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Apr. 28th, 2008

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Market Time Report: First Time Homebuyers Are Back!

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!

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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. 

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Posted at 05:29 pm | | Leave a comment | 1 comment | Add to Memories | Tell a Friend

Apr. 4th, 2008

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Market Time Report: Housing Demand Stronger Than A Year Ago

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:

Market Time Report: Housing Demand Stronger than a Year Ago
 
April 3, 2008
 
Good Afternoon!
 
Today marks the FIRST time since September 22, 2005 where demand is better than one year ago. The sold statistics, which garner front page headline attention in most media outlets, will not reflect the year over year statistics until May or even June of this year. So, you are hearing it here first, demand is actually better right now compared to last year. You can hear it in our offices too. Here’s the scoop from the trenches: increased showing activity, increased open house activity, buyers are writing more offers, multiple offers in the lower ranges and significantly more first time buyer activity.   And, most of this activity was already in the works prior to the new FHA and conventional loan limits taking root in the marketplace. Buyers have been methodically entering the market since the beginning of the New Year. We started the year with demand, a snapshot of the prior 30 day escrow activity, at 944 escrows. There were only 1,473 total escrows on January 1st in all of Orange County with 14,724 homes on the market. That was an inventory of 16.45 months! Since then, demand has increased to 2,286 escrows within the prior 30 days, a 142% increase. Now there are 3,066 total escrows throughout Orange County, a 108% increase from the beginning of the year. Additionally, the active inventory has only grown by 750 homes since we sat on our comfortable sofas and sleepily watched the Rose Parade, bringing the inventory to 15,474 homes. Expected market time has dropped substantially to 6.75 months. Remember, the new FHA and conventional loan limits of $729,750 are just hitting the market now. We are achieving the increase in demand despite a major liquidity problem in the financial markets, meaning loans above $417,000 have been extremely challenging to put together unless a borrower had a lot of money to put down and cream of the crop credit scores. The new loan limits will have a powerful impact on demand. At 10% down, the old $417,000 conventional limit only covered 37% of the current active inventory. The new limits now encompass a stunning 75% of the inventory. The old $367,000 FHA loan limit covered only 23% of the active inventory. The real estate market also has the added benefit of Washington D.C. and every major player that has anything to do with the financial markets focusing programs and legislation aimed at further increasing demand and restoring the financial engine that runs our economy.
 
Last year there were1,464 fewer homes on the market, but demand was lower by 159 escrows. Demand was dropping fast last year due to the beginning effects of the subprime meltdown that started in March of 2007. Expected market time was almost the same at 6.57 months. Two years ago, the active inventory was at 10,714, demand was at 2,958 and market time was at 3.62 months. Bank owned foreclosures and short sales, homeowners that owe more on their home than the current value, now account for 34.5% of the active inventory. That figure was at 26% at the beginning of the year and 32.8% a month ago. 
 
What about all of the distressed properties in the market place? Bank owned foreclosures are HOT and growing hotter by the minute with an expected market time of just 1.67 months. Two weeks ago that figure was at 2.11 months. Foreclosures only account for 20% of the total distressed market and only 7% of the entire active inventory. Thus, foreclosures are in demand and lenders are calling the shots with multiple offers and no emotional attachment to their “assets.” Their market is similar to the heydays of 2004 and 2005 for all of Orange County. Statistically, short sales have an expected market time of 10.60 months compared to 12.05 months two weeks ago. But, these numbers are not a true reflection of what is really going on in the marketplace. The numbers are grossly understated. Short sales are a totally different animal and should be treated as such. Realtors® out in the field keep a home on the market as an active listing through the Multiple Listing Service until they have formal lender approval of an offer already accepted by the seller. Even when a seller and a buyer agree upon the terms of a contract, escrow is not technically opened until formal lender approval occurs. The lenders have to determine whether or not they are willing to take less than the full loan amount currently encumbering the property. And, if there is more than one loan, each and every lender must sign off on the deal in order for an escrow to proceed. Short sales are “subject to lender approval” and can take anywhere from weeks to months. One of our associates reported from the trenches that they just closed a short sale after a seven month delay in a formal approval. That’s not even the worst case scenario, as many go unapproved and are instead foreclosed upon, wiping out any and all offers currently written on the property.   So, when a buyer climbs into a car and finds a short sale that they have interest in, chances are that the home already has an accepted offer that is somewhere in the “lender approval” process. They too can add their offer to the mix and play the waiting game. Many of these short sales are priced at levels to attract buyers, discounting well below the true market price. In this case, the odds of “lender approval” on even full price offers are slim to none. As a consumer, it is best to do a bit of homework and write an offer closer to the market value, above the asking price, increasing the odds of lender acceptance. With more and more homes acquiring multiple offers, that is exactly what is occurring in the market: offers are being submitted for bank approval above the list price. 
 
