September 20, 2007
As the national economy began to feel the affects of both the financial and housing market crunch, the Fed surprised everybody with a half point cut and congress, in conjunction with the Treasury and the White House, is embarking on other solutions. The end result is that rather than sit on the sideline and watch the housing market unravel, to avoid the potential of a recession, all hands are on deck doing everything in their means to stimulate lending and housing. Of course, this does not mean that demand will change overnight. Instead, as the economy absorbs the rate cuts and future congressional legislation, demand will begin to rise. A couple of months ago, rate cuts were not forecasted to change until the beginning of 2008, if at all. Now, we not only received a rare half point cut, there will most likely be additional cuts through the end of the year. Congress is exploring an increase in FHA limits, a temporary increase in conforming limits from $417,000 to the mid-$600k level, not to mention legislation to help insure the financial market does not repeat the subprime mess and liquidity crunch. The bottom line is that everybody is involved and no longer watching from the sidelines. This should definitely have an impact on the housing market. Yes, there will still be foreclosures and defaults, but the peak may be coming in the beginning of 2008 as more and more buyers enter the marketplace with favorable interest rates and broader available financing. Stay tuned!!
It is still too soon to start seeing the effects of the rate cut. Remember, this is just the beginning of the housing and financial market stimulus. Demand, the number of new escrows within the prior 30 days, dropped from 1,206 homes two weeks ago to 1,180, a 26 home drop. The current active inventory increased by 138 homes in two weeks to 17,898 homes, the highest mark of the year, 1,892 additional homes compared to last year’s peak, reached in August of 2006. Orange County’s market time increased from 14.73 months two weeks ago to 15.17 months. Last year at this time, there was an additional 1,028 escrows within the prior month (almost double), the active inventory was at 15,672, or 2,226 fewer homes, and market time was at 7.1 months. Two years ago, there were 10,150 fewer homes on the market, 1,878 more escrows within the prior month, and the market time was at 2.53 months.
Currently, short sales and foreclosures in Orange County account for 8% of the active inventory and 10% of all escrows opened within the prior 30 days. Two weeks ago they accounted for 7% of the active inventory and 8% of the escrow activity. Of all the short sales and foreclosures currently on the market, 57% are below $500,000 and 92% are below $750,000, virtually unchanged from two weeks ago.
The financial crunch over the past several weeks has translated to a much slower detached home market, since a majority of that market requires a jumbo loan to purchase. For condominiums, market time has increased from 14.39 months two weeks ago to 14.79 months today. The market time for detached homes has increased from 14.94 months to 15.4 months today. Four weeks ago, the market time for detached homes was at 11.79 months. 32.8% of the current active condominium inventory is vacant, versus 25.4% of the current active detached home inventory. Overall 27.5% of the active inventory is vacant. Because of the long market times, many homeowners will opt to lease out their homes for the time being, in anticipation of a stronger future market.
What can we expect for the remainder of the year? Currently we are experiencing inherent demand. Regardless of the market, there always is somebody willing to purchase. But, with Bernanke and the Federal Reserve cutting rates, congress and the white house poised to pass quick-fix legislation, demand should begin to build in the coming months. For the rest of the Autumn market, now through Halloween, we can expect the inventory to begin to drop as more and more sellers pull their homes off the market. With a dropping inventory and increased demand, the market time should stabilize and then begin to drop. The Holiday market, Halloween through the first couple weeks of the New Year should be marked by more homeowners pulling their homes off the market. But, with the Federal Reserve, congress and the White House tinkering with the financial market, demand for housing could steadily rise. This could ultimately translate into a decent start to 2008, reminiscent of the decent start that the housing market achieved at the beginning of this year. Earlier this year, the Orange County real estate market was heating up until the subprime mess derailed demand in March and then the liquidity crisis in the financial sector further derailed demand to its current anemic levels.
