Blogging about real estate in Orange County, California

Here's an article about a recent rise in US housing prices.

Excerpt:

" "Affordability is at all-time highs, inventories are shrinking, there's competition for properties, and we're not building as much new product to compete with the existing homes," he said.

Sales of both new and existing U.S. homes rose in June for the third straight month, spurred by low prices and mortgage rates as well as first-time buyer tax credits. "

From MSN Money: http://blogs.moneycentral.msn.com/smartspending/archive/2008/09/09/mortgage-rate-drop-a-bright-spot-in-freddie-fannie-takeover.aspx

Basically, since the announcement of the government buyout of Fannie Mae and Freddie Mac, rates on mortgage loans dropped dramatically.  Bankrate has this to say about it:

So I'm contemplating a new way of reaching out and helping buyers.  I'm thinking of starting up a "foreclosure bus" tour - where I arrange a 3-hour tour (cue the jokes!) of about 8 of the best bank-owned foreclosure properties I can find in the local area.

I am curious though, which types of properties interest folks the most.  I am thinking of starting a tour just of the Irvine-Lake Forest-Mission Viejo area, although if the interest is there, I could expand that to the coastal side of the freeway as well.  I'd love to hear feedback on this from folks who are interested, please call me at 949-468-8405. 

If there's not enough interest for the bus tours, I'll be happy to set up private tours as well.

http://www.msnbc.msn.com/id/25846164

From the article:

"California foreclosure activity in the second quarter increased 19 percent from the previous quarter. One in every 65 California households received a foreclosure filing during the quarter."

What does this mean for you?

Well let's look at this a little closer.  "Foreclosure filing" can mean any stage of the foreclosure process (Notice of Default/pre-foreclosure ; Auction ; REO/bank-owned).  Each of these stages has their own unique buying approach, and some properties (those in pre-foreclosure) may make good on their loans and not come available on the market.  But taken in aggregate, this means that there is plenty of opportunity right now to get a great deal on a property!

I know varying shades of beige are very much the "in" thing right now in terms of wall color, but today I saw one of the best uses of beige in a property that I was showing.  It was in a very well-lit room with large windows, one that could tend to be a bit too bright if left white.  In this room, the use of a medium beige shade softened the light while still continuing to bounce it around the room, allowing the room to stay bright but not harshly so.

Another advantage, and probably part of why it's so popular right now is that neutrals are what you want to go with when you're trying to sell your house, so beige creates a way of having "color" in your home while still keeping it neutral enough for potential buyers to see it working with their stuff.

My advice is, if you're looking to have a beige room, stick with a very well-lit room which can benefit from the softening effect without getting too dark.

So it's been just over a year since I posted an extensive list of phone numbers for down payment assistance programs in California.  With so many incredible deals on the market, I think it's a good time to rehash this info:

The truth is, the government WANTS you to own a home. It's good for society, it's good for the overall economy. And, of course, the cities rely upon property taxes in order to function. So it's in the cities' best interest to help people buy in their areas. Keeping up local home prices and bringing new people on at those current prices is something the cities have every reason to want.

SO, all that in mind (along with all the noble reasons for wanting to help people buy homes, which I'm sure I need not bore you with here), they create programs that help make it easier for people (especially first-time home buyers) to buy homes in their area. I'm going to be looking further into some of the specific programs involved in that Anaheim transaction, because I understand several were used in conjunction with each other, but an initial web search yielded this helpful list of phone numbers:

Cities in California with Down Payment Assistance Programs:

Alameda Downpayment Assistance Program (DAP)
$10,000 (510) 749-5824

Anaheim Home Program (HOME)
$35,000 (714) 765-4340

Anaheim Police Residence Assistance Program (PRAP)
$20,000 (714) 765-4340

Anaheim Second Mortgage Assistance Program (SMAP)
$25,000 (714) 765-4340

Brentwood Police Officer Recruitment Incentive Program (BPOAP)
$28,500 (925) 516-5195

California Gold Taxable MRB Second Mortgage Loan Program (SML)
$25,000 (916) 444-2615

California School Facility Fee Down Payment Assistance Program (DPA)
$25,000 (916) 322-1353

Culver City Mortgage Assistance Program (MAP)
$60,000 (310) 253-5780

El Monte Down Payment Assistance Program (DPAP)
Max 22% (626) 580-2070

Grand Terrace Affordable Housing Program (AHP)
$25,000 (909) 825-3825

Hawthorne First Time Homebuyer Program (FTHP)
$80,000 (310) 970-7086

Hemet First Time Homebuyer Downpayment Assistance Program (DAP)
$25,000 (909) 765-2388

Hesperia First Time Homebuyer Downpayment Assistance Program (DAP)
$20,000 (760) 947-1910

Imperial First Time Home Buyer Program (FTHB)
$20,000 (760) 355-4373

La Quinta Home Purchase Program (HPP)
$85,000 (714) 541-4585

Long Beach Housing Development Company Downpayment Assistance Program (DAP)
$10,000 (562) 570-6949

Los Angeles County Home Ownership Program (HOP)
$60,000 (213) 890-7248

Los Angeles County Montebello Housing Development Corporation Calhome FTHB Mortgage Assistance Program (MAP)
$30,000 (323) 722-3955

National City First-Time Homebuyer Program (FTHP)
$17,000 (619) 336-4250

Norco First Time Homebuyer Program (FTHB)
$22,500 (909) 270-5645

Oxnard Historical Enhancement & Revitalization of Oxnard (HERO)
$5,000 (805) 385-7400

Oxnard Resale Housing Conditional Matching Grant Program (GRANT)
$10,000 (805) 385-7400

Palmdale Mortgage Assistance Program (MAP)
$10,000 (661) 267-5126

Pasadena Homeownership Opportunities Program (HOP)
$60,000 (626) 744-8316

Pasadena Neighborhood Housing Services Inc CalHome First Time Homebuyer Program (FTHP)
$30,000 (626) 744-4141

Paso Robles CalHome Program (CalHome)
$90,000 (805) 237-3970

Pomona Calhome First Time Home Buyer Program (FTHB)
$30,000 (909) 620-3630

Rancho Cucamonga First Time Homebuyer Program
$16,000 (909) 884-6891

Redlands First Time Homebuyer Program (FTHB)
$15,000 (909) 884-6891

Riverside CalHome Mortgage Assistance Program (MAP)
$30,000 (909) 341-6511

Riverside County Individaul Development Account (IDA)
$4,000 (909) 955-4900

San Diego County San Diego Neighborhood Housing Services CalHome Program (CalHome)
$40,000 (619) 282-6647

San Diego Down Payment Assistance Grant (DPAG) Program
$7,500 (619) 578-7491

San Diego Neighborhood Housing Services Cost Assistance Support for Homebuyers Program (CASH)
$10,000 (619) 282-6647

San Fernando First Time Homebuyer Program (FTHP)
$45,000 (81 898-1233

San Marcos Down Payment Assistance Loan Program (DPAL)
$10,000 (760) 744-1050

Simi Valley Closing Cost Grant Assistance (GRANT)
$3,000 (805) 583-6853

Simi Valley First Time Homebuyer Assistance Program (FTHB)
$40,000 (805) 583-6853

Upland Primary Assistance Loan Program (PAL)
$30,000 (909) 931-4113

Ventura First Time Home Buyer Grants Program (HBAP)
$45,000 (805) 654-0038

Victorville Mortgage Assistance Program (MAP)
$5,000 (760) 955-5032

Here's the latest Market Time Report.  For a change, Good News!