Everybody needs to keep in mind some fundamental statistics regarding distressed homes. 75% of all distressed properties, foreclosures and shorts sales, are below $500,000 and 94% are below $750,000. Santa Ana accounts for 20% of the entire distressed market in Orange County, 1 in every 5. Anaheim accounts for another 15%, 3 in every 20. The top 5 in total numbers, Santa Ana, Anaheim, Garden Grove, Orange and Lake Forest, account for 49% of all distressed properties, virtually 1 in every 2. With the exception of Orange, all have average list prices below $500,000.
 
What are FHA loans?  The Federal Housing Administration (FHA) offers loans to consumers with some credit blemishes and/or a small down payment. A buyer can put down as little as 3%, all of which can be a gift. FHA is NOT subprime and has been around for years. This is not a program that the government cooked up to replace the void left by the sudden absence of subprime. Rather, with prior FHA loan limits well below the median sales price in Orange County, subprime filled the void. FHA loans require documentation and the buyer must actually qualify. 
 
Buyers, what to do? Slowly but surely, more headlines are starting to illustrate improved demand and a great time to buy. It will take the better part of the next 60 days for the recent increased activity to start changing the tone of the headlines and stories completely. The facts are the facts; the lower ranges, where most of the junk loans occurred, are turning up the heat first. The increased loan limits should restore demand all the way up to $800,000. As liquidity is slowly restored to the financial markets, the upper ranges above $800,000 will in turn start to gain momentum as 2008 plods along. Demand has slowly improved as value has seeped its way back into the market. The conditions are perfect to purchase now and into the horizon: motivated sellers, plenty of homes to choose from, rates are low, new loan programs are available and there are great values out there right now. As a buyer, do not let price be your only determining factor in choosing to purchase. Price is important, but current favorable rates will not stick around forever. Prior to the financial subprime meltdown and financial crunch, the Federal Reserve was methodically raising rates to counter the threat of inflation. The threat of inflation is now high with all of the easing that the Federal Reserve has had to undertake to jump start the economy and the financial markets. 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?  So far this Spring, homeowners are NOT placing their homes on the market in foolish anticipation of a wonderful Spring real estate market. Thank goodness!!! Quite simply, sellers should continue to bide by a simple rule of today’s market: do NOT place your home on the market unless you absolutely must sell and are motivated to do what it takes to procure a sale, with the right price and condition. With only 2,285 successes over the past month, that leaves the vast majority waiting another month or months. In such a competitive market, it is all about price, location and condition. As a seller, you can do absolutely nothing about the location other than take it into consideration in determining price. Sellers do control their price and condition. After carefully determining an asking price, it still may take time, so pack your patience and be prepared to make changes as the market evolves. Unless you are prepared to market your home as a major or cosmetic fixer, great showing condition is imperative in maximizing your proceeds. Last, be prepared on day 100, just as you were during the first week, for a buyer to walk through the door. Set the stage with the lights on, soft music in the background, window covering opens and make sure your home is neat as a pin inside and out. 
 