How should a seller approach the market? If you don’t have to sell, don’t. If you would like to sell, don’t. Homeowners should only look to sell their homes IF AND ONLY IF they absolutely MUST sell. There are 17,898 homes on the market and 1,180 new escrows within the prior month. Given current demand, 16,718 homeowners will NOT be successful over the course of the next month. That translates to a 6.6% chance of success. Sellers should sit on the sidelines and wait for the overall market to improve and demand to increase from its current weak levels. There is so much competition that sellers must be the best priced, best condition, best location to be successful. Poor condition or a poor location necessitates a further reduction in the asking price. Sellers willing to address cosmetic fixes and have their homes in tip top shape from top to bottom, inside and out, will fare better in this market. Box up clutter and stage the home similar to a builder model, with all lights on and music playing in the background. This needs to be done every single time the home is shown without exception. Every buyer that walks through could be the one that brings in an offer. With so much pressure on pricing, it is best to price a home aggressively immediately, rather than play the wait and see what happens game. This will ultimately result in chasing the market down in price, where a seller starts high, then reduces the asking price, only to find that the fair market value has dropped from the original fair market value. Also, buyers don’t care about a seller’s desire to net a certain dollar amount from their home.
How should a buyer approach the market? The perfect storm is brewing: rates are falling, prices are coming down, there is little to no competition and we are fast approaching the Holiday or Winter market. This IS the buying season. Many will tell you to wait. Others will accuse me of bias because I am in the real estate industry. Nobody knew that 1995 was the bottom of the last downturn either until years later. In hindsight, every living adult should have bought that year, but most everybody was fearful that the market would continue to decline. Sound familiar? Prices have already come off of their highs and for the rest of the year and the start of 2008 promises to be a very similar situation. Throw into the equation that rates will extremely favorable and it is an excellent scenario. It is important to note that Bernanke and the Federal Reserve will only drop rates for as long as they have to. As soon as the market shows any signs of life, they are going to hedge inflation and increase rates immediately. Even if prices drop slightly, you can still expect payments to increase as rates increase. Having the luxury to isolate an ideal home in a soft market with low rates is not a luxury to pass up. It is extremely important to keep in mind that Southern California, and more specifically, Orange County, is historically a super long term investment and an excellent place to live with a real lack of buildable land. Last, in arriving at a fair offering price, the average current closed sales to list price ratio for Orange County is 97% and NOT 80% or even 90%. Lowball offers rarely result in a sale. Seeking motivated seller and offering a fair price will.
Steven Thomas
President RE/MAX Real Estate Services
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/.
Sunday, September 23, 2007
Tuesday, September 18, 2007
Fed slashes rates to boost economy
The Federal Reserve lowers the target on a key short-term interest rate for the first time in four years to 4.75% from 5.25%
By Paul R. La Monica, CNNMoney.com editor at large
September 18 2007: 3:01 PM EDT
NEW YORK (CNNMoney.com) -- The Federal Reserve cut the target on a key short-term interest rate by a half of a percentage point Tuesday to 4.75%, further acknowledgment from the central bank that the mortgage meltdown plaguing Wall Street and Main Street could have a negative impact on the economy.
Stocks surged following the announcement, with the Dow gaining nearly 250 points, or 1.8 percent. The S&P 500 and Nasdaq both shot up more than 2 percent. Bonds fell, sending the yield on the benchmark 10-year U.S. Treasury up to 4.5 percent. (Bond prices and yields move in opposite directions.)
The cut to the federal funds rate, the first since June 2003, was widely anticipated by investors and followed a surprise cut to the Fed's discount rate on Aug. 17. The only question was whether the Fed would lower the federal funds rate by 25 basis points or 50 basis points. (There are 100 basis points in a full percentage point.)
Some investors had thought that Fed chair Ben Bernanke would take a more cautious approach and not cut rates by such a large margin, because a half-point cut could signal the Fed was acting out of desperation to save the economy.
But Alan Skrainka, chief market strategist with Edward Jones in St. Louis, disagreed with that interpretation. He said Wall Street was cheering the rate cut because it proves the Fed is willing to take any moves necessary to ensure the economy is not derailed by problems in the subprime mortgage market, loans made to consumers with less-than-perfect credit.