As always, if you're ready to find the home of your dreams, call me at 949.468.8405 and let's get started!

**

Market Time Report:  First Time Home Buyers are Back

 

April 17, 2008

 

Good Afternoon!

 

Current housing demand continues to outpace last year and the reemergence of first time home buyers is a major factor.  If you listen to or read all the recent reports regarding “sold” statistics for March, one would quickly come to the conclusion that the real estate market is continuing to sputter along at a slow pace.  However, this could not be further from the truth.  Sold activity is a snapshot of the past, about a month and a half in the past to be precise.  So, March “sold” statistics are really a snapshot of the second half of January through the first half of February.  The market did improve during that time but was still extremely anemic as demand, a snapshot of the prior 30 days of escrow activity, grew from 989 escrows in mid-January to 1,630 escrows in mid-February, a gain of 641 escrows.  Since then demand has continuously grown to its current height of 2,374 escrows.  Last year at this time demand was at 1,925 escrows, 449 fewer than today.  This recent escrow activity will translate to sold data reported in the months to come.  The big story will be that the year over year sold statistics will be better for the first time since the Autumn of 2005.  Demand already crossed that threshold two weeks ago.  Some skeptics attempt to discount the uptick in demand, claiming that many will fall out of escrow.  That is simply not statistically true.  The data does not support their claim.  Yes, some escrows do fall out; however, the snapshot of 30 day escrow activity misses some escrows that have already closed because they were less than 30 day escrows.  The average escrow is about 45 days, but we do have one, two and three week escrows that won’t show up in the data for long.  So, the less than 30 day escrows offset most escrows that fall out.  The bottom line: the market is improving.  Market time has dropped from 15.6 months at the beginning of the year to 6.55 months today, not as deep of a buyer’s market.  The active inventory grew by only 82 homes in the past two weeks to 15,556 homes.  The active inventory has not changed much this year and has actually dropped by 61 homes over the past month.  Last year at this time the active inventory was only 745 homes fewer homes than today and it was growing at a rate of 700 homes every two weeks. 

 

The majority of the upswing in demand is in the lower ranges.  Our agents in the trenches are unanimously reporting that there is a large wave of first time home buyer activity.  First time home buyers had been priced out of the market and dwindled in numbers during the last couple years of the housing boom.  But, prices have finally fallen to a point where they can now afford to purchase and that is precisely what they are doing.  One year ago there were only 408 condominiums priced below $250,000 compared to 1,263 today, more than triple. One year ago there were only 343 detached homes priced below $500,000 compared to 2,848 today, more than eight times.  The market time for detached homes below $500,000 is at 4.61 months, a slight seller’s market.  It is not a coincidence that 75.7% of all condominiums and detached homes below $500,000 are either a foreclosure or a short sale.  This fact has provided many opportunities for first time home buyers to finally enter the market.  The first time home buyer activity is the seeds to the rebirth of the Orange County housing market.  That does not mean that the market is going to right itself overnight.  But, it is the first positive step in the recovery process.  It was the lower ranges that were hit hard last March with the beginning of the subprime meltdown and it makes sense that it would be the first to take a step in the right direction.  Many homes and condominiums in the lower ranges are receiving multiple offers.  Foreclosures and short sales are not only securing multiple offers, they are closing above their asking price.

 

The upper ranges remain sluggish due to the financial crunch.  The financial system is still not functioning properly.  Lenders are still having liquidity issues and their lending requirements and interest rates for loans in the upper ranges are too rigid and are deeply cutting into demand.  For example, the market time for homes priced between $1 million and $1.5 million is 10.89 months compared to 7.47 months one year ago.  The upper ranges will remain sluggish until the financial markets start buying pools of mortgages once again.  Since the beginning of the financial crunch in August of 2007, the financial markets have refused to buy any pools of mortgages.  But, there are some signs that their appetite has been growing.  First, a major national lender attempted to sell a pool of only the best of the best loans at the end of January, but the financial markets would only purchase them for a discount.  They repeated their effort in March and the financial markets bought it at “par.”  The logjam in the financial markets should begin to ease by the end of the third quarter, as will the disparity between conventional loans up to $417,000 and the new loan limit of $729,750, as well as jumbo loans above $729,750.  Currently, there are three tiers of mortgages.  The cheapest rates are for loans below the old conventional loan limit of $417,000.  Rates for loans between the old conventional limit and the new $729,750 limit are three-quarters of a point higher.  And, lenders tack on an additional three quarters of a point for loans above the new limit.  As the financial markets’ appetite for pools of loans increases, these disparities will begin to diminish.  This will be the second big positive step towards recovery.  At that point, demand at the upper end of the Orange County real estate market will increase.

 

Buyers, what to do?  First, it totally depends upon the area and price range on the approach.  Naturally, in dealing with foreclosures, short sales and the lower ranges, be prepared for much more competition than any headlines would lead you to believe.  There is a strong probability that you will be competing with other buyers in writing an offer on a home.  In some cases it will take an offer to purchase above the asking price to secure a home.  Due to the sluggishness in the upper ranges, buyers are more in control of their destiny with less competition.  For those buyers looking for a deal in the higher ranges, keep in mind that only 5.7% of all distressed homes, foreclosures and short sales, are found above $750,000.  Be prepared for increased activity on these properties too because every buyer is looking for a “deal.”  Also, it is important to point out that lenders are in the driver’s seat when it comes to foreclosures.  Currently, the market time for foreclosures is 2.05 months, a deep seller’s market.  It is important to point out that the low interest rates should remain intact throughout 2008, but pressure is mounting for the Federal Reserve to raise rates as they grow more concerned about an increase in inflation.  Rates have been favorable for a long time, but do not get comfortable with today’s interest rates, they WILL eventually increase.  As soon as the economy starts humming along again, expect the Federal Reserve to reverse course and push rates up higher.  By the way, for every 1% that interest rates increase, it erases approximately all of the benefits of waiting for property values to decrease 10%.  The payments are virtually identical. 

 

Sellers, what to do?  It is extremely difficult to navigate in the current Orange County real estate market.  Now more than ever it is essential to have an experienced Realtor® guide you throughout the process.  There are numerous variables and market changes to continuously watch for: area short sales, foreclosures, local trends, detached versus attached pricing, etc.  Be prepared to constantly reevaluate your pricing position within the market.  The key ingredients to a successful sale are an excellent price and excellent condition.  In arriving at price, the condition and location increase or decrease the market value.  This market can also test a seller’s patience and you must be as prepared for a showing on day 120 as you were the first week.  Stage your home for success: turn all the lights on, have soft music playing in the background, open all of the shutters and blinds to allow in natural light, turn on the air conditioning on hot days, box up and store all clutter and your home should be neat as a pin from top to bottom. 