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Nov. 19th, 2007

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Market Time Report: Attention Buyers! It’s Time to Gobble Up a Home

My company issued the latest Market Time Report over the weekend.  It sounds a lot like what I've already been saying - right now there are low prices, good interest rates, and a very large inventory with little competition amongst buyers.

As far as the comments about buying now versus waiting till spring, it talks about the difference between the effects of a drop in price versus a raised interest rate.  It's right on the money, however, I think that between now and early spring, "deals" should be analyzed on a house-by-house basis, rather than the market as a whole.  Some of tomorrow's deals that people are waiting for are here today.  The way to approach that is to find a house you like, and try to make a deal on it today before tomorrow's buyers get off the fence.  You can do that confidently, knowing that if the seller will not make the deal with you, there will be plenty more deals to try for.  Remembering that homes are going for an average of around 95% of list price, the trick is to look at the pricing history on the home, as well as neighborhood sale comps, and find one that has already been seriously marked down.  Then make a "reasonable" offer based on their current (very marked down) list price.  Always consider how the price of the home stacks up with recent sales on similar properties (ie: "comps").

Without further ado, here you go:

Market Time Report: Attention Buyers! It’s Time to Gobble Up a Home

November 15, 2007

Good Afternoon!

Horn of plenty, cornucopia, feast, buffet… if you are a buyer sitting on the fence, the conditions are ideal; it is TIME to gobble up a home. There are many buyers out there who are thinking that the inventory is high, demand is low and there is still a lot of pressure on pricing; so, why buy now? Thus, many buyers are sitting on the proverbial fence waiting for some sort of sign that “today” is the perfect time to buy, the “bottom of the market.” Just as nobody predicted the financial credit crunch that hit the world in August, nobody will be able to isolate THE bottom of the market without quite a bit of luck. Instead let’s take a closer look at the current market condition. Yes, the fence sitting buyers are correct: the inventory is high, demand is low and there is pressure on pricing. But, many are missing the often overlooked OTHER conditions of the current market: historically low interest rates that will not remain at these low levels forever, a cornucopia of choices not seen in over a decade, the wonderful tax advantages of owning a home, and, historically, real estate as a super long term investment.

RATES: You can put good money on the fact that Bernanke and the Federal Reserve will not leave rates at artificially low levels for as long as they did throughout the 2000’s. We will have to wait and see how the history books are written, but Alan Greenspan (the prior Federal Reserve Chairman) and the Federal Reserve, under his guidance, may share quite a bit of the blame for artificially fueling the excesses in the past housing boom. Just as everybody grew accustomed to housing appreciation for years, everybody has also grown accustomed to these historically low interest rates. At the beginning of 2000, rates were at about 8%. At the beginning of 1990, rates were at 10%. Buyer’s are just looking at pricing but are overlooking the fact that an increase in rates affects affordability substantially. If you bought a home for the current detached median price, $650,000, with 20% down, at the current jumbo rate of approximately 6.5% (6% for conventional loans which are loan amounts less than $417,000), the mortgage payment would be $3,280. Even if values were to decline by 10%, bringing the $650,000 home to $585,000, if rates were to increase to 7.5%, the payment would be $3,272 per month, a savings of $8. If rates were to increase to 8%, that payment would rise to $3,434, or $154 more. If inflation was out of control and rates popped up to 10% (they were much higher than that in the late 1970’s and early 1980’s), the payment would be $4,107 per month, $827 more every single month. As you can imagine, the higher the purchase price, the higher the loan amount, the greater the affect on the payment as interest rates rise.