"We're having champagne and cookies," Skrainka said. "This is not a magical elixir that solves our subprime problems overnight, but it is a big step in the right direction to keep the economy growing. The Fed is sending a strong message that it won't get behind the curve," he added.
The federal funds rate, an overnight lending rate that banks charge each other, is important since it influences the amount of interest consumers must pay for various types of debt, such as credit cards, home equity lines of credit and auto loans. The rate cut should help some beleaguered home borrowers who are set to see monthly payments on adjustable rate mortgages rise later this year.
In its statement, the Fed said that "the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally" and that the rate cut "is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."
The Fed also cut its largely symbolic discount rate by a half of a percentage point to 5.25 percent. The central bank lowered the discount rate, which is what banks pay to borrow directly from the Federal Reserve, by 50 basis points on Aug. 17.
Although investors applauded the rate cut, one market expert cautioned that this does not mean an end to the credit crunch.
"People should not assume that the economy's problems are over. That would be a mistake. They are significant and they are widespread," said Larry Smith, chief investment officer with Third Wave Global Investors, a Greenwich, Conn.-based investment advisor with about $400 million in assets. "Today's action, while important, do not put to rest the fears that emanate from the credit concerns."
But Smith said the rate cut was a "bold step" and that he expected the Fed to cut interest rates at least one more time, probably by just a quarter of a percentage point though, before the end of the year.
The Fed's next monetary policy decision is scheduled to take place at the end of a two-day meeting on Oct. 31 and its last meeting of the year is set for Dec. 11.
To that end, according to federal funds futures on the Chicago Board of Trade, investors are now pricing in a 100 percent chance that the Fed will cut rates at least one more time before year's end.
And Skrainka of Edward Jones said he expects the Fed to cut rates several more times during the next few months.
"This is the beginning of an easing cycle. This is not one-and-done move by the Fed."
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/.
By Paul R. La Monica, CNNMoney.com editor at large
September 18 2007: 3:01 PM EDT
NEW YORK (CNNMoney.com) -- The Federal Reserve cut the target on a key short-term interest rate by a half of a percentage point Tuesday to 4.75%, further acknowledgment from the central bank that the mortgage meltdown plaguing Wall Street and Main Street could have a negative impact on the economy.
Stocks surged following the announcement, with the Dow gaining nearly 250 points, or 1.8 percent. The S&P 500 and Nasdaq both shot up more than 2 percent. Bonds fell, sending the yield on the benchmark 10-year U.S. Treasury up to 4.5 percent. (Bond prices and yields move in opposite directions.)
The cut to the federal funds rate, the first since June 2003, was widely anticipated by investors and followed a surprise cut to the Fed's discount rate on Aug. 17. The only question was whether the Fed would lower the federal funds rate by 25 basis points or 50 basis points. (There are 100 basis points in a full percentage point.)
Some investors had thought that Fed chair Ben Bernanke would take a more cautious approach and not cut rates by such a large margin, because a half-point cut could signal the Fed was acting out of desperation to save the economy.
But Alan Skrainka, chief market strategist with Edward Jones in St. Louis, disagreed with that interpretation. He said Wall Street was cheering the rate cut because it proves the Fed is willing to take any moves necessary to ensure the economy is not derailed by problems in the subprime mortgage market, loans made to consumers with less-than-perfect credit.
"We're having champagne and cookies," Skrainka said. "This is not a magical elixir that solves our subprime problems overnight, but it is a big step in the right direction to keep the economy growing. The Fed is sending a strong message that it won't get behind the curve," he added.
The federal funds rate, an overnight lending rate that banks charge each other, is important since it influences the amount of interest consumers must pay for various types of debt, such as credit cards, home equity lines of credit and auto loans. The rate cut should help some beleaguered home borrowers who are set to see monthly payments on adjustable rate mortgages rise later this year.
In its statement, the Fed said that "the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally" and that the rate cut "is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."