If you bought your home in the last couple years, there's a better-than-fair chance that your home is now worth less than what you paid for it.  So why are you still paying taxes based on what you bought it for?

Section 51 of the California Revenue and Taxation Code states that the assessed value of any real property shall not exceed its market value on the January 1st lien date.  So, if the market value of your property on January 1, 2008, was less than the assessed value as it appeared on your last annual assessment roll, you can make a request that they review your assessment.  What this means is, they may reduce the assessed value of your home, which will result in a reduction in the property taxes you owe this year.  No, the reduction is not retroactive, in that it will not result in a reduction of your taxes for 2007, but it will help you out going forward.

But here's the rub: the due date for these requests is APRIL 30TH.  So you must get your request in ASAP.  You will need to fill out the request form and have it delivered or postmarked by that date.

Here's where I can help.  In order to fill out the form, you will need to provide Comparable Market Data Information (yes, it's a redundancy in terms, but that's our government for you!).  What they mean is that you need to provide recent Sold comps for your property.  This is recent sales in your area on homes similar to your own, to help provide an estimate of the current market value for the property.  I can help you get this information.  Call me today!  (949) 468-8405 or email me at clamb@homesoc.com.

Here is the form you need to send to the assessor's office.
More info from the assessor's office.

The latest Market Time Report is out, and it's good news (but no surprise to regular followers of this blog).  The news media will not pick up on this for another month or so, when sold statistics come in (bearing in mind that escrows often run in the 30-60-day range from opening until closing), but for the first time in over 2 years, demand is actually better than it was a year ago!

It's still not too late to get in while prices are down.  Call me at (949) 468-8405 to start your home search!

Here is the report:

 The California Association of Realtors has posted a whole list of foreclosure prevention resources for Realtors and consumers.  It's worth checking out.

 That title is no joke.  Demand has increased by 121% since the beginning of the year.  Of course, we all know that the real estate year starts at its (hopefully) lowest point, but even taking that into account, this is a significant increase in demand.  Lowered prices, banks finally negotiating reasonably on their REOs (foreclosed-upon homes) and increased FHA loan limits, are all contributing to 2008 being a great time to purchase a home in Orange County.

If you are in the market to buy or sell a home in Orange County, California, I can help!  Call me at (949) 468 8405.  You can also set up your own custom MLS search by clicking here.

Without further ado, I present my company's latest Market Time Report.  These are put out every two weeks by Steven Thomas, our company President, to help keep us on top of the latest activity in the market:

Market Time Report:  Demand Up 121% Since January 1^st

 

March 20, 2008

 

Good Afternoon!

 

Since the beginning of the year, the market has dramatically improved: demand is up, the active inventory is not  growing uncontrollably and expected market time has dropped substantially.  Let’s dive right into the numbers for further explanation.  At the beginning of the year, demand, a snapshot of the last 30 days of escrow activity, was at 944 escrows.  Today, demand has increased by an additional 1,139 escrows to 2,083.  The change in demand is like being stuck in bumper to bumper traffic and then suddenly, without explanation, everybody is moving at the speed limit.  Demand is the real story here.  Even with the liquidity issues, buyers are starting to pour back into the market, especially in the lower ranges where buyers are not affected by the financial crunch.  It is still really challenging and more expensive to obtain a loan above the $417,000 conventional limit; BUT, that is changing right NOW.  Lenders are scrambling in preparation for the new conventional and the FHA loan limits of $729,750, which are just beginning to hit the market.  The new loan limits will have a profound impact on demand.  At 10% down, the old $417,000 limit only covers 37% of the current active inventory.  The new limits now encompass a staggering 75% of the inventory.  And, for those consumers with some credit blemishes and/or a small down payment, the FHA allows 3% down, all of which can be a gift.  It is important to clarify that the FHA is NOT subprime and has been around for years.  The only reason it was not in vogue before is because the Federal Housing Administration refused to adjust the limit beyond its $367,000 level for high cost areas.  At that level, only 23% of the current inventory could be purchased with an FHA loan.  It took a crisis for everybody to see the light.  A lot of this mess could have been avoided with higher FHA loan limits all along.  Needless to say, there will be reverberations in the local housing market, which translates to increased demand. 

 

So, how do the numbers look right now?  Demand increased by from 1,893 escrows just two weeks ago to 2,083 today.  We have not seen demand like this since the beginning of April in 2007.  The active inventory increased in two weeks by 205 to 15,617 homes.  Expected market time improved from 8.14 months to 7.50 months.  It is still a buyer’s market, just not nearly as deep as the 15.60 month market at the beginning of the year.   Current demand at 2,083 escrows is just 112 fewer compared to just one year ago.  The inventory last year was at 13,373 homes and market time was at 6.09 months.  But, the difference is that last year demand was dropping and both the inventory and market time were rapidly climbing due to the subprime meltdown.  On the other hand, this year the market has been improving incrementally every day with increased demand and not as many homeowners placing their homes on the market for the first time.  It will not be long before year over year comparisons in demand will be better this year.  Bank owned foreclosures and short sales, homeowners that owe more on their home than the current value, now account for 33.4% of the active inventory.   Lenders remain in the driver’s seat with a 2.11 month market.  For buyers looking for a “deal” in purchasing a foreclosure, be prepared to compete with other buyers.  Many foreclosures are being sold for their full prices.  I just heard from an associate who wrote two offers for one buyer this week and they lost out on both of them because the buyer was unwilling to pay the full asking price.  Statistically, short sales have an expected market time of 12.05 months.  HOWEVER, I must warn everybody that this figure is grossly understated.  The standard practice for Realtors® out in the field is to keep a home on the market as an active listing even though they have an offer that has been accepted by the seller until they have formal lender approval of the deal.  Because the lender must take less than what is owed, short sales are “subject to lender approval.”  So, when a buyer climbs into a car and finds a short sale home that they want to write an offer on, chances are that the home already has an accepted offer that is somewhere in the “lender approval” process.  This process can take anywhere from a couple of weeks to months.  These homes are not placed into the Multiple Listing Service as a Pending Sale because the agent and seller are willing to take a look at additional offers that may be more acceptable to a lender, typically a higher offer price. 

 

What’s the difference between the condominium market and the detached home market?  The detached home market continues to fare better than the condominium market with a 7.23 month inventory.  For condominiums, there is a 7.98 month inventory, the first time below the eight month mark since April of 2007.  31% of the detached home inventory and 38% of the condominium inventory is either a foreclosure or short sale.  67% of all detached homes below $500,000 are either a foreclosure or short sale.  For condominiums, 47% below $250,000 are distressed and 43% between $250,000 and $500,000 are distressed.

