inflation.