The Fed also cut its largely symbolic discount rate by a half of a percentage point to 5.25 percent. The central bank lowered the discount rate, which is what banks pay to borrow directly from the Federal Reserve, by 50 basis points on Aug. 17.
Although investors applauded the rate cut, one market expert cautioned that this does not mean an end to the credit crunch.
"People should not assume that the economy's problems are over. That would be a mistake. They are significant and they are widespread," said Larry Smith, chief investment officer with Third Wave Global Investors, a Greenwich, Conn.-based investment advisor with about $400 million in assets. "Today's action, while important, do not put to rest the fears that emanate from the credit concerns."
But Smith said the rate cut was a "bold step" and that he expected the Fed to cut interest rates at least one more time, probably by just a quarter of a percentage point though, before the end of the year.
The Fed's next monetary policy decision is scheduled to take place at the end of a two-day meeting on Oct. 31 and its last meeting of the year is set for Dec. 11.
To that end, according to federal funds futures on the Chicago Board of Trade, investors are now pricing in a 100 percent chance that the Fed will cut rates at least one more time before year's end.
And Skrainka of Edward Jones said he expects the Fed to cut rates several more times during the next few months.
"This is the beginning of an easing cycle. This is not one-and-done move by the Fed."
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/.
Wednesday, September 12, 2007
The Squeeze on Demand
September 6, 2007
Good Afternoon!
Demand for Orange County has taken a hard hit because of the current financial market crisis, dropping to its lowest level in years. Demand, the number of new escrows within the prior 30 days, dropped to 1,206 from 1,475 just two weeks ago and 1,804 four weeks ago, the beginning of the current financial market troubles. This is the second bump in the road for demand this year, the first coming at the beginning of March when subprime lenders began closing their doors. About four weeks ago, Wall Street realized that their investments in the financial markets were compromised by an insufficient portfolio rating system where “pools” of loans contained subpime loans, despite AAA ratings, the best rating possible. Today, Wall Street, and the rest of the world, will not touch any portfolio of loans because they simply do not trust the system; they don’t know what they are buying. Conventional loans, loans less than $410,000, are fine and the interest rates have been dropping. There are government sponsored agencies, Federal National Mortgage Association (FNMA) and Freddie Mac (FHLMC), that are still buying conventional loans. However, jumbo loans, loans above $410,000, a majority of the Orange County marketplace, are at higher rates and most can only be accomplished by direct lenders such as Wells Fargo or Bank of America who have the ability to fund loans and hold them until the financial markets right themselves or the government steps in. And, for the most part, only borrowers with great credit can obtain jumbo loans or any other “unconventional” loans. In today’s market, buyers should go with direct lenders that are able to fund and hold their loans. The rates on unconventional loans have not dropped recently either. This has had a major impact on demand in housing. With the subprime crunch beginning in March, lenders had already tightened lending requirements. This latest chapter in our market has led to even further tightening, pushing many would be buyers out of the housing market. Experts are now calling for a new rating system to strengthen the financial markets, but that may take a few months. Also, it looks like Bernanke and the Federal Reserve will drop rates by at least a quarter percent and they may be looking at as much as a half percent cut. This should help spark demand as the Fed looks to jump start not only the housing market, but the overall economy. The economy is beginning to feel the effects of the housing market. Many loan programs have all but evaporated. So, in the interim, demand in Orange County is taking a hit. After reaching a record height two weeks ago, the active inventory dropped by 121 homes to 17,760. Because of the drop in demand, the current market time jumped to 14.73 months from 12.12 months two weeks ago and 9.76 months four weeks ago.
Currently short sales and foreclosures in Orange County account for 7% of the active inventory, which has grown from 5% four weeks ago. Of all the short sales and foreclosures currently on the market, 54% are below $500,000 and 92% are below $750,000. Short sales and foreclosures continue to impact areas with a higher proportion of subprime loans funded within the last few years. For example, Santa Ana has a market time of 45.88 months, almost four years, and Anaheim has a market time of 21.59 months, almost two years.