 

Buyers, what to do?  According to a CNN Money article titled “Housing: Best Time to Buy in Four Years,” housing has nearly returned to “long-term norms” and that by the end of 2008 “housing markets could be broadly undervalued.”  Slowly but surely, more and more headlines and articles are touching upon the fact that values have come down so rapidly that they are creating excellent buying opportunities not seen in years.  Increasing demand in Orange County can definitely be attributed to value.  The good news is conditions are perfect to purchase:  motivated sellers, a lot of inventory, rates are low, new loan programs are available and there are great values out there right now.  Buyers need to understand the local conditions and the price range that they are looking at prior to writing their first offer.  In more and more areas, certain price ranges and individual homes can and will attract multiple offers and above asking price offers.  Understanding the market conditions is fundamental to isolating a home.  Everybody is so focused on price and value that changes in interest rates are almost completely ignored.  Buyers rarely focus on a difference in interest rates.  Buyers can ask for a seller to pay a point of their loan and their monthly mortgage payment drops for the life of the loan.  Also, rates will inevitably increase to stave off inflation.  Just as Bernanke and the Federal Reserve are doing everything in their power to increase liquidity in the financial markets, they will just as swiftly and methodically increase rates.  Although we have all grown accustomed to rates staying so low, like gasoline, we will get used to rates increased to 7% or 8% or more when the time comes.  In 2000, conventional rates were 8% and in 1990 they were at 10%.  71% of distressed properties are below $500,000 and 92% are below $750,000. 

 

Sellers, what to do?  So far I am pleased that most homeowners have not been fooled into placing their homes on the market with the anticipation that it is the Spring market.  Here’s a dose of perspective, given current demand, there are still 13,534 sellers who will not be successful in selling their homes over the course of the next month.  With only 2,083 successes over the past month, that leaves the vast majority waiting another month or months.  So, if you do not have to sell your home, DON’T.  Placing your home on the market takes a ton of patience, a lot of elbow grease, a very good price, and tip top condition.  The more upgrades, the better condition and the better the location, the higher a seller’s chances of successfully selling.  If a home does not have the upgrades or is in need of work or does not show well, it must be reflected in the price.  With the market flooded with so many foreclosures and short sales, a homeowner can compete and achieve a better price by having the best home in the best condition with upgrades that show beautifully.  Be prepared on day 90 with the lights on, music playing in the background and the faint smell of cinnamon cookies in the air.  You never know when the buyer that falls in love with your home is going to walk through the door.

 
***

Have a happy Easter, everyone!

The government's "Hope Now" hotline is open 24/7 to receive calls from homeowners who are having trouble keeping up with mortgage payments.  It's a free service that helps borrowers get in touch with the right people at their lenders to try and either work out a payment plan or modify their loan terms.  

The program has been met with mixed reviews, in terms of its effectiveness, but if you're a troubled homeowner who is concerned about losing your home, it's certainly worth a call to see if they can help.

There are other housing groups and counseling agencies who work with homeowners at risk. Just make sure whoever you're dealing with is certified by the Department of Housing and Urban Development (HUD) or the National Foundation for Credit Counseling.

Hope Now hotline
1-888-995-HOPE
www.995hope.org

Homeowner Crisis Resource Center
1-866-557-2227
www.housinghelpnow.org

Here's my company's latest Market Time Report.  It confirms what I have been experiencing: the best-priced properties are now seeing multiple offers.  Remember my warning during the holiday season about increasing demand?  This is it.  True, prices are still down -way down- but once a seller brings their list price down to a point that will attract buyers to the property, buyers end up in competition with each other for the home.  

Without further ado, here is the latest Market Time Report:

Market Time Report:  Multiple Offers in the Lower Ranges?

 

March 6, 2008

 

Good Afternoon!

 

Yes, it is true.  Our reports from the streets substantiate the latest development:  the lower ranges, especially distressed properties, are receiving multiple offers.  It is difficult to gauge the current real estate market by reading the papers or listening to newscasts.  The absolute best way to assess what’s going on in is to poll the Realtors® out in the field, writing offers, guiding buyers from home to home, and representing sellers in the marketing and selling of their homes.  The reports are in: the lower ranges, below $500,000, are seeing plenty of activity, with multiple offers and buyers losing out on their first choices.      The lower ranges were hit the hardest through the subprime shakeup and they slowed first.  Logically, it seems appropriate that this range, the entry level, would be the first to heat up.  The below $500,000 range accounts for 45% of the current active inventory and 50% of the most recent demand.  One year ago, it accounted for 26% of the active inventory and 28% of demand.  First time buyers are stepping into the fray with their first real opportunity to purchase in years.  Bank owned foreclosures are in vogue and are seeing the most activity.  Foreclosures only account for 7% of the total active inventory, but 23% of demand.  There currently is only a 2.37 month supply of foreclosures, an extremely valid explanation for all of the multiple offers.  When the expected market time is below the 5 month mark, it is a seller’s market.   Everybody is looking for a deal, but it seems that the banks are in the driver’s seat.  With the new FHA and conventional loan limits coming, the upper ranges will witness a similar boost in demand shortly.

 

Demand, the number of homes placed into escrow within the prior month, increased modestly by 73 homes in the past two weeks from 1,820 to 1,893 escrows.  Demand is at levels not seen since June of last year.  And, according to our Realtors® out in the field, what is NOT reflected in the data is that when a buyer and a seller come to an agreement on a short sale, where the seller’s combined loans against the property exceed the purchase price, most homes are not changed in the Multiple Listing Service (MLS) to reflect the agreement.  Instead, they remain on the market as active listings until formal lender approval of the short sale.  You see, the buyer and seller may agree on a price, but the seller is really bargaining on behalf of the bank since the bank has to take less than what is owed.  They are “subject to lender approval” according to the terms of the contract.  So, the standard practice of care out in the field is to keep these homes on the market until lender approval occurs.  Also, we are not talking a couple of days for the lenders to respond either.  On average, they are taking anywhere from 21 to 90 days to respond.  Needless to say, demand is currently understated.  This should wash out over the next month as more and more lender approvals hit the market.  There are over 4,000 short sales currently on the market, 26% of the current active inventory.  Short sales only account for 17% of demand (remember, it is currently understated).  Accordingly, the expected market time for short sales is 12.28 months.

 

The current active inventory climbed by only 20 homes in the past month two weeks to 15,412 homes.  With the active inventory virtually unchanged, coupled with a slight increase in demand, the expected market time dropped from 8.46 to 8.14 months today.  That’s a stark difference from the 15.60 month inventory at the beginning of the year.  It is still a “buyer’s market,” just not as deep.  Last year at this time there were 12,558 homes on the market, demand was at 2,338 escrows and dropping with the start of the subprime crunch, and the market time was at 5.26 months and climbing.  Two years ago, there were 9,562 homes on the market and rapidly climbing, demand was at 2,779 escrows and the market time was at 3.44 months.

 

What’s the difference between the condominium market and the detached home market?  The detached home market continues to fare better than the condominium market with a 7.88 month inventory, the first time below eight months since May of 2007.  For condominiums, there is an 8.67 month inventory.  31% of the detached home inventory and 37% of the condominium inventory is either a foreclosure or short sale.  67% of all detached homes below $500,000 are either a foreclosure or short sale.  For condominiums, 54% below $250,000 are distressed.