CHOICES: With a large inventory and low demand, buyers have a lot of choices in their search to find their home. Just a few years ago buyers were writing offer after offer on one home after another, only to settle for their third or fourth choice and pay above the asking price, competing with several other buyers every step of the way. Many agents were reluctant to work with a buyer unless they were realistic in their expectations of the market. Sellers ruled the real estate kingdom and called the shots (within reason of course). The current market is polar opposite, this time with sellers competing for the attention of a much smaller buyer pool. Today, agents are reluctant to work with sellers unless they are realistic in their expectations of the current market and are motivated to do what it takes to procure an offer. Now, buyers rule the real estate kingdom and call the shots (within reason). A buyer has the luxury of patiently isolating their home of choice, knowing that all the cards are stacked in their favor. Why wait for the market to change before making a strike? Often times, buyers that wait too long end up competing with other buyers and have to settle for a second or third choice.

TAX BREAK: I would be remiss if I did not remind everybody of the wonderful tax write offs that Uncle Sam has so generously provided to all home owners; the larger the loan, the bigger the tax break. Homeowners are able to write off their interest and tax payments, a gift from our uncle.

LONG TERM INVESTMENT: It’s quite simple, over time, real estate along the golden coast of California has and always will do well. There aren’t that many areas in the United States that match the weather, plenty of sun and low humidity, the close proximity to some of the best beaches in the world, and year round outdoor activities where one can ski one day or work on a tan reclined in a favorite beach chair the very next day. In 1972, 35 years ago, the median price was at $28,400 in Orange County. In 1977, 30 years ago, the median price was at $70,100. In 1982, 25 years ago, the median sales price was at $129,641 in Orange County. In 1997, the median price was at $229,840 in Orange County. People from around the world aspire to live in Orange County. That will not change. Throw in the fact that builders are running out of raw, buildable land, and there is considerable upward pressure on price for the long term. Buy for the long term, it’s not only “home,” it’s an excellent investment.

Currently, as more and more homeowners who really don’t have to sell are pulling their homes off of the market, the active inventory continues its descent, falling by 221 homes to 17,233 homes. Over the past four weeks, the active inventory has dropped 526 homes. Demand, the number of homes placed into escrow within the prior month, has increased by 182 homes to 1,295 new escrows since bottoming out at its lowest level of the year on October 4th. It looks as if the Orange County real estate market is starting to shake off the affects of the financial crunch. With another increase in demand and another drop in the inventory, market time continues its decrease from the 2007 height, 15.96 months, reached on October 4th, to 13.31 months today. Last year at this time there were an additional 692 escrows within the prior month, the active inventory was at 14,165, or 3,068 fewer homes, and market time was at 7.13 months. Two years ago, there were 8,850 fewer homes on the market, 1,352 more escrows within the prior month, and the market time was at 3.17 months.

Currently, short sales and foreclosures in Orange County account for 19%ofthe active inventory and 21% of all escrows opened within the prior month. Of all the short sales and foreclosures currently on the market, 62% are below $500,000, up from 59% two weeks ago and 57% four weeks ago. 93% of all short sales and foreclosures currently on the market are below $750,000, unchanged over the past two weeks and up slightly from 92% posted four weeks ago. 32.9% of the all homes under $500,000 are either a short sale or a foreclosure. For the 1,662 detached homes in Orange County priced below $500,000, 48.3% are either a short sale or a foreclosure, a staggering statistic.

There is almost no difference between the detached home market, a market time of 13.37 months, and the condominium market, a 13.20 month market. Until the financial crunch is completely in the rear view mirror, these numbers should remain close.

What can we expect for the remainder of the year and the beginning of 2008? We can probably expect demand to continue to rise slightly, after of course taking a brief hiatus for Thanksgiving, as there is nowhere but up from the lows stemming from the financial crunch. September and October promise to be lows for closed sales for 2007. The active inventory will continue its march downward as more and more sellers pull their homes off of the market. Yes, there are homeowners who don’t really have to sell and who no longer have the stomach to do what it will take to successfully sell in this market. We should start the New Year with a current inventory of about 15,000 homes, almost 4,000 more homes than the beginning of this year. Market Time will continue to drop through the end of the year. We will most likely start the New Year with an expected market time of 12.5 months. Towards the end of January, demand will rise and market time should drop to about 10 months. But, as many homeowners with flawed expectations of a good Spring place their homes on the market, the inventory will once again rise. If too many overzealous homeowners opt to enter the market, the inventory will easily reach the 20,000 home mark. Demand in the Spring could be off by about 10% compared to this year.