The latest hurdle in the market has spilled over into the disparity between the condominium market and the detached home market. For the first time since April, the detached home market is actually slower than the condominium market. For condominiums, market time has increased from 12.66 months two weeks ago to 14.39 months today. The market time for detached homes has increased from 11.79 months to 14.94 months today. 32.2% of the current active condominium inventory is vacant versus 24.8% of the current active detached home inventory. Overall 27.7% of the active inventory is vacant. Because of the long market times, many homeowners will opt to lease out their homes in anticipation of a stronger future market.
Here’s the big question of the day: where do we go from here? It looks as if Bernanke and the Federal Reserve will be cutting rates when they meet on September 18th between a quarter to a half percent. This should give a moderate boost to housing demand depending upon how large of a cut is made. Depending upon future economic indicators, this could be the beginning of rate cuts. Current demand is 45% less than last year and 63% less than two years ago. Demand will continue to plod along at these anemic levels until the Department of Treasury, the Federal Reserve, congress, Wall Street, etc., repair the secondary financial marketplace. This is just the beginning of the Autumn market when demand drops from the Summer market (just not typically as much as it did over the prior month) and the inventory drops as more and more unsuccessful sellers pull their homes off of the market. However, with demand at such low levels, the inventory will most likely not drop as swiftly as it did last year. The Holiday market, Halloween through the first couple of weeks of the New Year, will be marked be low demand, typically the lowest levels of the year (we may be experiencing the lowest levels right now), and a further drop in the active inventory as even more sellers opt to pull their homes off of the market.
By Steven Thomas
President Remax Real Estate Services
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/.
Good Afternoon!
Demand for Orange County has taken a hard hit because of the current financial market crisis, dropping to its lowest level in years. Demand, the number of new escrows within the prior 30 days, dropped to 1,206 from 1,475 just two weeks ago and 1,804 four weeks ago, the beginning of the current financial market troubles. This is the second bump in the road for demand this year, the first coming at the beginning of March when subprime lenders began closing their doors. About four weeks ago, Wall Street realized that their investments in the financial markets were compromised by an insufficient portfolio rating system where “pools” of loans contained subpime loans, despite AAA ratings, the best rating possible. Today, Wall Street, and the rest of the world, will not touch any portfolio of loans because they simply do not trust the system; they don’t know what they are buying. Conventional loans, loans less than $410,000, are fine and the interest rates have been dropping. There are government sponsored agencies, Federal National Mortgage Association (FNMA) and Freddie Mac (FHLMC), that are still buying conventional loans. However, jumbo loans, loans above $410,000, a majority of the Orange County marketplace, are at higher rates and most can only be accomplished by direct lenders such as Wells Fargo or Bank of America who have the ability to fund loans and hold them until the financial markets right themselves or the government steps in. And, for the most part, only borrowers with great credit can obtain jumbo loans or any other “unconventional” loans. In today’s market, buyers should go with direct lenders that are able to fund and hold their loans. The rates on unconventional loans have not dropped recently either. This has had a major impact on demand in housing. With the subprime crunch beginning in March, lenders had already tightened lending requirements. This latest chapter in our market has led to even further tightening, pushing many would be buyers out of the housing market. Experts are now calling for a new rating system to strengthen the financial markets, but that may take a few months. Also, it looks like Bernanke and the Federal Reserve will drop rates by at least a quarter percent and they may be looking at as much as a half percent cut. This should help spark demand as the Fed looks to jump start not only the housing market, but the overall economy. The economy is beginning to feel the effects of the housing market. Many loan programs have all but evaporated. So, in the interim, demand in Orange County is taking a hit. After reaching a record height two weeks ago, the active inventory dropped by 121 homes to 17,760. Because of the drop in demand, the current market time jumped to 14.73 months from 12.12 months two weeks ago and 9.76 months four weeks ago.