 

What do the new conforming loan and FHA loan limits mean to the Orange County real estate market?  The new loan limits are going to have a significant effect on the market.  These new limits won’t address the troubles everywhere, since they are formulated based on an area’s median sales price.  So, they will have little effect in most of the country, but they will have a profound influence on California and, specifically, Orange County.  Orange County’s limits have been established at the maximum amount of $729,000.  On a 10% down loan, that will allow buyers to stretch up to $800,000.  That will provide incredible liquidity to our market.  With 10% down, the prior $417,000 limit allowed buyers to only look up to $459,000.  That represents a difference of $343,000!  The loans will be available as of April 1, just a few weeks away.   Expect demand to increase substantially as many buyers take advantage of this temporary program.  Demand should elevate and then remain at higher levels throughout 2008.  The increased loan limits will expire on December 31^st of this year.  The increase was designed to assist markets like Orange County to get through the current financial crisis, buying precious time for the financial markets to right themselves.  That should give the markets plenty of time to restore investors faith in buying pools of non-conventional loans once again.  The FHA loan limits will allow buyers with credit blemishes and low down payments to obtain financing.  This restores the gap in products with the drying up of the subprime market.  FHA financing is a much better alternative to subprime and was common just a decade ago.  The problem had been that the FHA loan limit was just too low to provide any help to the Orange County market.  The limit had been $367,000 and was virtually non-existent in Orange County.  Do not worry, FHA financing is NOT the same as subprime financing.  It provides financing to borrowers with some credit issues and lower down payments, but it requires documentation of income and does not allow “payment shock” where a buyer jumps from a low rental payment to a high mortgage payment.  FHA has all of the safety gaps and education in place so that buyers do not get in over their heads like they did with subprime financing.  So, expect demand to increase substantially due primarily to the increase of both the conventional loan and FHA loan limits.

 

Buyers, what to do?  There was a great article in Time Magazine last month by Dan Kadlec, --titled “Ignore the Headlines!”  The article identified something I have been talking about since the beginning of the year, “finance costs will rise as the economy recovers, so trying to time real estate might not pay off.”  The article then proceeds to give an example of a rise in rates of just 1%.  If home prices were to drop by 10% over the course of a year, but rates rise by 1%, the end result will be a wash and renters would have waited a year and saved nothing.  If rates increased by 2%, the monthly mortgage payment would be significantly higher.  Rates will inevitably increase to stave off inflation.  In 2000, conventional rates were 8% and in 1990 they were at 10%.  So, do NOT wait for the bottom of the market.  Instead, enter the market when the conditions are most ideal: low rates, tons of choices and plenty of motivated sellers.  Go find the best home for your family.  Also, be aware that for banks in charge of foreclosures, they have the upper hand and it is a seller’s market for them.  In looking at short sales, many already have an offer submitted to the lender for their approval.  Also, the higher the price range, the less motivated sellers are due to financial circumstances.  73% of distressed properties are below $500,000 and 94% are below $750,000.  This is worth repeating in every single one of my reports - take considerable comfort in the fact that Southern California real estate has always been a historically wonderful long term investment.

 

Sellers, what to do?  I am always leery that sellers will ignore current conditions and place their homes on the market in anticipation of a great Spring market.  Thus far, homeowners have kept their homes off the market, but the Spring market has just begun.  There are positive signs in the marketplace for the rest of 2008; however, the market remains a “buyer’s market” unless you are a bank.  So, do not place your home on the market unless you absolutely must sell OR you are willing to take a hit in value in order to move up in the market to a more expensive home.  For the “move up” seller, 10% of a $500,000 home is less than 10% of a $750,000 home.  The net result for the move up seller is a positive savings.  If you have to sell in this current market, be prepared to do what it takes to be successful.  It is all about location, price, condition and time.  Price is extremely crucial to procure a sale; the better the price, the better the odds for success.  Condition is important too.  Since short sales and foreclosures for the most part are in poor condition, homes in better condition can equate to an increase in price and offer a refreshing alternative for buyers.  Be ready to pack your patience; depending upon the area, it can take months to sell.  Given last month’s demand, there are still 13,519 sellers who will not be successful in selling their homes over the course of the next month.  Competition is intense.  Those willing to remove their emotions to make decisions will ultimately achieve their goals in selling.  Remember, a lot of the market is relying on banks to make decisions and they are void of emotions.  

 

So it's finally official, enacted, etc. The FHA loan limits have been raised to a reasonable level for high-cost areas (at least through 2008, anyway). What does this mean to you? Well FHA loans allow buyers to go in with a small down payment and a decent interest rate. Because the loan limits were not raised with the market, a hole was created where the government loans simply did not fulfill the needs of buyers. So the loan industry filled that hole with sub-prime loans. FHA loans are generally considered superior, in part due to the requirement for full documentation. There is a PITA factor to going full-doc, which is why many lenders discouraged using FHA loans for so long, but in the current market, this is the only way for many buyers to take advantage of the great prices on properties and finally fulfill their dream of home ownership.

Okay, enough of the fluffy stuff, you no doubt want to know what the qualifying loan limits are, right? Here's a county-by-county breakdown: 
 

County Name               One-Family      Two-Family      Three-Family    Four-Family

                                               