What if you are a seller, how should you respond to the market? WARNING: do NOT place your home on the market unless you absolutely, unequivocally MUST sell NOW. The only exception to this rule is the high end, homes above the $2 million mark. Contrary to what many think, if all of a sudden every seller on the market priced their home below the last comparable sale or escrow, the fence-sitting buyers would not jump off of their perches in droves and there would be very little affect on demand. So, be careful in navigating the tough waters of the current real estate market. Now more than ever, sellers really need an experienced, tuned-in real estate agent to guide them. “For Sale By Owner” and discount brokerages are a thing of the past. With so many short sales in the marketplace, it is tough to determine price. Many buyers are learning quickly, if a price is too good to be true and “subject to lender approval” (a short sale) it is too good to be true. After waiting a very long time for an answer, sometimes weeks, buyers are realizing that the artificially low prices may be priced to entice a buyer, but they are too low for a lender to accept. The price affixed to a short sale is NOT a value provided by the lender; rather, it is a value determined by the agent and seller. A few short sales are priced appropriately and are already approved by the bank. However, this requires everybody, the seller and their agent, to do all of their homework up front. Just as in school, very few like to do their homework early; but, that is what it takes to successfully represent a short sale. So, as a seller, most short sales that surround their home are artificially priced. An experienced agent can help ascertain the real values from the artificial. The bottom line, be careful in pricing. It is still imperative to price a home at or slightly below the last comparable sale or escrow, but a drastic drop is not necessary. Stay in close contact with all changes in the marketplace. Sellers should address all cosmetic repairs inside and out. With so many choices, the better the condition, the better the odds of success. If a roof is leaking, fix it or replace it. Chances are there are plenty of homes with a roof that does not leak. The home should be in showing condition ALWAYS. If a seller needs a break from selling their home for months on end, then they can place their home on “hold do not show” for a week or two of rest. A seller never knows the precise date when the buyer that is going to fall in love with their home walks in. A seller wants the impression to be the absolute best impression; so, the home must be staged day in and day out.


 

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Posted at 09:26 am | | Leave a comment | Add to Memories | Tell a Friend

Nov. 16th, 2007

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I can't believe I'm seeing this

DEAL ALERT!!!

Okay, so some single family homes in the less expensive parts of Orange County have been going lately for under $500,000. I documented that when they first started popping up around Anaheim and Fullerton many months ago. And that's a good thing for first-time buyers who were previously unable to buy a home.

But today, one of the agents in my office listed a single family home in Garden Grove for under $400,000. Blew. Me. Away. I keep trying to tell people THE DEALS ARE OUT THERE NOW. Here's a prime example! Granted, we don't know what kind of condition it's in because I haven't gone to look at it, but that price affords you a whole heck of a lot of home improvement. UNDER $400,000!!!

(Before anybody gets *too* excited, understand that the listing does say major repairs needed. This is a fixer.)

The point I'm getting at here is that all boats rise and fall with the tide. If there is a home, in whatever condition it is, listed in the high $300's, it's going to have a negative effect on the pricing of homes around it, who now have to compete with it from a buyer's perception standpoint. So now if one were to look at homes surrounding this one, especially a home that wasn't in tip-top shape, a buyer could point to this home and one that IS in tip-top shape (which probably isn't asking terribly much more than the "just okay" one) and ask for a price reduction. It's certainly worth trying.
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Posted at 09:09 am | | Leave a comment | Add to Memories | Tell a Friend

Nov. 12th, 2007

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What's happening with stocks and what it could mean for real estate

Today I read an interesting article on MSN Money: http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/StageIsSetForAStockCrash.aspx

Now, to some extent, I'm always ready to take the doom-and-gloom articles with a grain of salt because, let's face it, news agencies are in the business of making the world sound like it's going to come crashing down around our ears - it gets you to stick around on their page and read their articles so they can sell ad space on that page.