Currently short sales and foreclosures in Orange County account for 7% of the active inventory, which has grown from 5% four weeks ago. Of all the short sales and foreclosures currently on the market, 54% are below $500,000 and 92% are below $750,000. Short sales and foreclosures continue to impact areas with a higher proportion of subprime loans funded within the last few years. For example, Santa Ana has a market time of 45.88 months, almost four years, and Anaheim has a market time of 21.59 months, almost two years.
The latest hurdle in the market has spilled over into the disparity between the condominium market and the detached home market. For the first time since April, the detached home market is actually slower than the condominium market. For condominiums, market time has increased from 12.66 months two weeks ago to 14.39 months today. The market time for detached homes has increased from 11.79 months to 14.94 months today. 32.2% of the current active condominium inventory is vacant versus 24.8% of the current active detached home inventory. Overall 27.7% of the active inventory is vacant. Because of the long market times, many homeowners will opt to lease out their homes in anticipation of a stronger future market.
Here’s the big question of the day: where do we go from here? It looks as if Bernanke and the Federal Reserve will be cutting rates when they meet on September 18th between a quarter to a half percent. This should give a moderate boost to housing demand depending upon how large of a cut is made. Depending upon future economic indicators, this could be the beginning of rate cuts. Current demand is 45% less than last year and 63% less than two years ago. Demand will continue to plod along at these anemic levels until the Department of Treasury, the Federal Reserve, congress, Wall Street, etc., repair the secondary financial marketplace. This is just the beginning of the Autumn market when demand drops from the Summer market (just not typically as much as it did over the prior month) and the inventory drops as more and more unsuccessful sellers pull their homes off of the market. However, with demand at such low levels, the inventory will most likely not drop as swiftly as it did last year. The Holiday market, Halloween through the first couple of weeks of the New Year, will be marked be low demand, typically the lowest levels of the year (we may be experiencing the lowest levels right now), and a further drop in the active inventory as even more sellers opt to pull their homes off of the market.
By Steven Thomas
President Remax Real Estate Services
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/.
Tuesday, September 4, 2007
Toshiba Tallships Festival
9/8/2007, 9:00am
Toshiba Tallships FestivalSaturday, September 8 – Sunday,September 9 DANA POINT - The Ocean Institute is celebrating its 23rd year hosting the Toshiba Tall Ships Festival, the largest annual gathering of tall ships on the West Coast. The festival will feature a spectacular array of family-fun activities including live music, art & craft shows, exciting living-history demonstrations and a variety of tasty food. Enjoy maritime displays and presentations, Polynesian dancers, sea-chantey concerts, an interactive pirate encampment and dramatic sunset cannon battles. Additionally, you can explore the historic tall ships and listen to the crew share tales of adventure and life at sea. Last but not least, we invite you to explore the Ocean Institute and explore our local ocean life, participate in live parrot shows, play pirate games and join in on special interactive presentations. So, join us for a weekend of fun and adventure as we celebrate the areas rich maritime history.FOR MORE INFO CALL 949496-2274 AT THE OCEAN INSTITUTE, 24200 DANA POINT DRIVE
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/.
Toshiba Tallships FestivalSaturday, September 8 – Sunday,September 9 DANA POINT - The Ocean Institute is celebrating its 23rd year hosting the Toshiba Tall Ships Festival, the largest annual gathering of tall ships on the West Coast. The festival will feature a spectacular array of family-fun activities including live music, art & craft shows, exciting living-history demonstrations and a variety of tasty food. Enjoy maritime displays and presentations, Polynesian dancers, sea-chantey concerts, an interactive pirate encampment and dramatic sunset cannon battles. Additionally, you can explore the historic tall ships and listen to the crew share tales of adventure and life at sea. Last but not least, we invite you to explore the Ocean Institute and explore our local ocean life, participate in live parrot shows, play pirate games and join in on special interactive presentations. So, join us for a weekend of fun and adventure as we celebrate the areas rich maritime history.FOR MORE INFO CALL 949496-2274 AT THE OCEAN INSTITUTE, 24200 DANA POINT DRIVE
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/.
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