ALAMEDA                 $729,750         $934,200         $1,129,250      $1,403,400

ALPINE                      $547,500         $700,900         $847,200         $1,052,900

AMADOR                   $443,750         $568,050         $686,650         $853,350

BUTTE                        $400,000         $512,050         $618,950         $769,250

CALAVERAS             $462,500         $592,050         $715,700         $889,450

COLUSA                    $397,500         $508,850         $615,100         $764,400

CONTRA COSTA      $729,750         $934,200         $1,129,250      $1,403,400

DEL NORTE               $311,250         $398,450         $481,650         $598,550

EL DORADO              $580,000         $742,500         $897,500         $1,115,400

FRESNO                     $381,250         $488,050         $589,950         $733,150

GLENN                       $287,500         $368,050         $444,900         $552,900

HUMBOLDT              $393,750         $504,050         $609,300         $757,200

IMPERIAL                  $325,000         $416,050         $502,900         $625,000

INYO                          $437,500         $560,050         $677,000         $841,350

KERN                         $368,750         $472,050         $570,600         $709,150

KINGS                        $325,000         $416,050         $502,900         $625,000

LAKE                          $401,250         $513,650         $620,900         $771,650

LASSEN                     $285,000         $364,850         $441,000         $548,050

LOS ANGELES          $729,750         $934,200         $1,129,250      $1,403,400

MADERA                    $425,000         $544,050         $657,650         $817,300

MARIN                       $729,750         $934,200         $1,129,250      $1,403,400

MARIPOSA                $412,500         $528,050         $638,300         $793,250

MENDOCINO            $512,500         $656,100         $793,050         $985,600

MERCED                    $472,500         $604,900         $731,150         $908,650

MODOC                     $271,050         $347,000         $419,400         $521,250

MONO                        $462,500         $592,050         $715,700         $889,450

MONTEREY               $729,750         $934,200         $1,129,250      $1,403,400

NAPA                         $729,750         $934,200         $1,129,250      $1,403,400

NEVADA                    $562,500         $720,100         $870,450         $1,081,750

ORANGE                    $729,750         $934,200         $1,129,250      $1,403,400

PLACER                     $580,000         $742,500         $897,500         $1,115,400

PLUMAS                    $410,000         $524,850         $634,450         $788,450

RIVERSIDE                $500,000         $640,100         $773,700         $961,550

SACRAMENTO         $580,000         $742,500         $897,500         $1,115,400

SAN BENITO             $729,750         $934,200         $1,129,250      $1,403,400

SAN BERNARDINO  $500,000         $640,100         $773,700         $961,550

SAN DIEGO               $697,500         $892,950         $1,079,350      $1,341,350

SAN FRANCISCO     $729,750         $934,200         $1,129,250      $1,403,400

SAN JOAQUIN          $488,750         $625,700         $756,300         $939,900

SAN LUIS OBISPO   $687,500         $880,100         $1,063,850      $1,322,150

SAN MATEO             $729,750         $934,200         $1,129,250      $1,403,400

SANTA BARBARA    $729,750         $934,200         $1,129,250      $1,403,400

SANTA CLARA         $729,750         $934,200         $1,129,250      $1,403,400

SANTA CRUZ            $729,750         $934,200         $1,129,250      $1,403,400

SHASTA                     $423,750         $542,450         $655,700         $814,900

SIERRA                       $285,000         $364,850         $441,000         $548,050

SISKIYOU                  $293,750         $376,050         $454,550         $564,900

SOLANO                    $557,500         $713,700         $862,700         $1,072,150

SONOMA                   $662,500         $848,100         $1,025,200      $1,274,050

STANISLAUS            $423,750         $542,450         $655,700         $814,900

I have a slight change to the links in my last post.  I have updated the address to be more consistent with this site.  So you can now reach my home search tools by going to http://countyofcastles.listingbook.com.  To set up your own personalized home search account, visit this page: http://countyofcastles.listingbook.com/?node=3  

I have recently had a technology upgrade.  

If you've been with me for a while, you are probably familiar with the Client Gateway that I set my clients up on - it's a customized home search that puts matching listings onto a personalize web page where my clients can sort through favorites, make notes on properties, etc.  It's a great system, but I believe I have found an even better one, called listingbook.  This new system will allow you, my clients, to set up additional searches or edit your existing search yourself when you find you want to adjust the criteria we're searching by.  Best of all... the system sends you ONLY ONE email each morning, with information on property updates.

This is brand new to me, so I invite you, the readers of this blog, to help me test it out.  Click this link to set up your own customized MLS search.  I invite your feedback on the system, please email me at: clamb@homesoc.com and let me know what you think! 

If you would like to see the home page, with information for buyers and sellers, affordability calculators, loan estimators, etc., please click here.

Here's an interesting article that was passed on to me.  It starts off talking about stocks, but it also addresses buying a home:

http://www.time.com/time/printout/0,8816,1713483,00.html

Here's the latest Market Time Report put out by my company.  The buzz is playing out in the results we're starting to see:

The beauty of up-to-the-minute data is that we know which direction we are headed REGARDLESS of the countless television stories and news articles.  This report is a snapshot of the market today.  In comparing it to prior snapshots, we can pinpoint trends that won’t reach the pages of a newspaper or the teleprompter of a newscast for weeks, if not months, down the road.  The data often confirms the buzz among the agents working in the trenches of the real estate market.  Here’s the buzz:  increased open house activity; many buyers climbing in cars who are extremely cognizant of value; plenty of short sales; more realistic sellers on the market; and, homeowners opting to NOT market their homes as they are acutely aware of the current market conditions.  Let’s see if the “buzz” correlates with the data.  Demand, the number of homes placed into escrow within the prior month, increased by 49% over the past month from 1,219 to 1,820 escrows.  We have not seen demand at this level in six months, since just before the beginning of the credit crunch in mid-August.  The current active inventory climbed by only 147 homes in the past month to 15,392 homes, only a 1% increase.  With the active inventory virtually unchanged, coupled with a sharp increase in demand, the expected market time has dropped substantially over the course of the past month from 12.51 to 8.46 months today.  We started off the year with a 15.60 month inventory, almost double today’s snapshot.  By no means am I insinuating that sellers should be jumping for joy with the return of a seller’s market, since for most economists, anything over a six month inventory is dubbed a “buyer’s market.”  “Equilibrium” is a market between five and six months.  A “seller’s market” doesn’t even register until the market time drops below five months.  But, there are a few cities below the six month mark:  Aliso Viejo, Anaheim Hills, Brea, Foothill Ranch, Fountain Valley, Huntington Beach and Mission Viejo.  To be fair, there are a few areas that are still in a deep buyer’s market with over a year in inventory:  Coto de Caza, Laguna Beach, La Habra, Newport Beach, Newport Coast, Portola Hills, San Juan, Santa Ana and Villa Park.  Most of these cities will improve as the credit crunch begins to release its stronghold in the coming weeks and months.  Last year at this time there were 12,194 homes on the market, demand was at 2,654 escrows and the market time was at 4.59 months.  Two years ago, there were 9,038 homes on the market, demand was at 2,892 escrows and the market time was at 3.13 months.

 

What’s the difference between the condominium market and the detached home market?  The detached home market is faring a little bit better with an 8.22 month inventory.  For condominiums, there is an 8.85 month inventory.  27% of the detached home inventory is either a foreclosure or short sale and 27% of that inventory is vacant.  35% of the condominium inventory is either a foreclosure or short sale and 34% of that inventory is vacant.

 

Is the foreclosure market as bad as reported?  Foreclosures and short sales are a significant part of the current Orange County real estate market.  Currently, they account for 32% of the active inventory.  The flip side of that coin leaves 68% of non-distressed homeowners marketing their homes.  But, that percentage has climbed from 27% one month ago, a trend to continue to watch.  Of all of the distressed homes on the market, currently 4,859 of the 15,392 total inventory, bank owned foreclosures make up only about 26% of that total.  The remaining 74% are short sales, homeowners who are attempting to sell their homes for less than their total outstanding loan balance subject to the lenders’ acceptance.  The good news is that most lenders do NOT want to foreclose on a home and WANT to work it out with the homeowner.  Lenders are a lot more organized than they were just six months ago, able to handle the increased volume and bring about an amicable solution. Sellers in this situation should only work with a professional Realtor® well versed in the short sale process.