However, let's play along for a moment here.  Let's say this guy is right and there really is a bear market for stocks looming on the horizon.  What does that mean for real estate?  Well, it could mean a lot of things, depending on how things go.

On one hand, it could mean a lot of people losing investment capital that they would have spent on a down payment for a home.  That would mean fewer people buying.  Or it could just mean fewer people buying in the upper price ranges.

On the other hand, it could mean that newer, presumably safer and more scrutinized, mortgage-backed securities come back into favor and the lending market opens up its tightly-closed fist a little bit.   With loans easier to get, perhaps home buying activity will pick up a little.

Ah, but if a stock crash leads to an overall economy crash, things could just be bad all around, with higher unemployment and fewer people able to afford homes.  I consider this a bit too severe to call likely.  But if it did happen, we'd see even more foreclosures, which would encourage serious sellers to lower their prices even further in order to compete.  Again chalk this up to a bit too severe to be likely, as sellers have already taken a huge hit on the value of their homes off their highs from about 2 years ago.

And now we come to the final option:  Over time, the pattern of the "markets" (and by that I mean stocks and real estate, separately) tends to show an inverse relationship between the two in popularity.  So for a while, stocks seem the way to go, people are flying high, investing their cash, talk at parties centers around things like mutual funds or particular industry sectors.  That's about when the experts start getting out.  Then the bubble bursts, people freak out about stocks, call them "too risky", and instead start looking to invest their money in real estate.  You start noticing people discussing "flipping", and home improvement shows start getting huge audiences.  After a while, homes get too expensive for their target audience and people stop buying.  The market slows down and people start calling real estate "too risky" and move their money into burgeoning stock markets.  Lather, rinse, repeat.

Or, as in our case, the "irrational exhuberance" (my favorite Warren Buffett phrase) leads to crazy happenings in the home finance market, like creative lending.  While the real estate end of the market swings, being less liquid, usually fizzles out instead of bursts, when the financial markets are in on the game, as they have been the last several years, you bring that bursting potential to the game.  And we all know what happened there.  So people stop buying homes.  Well, they have to have somewhere to invest their money, so the pendulum starts to swing the other way.  Or at least, it would if the stock market wasn't being brought down by its connections to the real estate market.  High default rates have led to issues with the availability of capital to lend out and an overall nervousness towards lending.  Not to mention the losses taken by investors who put their money into real estate related securities (home builders, mortgages, home furnishings, etc.) as those businesses lose money or start making less of it (depending on their market sector).  

So here's where we're at now:  2 years of slow sales have brought prices back down from irrational highs to more reasonable and affordable levels.  Stocks are starting to look very scary, especially for the average Joe and Jane who read financial news articles on the internet (like the one I linked).  But Joe and Jane need somewhere to put their money, right?  If stocks are "too risky"... (remember: lather, rinse, repeat!)

IF stocks are going to crash... it could lead to a reawakening of the real estate market.  

Now don't get me wrong... in the world of money, bad things happen quickly, and good things take a while to come about - especially things that involve a material change in the public's thinking.  But if this guy says he thinks stocks will crash, that would, in my opinion, support the idea that the real estate market will start picking up around the middle of next year (some say 3rd quarter).  Which, dear readers, supports my theory that NOW is the time to buy - you get in on the low prices while there is still low demand, you get an added boost to your negotiations by the threat of the holiday market slowdown (if it can get any slower), AND the icing on the cake: you get to write it off this years taxes!  If you don't know how big an advantage that can be, I suggest putting a call in to your accountant and asking them to estimate how much that might benefit you come April.

If you are ready to take advantage of this great buyers' market, give me a call at (949) 468-8405 and let's go find your new home or investment property!
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