 

How is the recent passage of the stimulus package going to effect the market?  First, the smart buyer will use the tax rebates to buy down their interest rates for the life of the loan.  More importantly, the increasing of the conventional and FHA loan limits will provide a much needed boost to demand in the higher ranges, which have slowed dramatically since the drying up of the financial markets since August.  For conventional loans, we can expect rates to be slightly higher than the current conventional rate, but much less than the current jumbo rate.  There has been little talk about the importance of the new FHA limits, but they are an important replacement to the demise of the subprime loan.  Actually, FHA loans were extremely common just a decade ago; that is until they went out of vogue with the refusal of the Federal Government to change the limits in rapidly appreciating markets.  The limit had been $367,000; thus, the subprime was born to fill the need to finance borrowers with damaged credit and little down payments.  Unfortunately, without much regulation, the lending industry established a product that paled in comparison to the strength of FHA financing.  FHA requires documentation of income and does not allow “payment shock” where a buyer jumps from a low rental payment to a high mortgage payment.  FHA has all of the safety gaps and education in place so that buyers do not get in over their heads like they did with subprime financing.  The end result:  the stimulus package will provide a much needed resource for many to obtain financing, which will ultimately translate to an increase in demand.  With the signing of the bill into law last week, we can expect the change to take hold sometime next month. 

 

What can we expect in 2008?  With all of the attention at the federal level to righting the housing ship, the Orange County resale market will probably not follow the normal cyclical patterns of the best demand in Spring, followed by a little less demand in the Summer, followed by another drop in the Autumn, followed by the lowest levels of the year during the Holiday market.  Instead, we can probably expect stronger traction with the increased liquidity due to the new loan limits throughout the Spring and Summer.  We very likely can see higher demand numbers at the end of Summer compared to Spring.  This could create a catalyst of “bargain hunters” who will want to feed on the distressed inventory at the end of the year and through the beginning of next year.  Stay tuned, there is more to come!  

 

Buyers, what to do?  Quite simply, do NOT wait for the bottom of the market.  Nobody is going to ring a bell to signal the point at which we reach that bottom.  We will not know the precise bottom until months after it has already occurred.  Take solace in the fact that the conditions are perfect.  It reminds me of my days in my youth at the beach.  I would sit on the sand and wait for the perfect set of waves to unfold in front of me while I basked in the warmth of the summer sun.  Often, I got so comfortable sitting in my warm chair that I would see a pretty decent set of waves, only to talk myself out of jumping and paddling out to enjoy the thrill of the surf.  Instead, I greedily enjoyed my warm chair and decided to wait for the next set, after all, it had to get better.  The lifeguards, the most experienced observers of the surf, never signaled the best moment to enter the water.  At the end of the day, I would come to the realization that I should have already been out in the water, ready for a great ride.  The moral to my flashback:  the conditions are perfect with low interest rates, hungry, motivated sellers, and plenty of choices, so jump into the water now and go find the best home for your family.  Please understand that these historically low interest rates will NOT last.  Just this week, the economic reports are pointing towards inflation, which is not good for interest rates.  The Federal Reserve released their “minutes” from their last meeting; policymakers said that when prospects for economic growth improved, “A reversal of a portion of the recent easing actions, possibly even a rapid reversal, might be appropriate.”  These low interest rates that the entire nation has grown so accustomed to will increase to levels not seen in a while.  In 2000, they were at 8%, and in 1990 they were at 10%.  A change in interest rates to more historical norms will seriously erode a buyer’s purchasing power and will result in much higher payments.  Any advantage gained by waiting for prices to reach a “bottom” will be lost in much higher long term monthly payments. Take tremendous comfort in the fact that Southern California real estate has always been a historically wonderful long term investment.

 

Sellers, what to do?  I will stick to my simple message for over a year now:  do not place your home on the market unless you undeniably have to sell.  It is all about location, price, condition and patience.  Price is based upon a home’s location and condition.  As a homeowner, you only have control over condition.  The homes that are priced well and in great condition sell.  That means aggressively pricing according to the comparable sales.  Be ready to pack your patience; depending upon the area, it may take six months or more to sell.  Given last month’s demand, there are still 13,572 sellers who will not be successful in selling their homes over the course of the next month.  For sellers, the competition is fierce, which includes emotionless banks that have to purge their assets from their books.  

 

The official start to the Spring market was marked by the New York Giants stunning victory.  Along with their victory came a sharp increase in demand for Orange County housing.  The best barometer of future activity for local real estate continues to be our office coffee rooms.  It is from there that we have come to expect increased demand.  The conversations continue to center around buyers climbing back into cars to isolate their next “home” and much more open house activity.  Based upon the coffee rooms, we can expect demand to increase through March.  Demand, the number of homes placed into escrow within the prior month, increased 29% over the past two weeks from 1,219 escrows to 1,568 escrows. In the past month, demand has increased by 570 homes or 57%.  The current active inventory was almost unchanged in the prior two weeks, increasing by only 14 homes to 15,259 homes. It appears that home owners are reluctant to place their homes on the market for now.  With the active inventory virtually unchanged, coupled with a sharp increase in demand, it is no wonder that the expected market time has dropped substantially from 12.51 two weeks ago to 9.73 months today.  Just four weeks ago the market time was at 14.97 months.  There are now many cities with expected market times well below 10 months and approaching equilibrium versus a buyer’s market; equilibrium exists with a market time between five and six months and there are 10 areas knocking on that door.  The only caveat is if a throng of homeowners place their homes on the market in the coming weeks with the expectations of cashing in on the Spring market, resulting in increased market times.  Last year at this time there were 11,983 homes on the market, demand was at 2,463 escrows and the market time was at 4.87 months.  Two years ago, there were 8,569 homes on the market, demand was at 2,647 escrows and the market time was at 3.24 months.

 

How about some FANTASTIC NEWS for the real estate market?  Congress passed the economic stimulus package this week and it is now on President Bush’s desk for his signature.  Of course it is great news for most of the population who will be receiving a tax rebate sometime in the next two to three months, but the news is even better for real estate.  The stimulus package increases the conforming loan limit to 125% of the median price for a region.  For Orange County, that would put the limit somewhere around $700,000.  Raising the limit was specifically designed to help high cost markets like California and New York who were hit the hardest by the financial crunch.  Currently jumbo loans, loans above the $417,000 mark, are hovering around a whole percentage point higher than conventional loans.  Back in July, a month prior to the beginning of the crunch, jumbo loans were just two tenths of a percent higher.  Only major national lenders have been offering jumbo loans and most require the borrower to have a minimum down payment of 20%.  The new limit will open up financing to a large pool of buyers and will enable many homeowners to refinance.  Another provision of the stimulus package is to raise the FHA loan limit permanently.  FHA loans allow borrowers with damaged credit and little down payments to obtain financing.  With the current Orange County limit of $362,790, very few homes qualify.  Borrowers with damaged credit and low down payments flocked to the subprime arena to obtain their financing.  The big difference between FHA and subprime is that FHA requires a ton of documentation.  FHA financing will replace the void left by the absence of subprime, but will do a much better job of properly qualifying a borrower’s ability to pay.  These fixes will give the financial markets time to heal and restore liquidity to the markets in time.  It will also allow thousands of homeowners to refinance their loans to more favorable rates and terms.  It will take a few weeks before the change will take effect.  As a direct result of the stimulus package, expect demand to increase in Orange County along with a huge refinance boom. 

 

The stimulus package will help our local market with increased demand; however, the market still has to digest the large number of foreclosures and short sales currently on the market and more to come.  29% of the current active inventory is either a foreclosure or a short sale, where a seller tries to sell for less than the total loans against the home, subject to the lender’s approval.  Most of the troubled home activity, 69%, is below the $500,000 mark.  94% is below $750,000.  The areas hardest hit, with over 40% of the active inventory either a foreclosure or short sale, are Santa Ana, Anaheim, Lake Forest, Garden Grove and Rancho Santa Margarita.  They account for 46% of ALL troubled home activity.  The areas with the lowest percentage of troubled homes, with 2% or less, are Laguna Woods, Seal Beach, Newport Coast and Corona Del Mar.

 

The recent run-up in demand had a pronounced effect on both the detached home market and the condominium market, with detached homes continuing to fare a bit better.   The detached home market’s supply dropped from 11.96 months two weeks ago to 9.37 months today.  In comparison, the condominium market dropped from 13.47 months to 10.37 months today. 

 

What can we expect in 2008?  Now that the Super Bowl is behind us, the Spring market has officially begun.  The stimulus package will take effect sometime in March; cyclically the highest demand is in the Spring.  As a result, demand may continue to increase through April or May, rather than reaching a plateau in March.  This is great news for the real estate market.  Demand should start to mirror year over year comparisons by the end of March.  Expect the active inventory to continue to grow throughout the Spring as more homeowners enter the game.  Unfortunately, inventory is already standing tall, above the 15,000 mark, so more homeowners coming on the market will only push the inventory towards the 20,000 mark, which could be reached during the Summer market.  With the inventory climbing along with demand, we can anticipate the expected market time to hover around the 10 month mark.  During the Summer market, June through the first half of August, we can expect demand to drop slightly and the inventory to continue its slow climb.  As a result, the expected market time will increase.  During the Autumn market, the end of August through Halloween, we can expect the inventory to drop as sellers begin to pull their homes off of the market if they were unable to sell their homes during the Spring or Summer markets.  Demand will drop slightly again as the expected market time remains relatively unchanged.  Cyclically the slowest time of the year for the real estate market, the Holiday season, Halloween through the first couple of weeks of the New Year, we can expect demand to fall to the lowest levels of the year as a larger number of sellers throw in the proverbial towel and pull their homes off of the market.   The expected market time would then increase slightly.  

 

Buyers, what to do?  With the Federal Reserve, the White House, Congress, our governor, Arnold Schwarzenegger, and the California legislature working to repair the ailing housing market, and the passing of the economic stimulus bill, a bottom to this market is on the horizon.  But, as a buyer, understand that nobody is going to ring a bell to signal the bottom of the current housing cycle, just as nobody signaled the end of the housing boom in 2005.  To wait for the bottom is foolish.  Instead, cash in on the fact that it is a buyer’s market that has already erased some of the boom’s appreciation.  Currently, rates are near historical lows, loan limits are increasing for both conventional and FHA loans, there is very little competition among a sea of housing choices and sellers are eager for an offer.  So, if you are a buyer, sit down with a lender and ascertain your affordability limits and payment comfort levels and then go find the home the best fits the needs of your family.  Avoid writing lowball offers and, instead, consider that the current sales to list price ratio for the county is 94%.  Rather than just take a percentage off of the asking price, research the fair market value based upon the most recent sales and current escrow activity.  There are still homes that receive multiple offers and obtain their full asking price.  Most buyers forget to consider the importance that the current historically low interest rates will undeniably NOT last forever.   Unfortunately, that is an unmistakable fact that very few consider because everybody has grown accustomed to low rates and expect them to continue.  As soon as the market starts to turn around, be completely assured that Bernanke and the Federal Reserve will continue their long term plans to thwart the risk of inflation and increase rates.  For perspective, let’s compare a $600,000 mortgage at 5.5% today (soon possible with the increase in the conventional limit), $3,407, to past benchmarks.  With an 8% interest rate in 2000, the monthly payment would be $4,403, almost a $1,000 per month increase.  With a 10% interest rate in 1990, the monthly payment would be $5,265, an increase of $1,858 per month.  As a buyer, it is simply foolish to just watch prices to gauge the “perfect time to buy.”  Even another 10% drop in prices will hardly make up for a change in interest rates.   With rates low and selection high, this IS the year to buy.  You can take comfort in the statistical fact that Southern California real estate has always been a historically wonderful long term investment.

 

Sellers, what to do?  The message is simple:  do not place your home on the market unless you unequivocally have to sell.  It will take a great price, great condition and plenty of time to sell.  So, price according to the market and the comparable sales and escrow data.  Make every attempt to offer a home in nothing less than excellent condition.  Be ready for the sales process to take six months or more, or price it accordingly for a quicker sale if necessary.  The stimulus package will help demand, but we will remain in a buyer’s market.  Given last month’s demand, there are still 13,691 sellers who will not be successful in selling their homes over the course of the next month.  There is a lot of competition, which includes sellers who are upside down on their loans and bank foreclosures who don’t have a choice and MUST sell. 

The Fed just did something they haven't done since 2001 - changed the Federal funds rate between meetings!  Not only that, but they dropped it from 4.25% to 3.5%.

Just to put into perspective how serious this is, I should point out that the next meeting of the Fed is a mere week away.  But their concerns about the direction of the global economy were such that they held an emergency video conference last night and voted 8-1 to drop the rate 3/4 of a percent effective immediately.  If you've been reading for a while, you know what a departure from the norm this behavior is.  The Fed has been very conservative up until now, but lately they're talking very seriously about aggressive rate cuts.  Yes, they're hinting that more cuts may be on their way.

While this raises concerns for the overall economy, and makes me wonder what the Fed sees in our future, I cannot help but be happy about the rate cut as this is a huge boon to home buyers.  Now, it may take a couple weeks for the rate changes to filter down to home loan rates, but let's see what a cut like that could mean:

Say you're looking at a home and need a $400,000 loan to get it.  If the interest rate on a fully-amortized 30-year loan was 6%, then your monthly payment (P&I) would be $2400.  Now, let's say that the loan rates were to follow the Federal Funds rate, and come down 3/4%.  That same $400K loan, at 5.25% interest, would have a fully-amortized payment of $2208.  Think that makes a home a bit more affordable?  Just perhaps?  It's like getting an 8% reduction in the price!

Try to get a loan that locks in the low rates, because as soon as the economy recovers, the Fed will be raising rates back up as fast as the economy can take it (just like they did the last couple of years).  Adjustable-rate mortgages are tempting, because their rates are usually lower, but those rates can (and do!) go up - just ask any foreclosed homeowner in the last two years.  These interest rates are at historically low levels.  Lock that in for the life of your loan if at all possible.  (Note: I am a Realtor, not a lending professional, talk to your lender to determine the best possible course for your personal situation.)