December 13, 2007
As shopping centers overflow with cars, it is obvious that many of us are last minute shoppers; but, as in real estate, you can find the best deals when there is a lot in stock and you shop early. It’s too bad that so many potential buyers are frozen in fear that they will purchase and it won’t be the bottom, leading them to sit idly for some sort of sign. Unfortunately, nobody is going to ring a bell when we hit bottom. Experts who have spent their lives studying the swings in markets differ on precisely when that will be. However, take heed, most experts are calling for the bottom in mid-2008. They may be correct, but current demand has been at a low since the financial crunch hit the worldwide financial markets in August, and it is only going to improve from here. With the Federal Reserve, Central Banks, and international banks working together to improve liquidity to the financial markets, the current sluggish demand due to the crunch is going to dissipate, restoring banks’ willingness to do loans. Throw in historically low interest rates, and buyers would be foolish to pass up the opportunity. So, if you are a buyer with splinters from sitting on the proverbial fence, waiting for a bell… DING, DING, DING. Do not waste the opportunity to purchase when all of the conditions are perfect for buying, just as they were from 1994 through 1996. Take a look at this history of median prices:
1990 $242,358
1991 $239,680
1992 $230,860
1993 $217,210
1994 $214,540
1995 $209,400
1996 $213,370
1997 $229,840
1998 $261,700
1999 $280,900
2000 $316,240
I remember article after article, news report after news report highlighting every blow of the downturn during the 1990’s. It was enough to scare anyone into not purchasing. We experienced foreclosures and short sales on almost every block. Buyers wanted to buy at the bottom. There is not a person in Orange County who would not jump at the opportunity to buy at those prices again; yet, very few really wanted to take the plunge. If I would have purchased every listing that I had in my own personal inventory during those years, I would be in the Bahamas typing this report. Many skeptics would point to the grossly high prices and affordability issues. Well, the same was said back in the 1990’s. Shoot in 1980, the median price was at $114,000; I am sure that many buyers were hoping that prices would come back to those levels. So, let’s learn from history. Historically, Southern California is not only a great place to live, but a wonderful long term investment. It is important to reiterate that interest rates are at historical lows once again. In 1990 they were above 10%. In 2000, they were above 8%. As a buyer, don’t think that these low rates below 6% are here to stay. As a matter of fact, as soon as Bernanke and the Federal Reserve see a restoration of the financial markets and the economy heating up again, they are going to return to their methodic raising of rates to curb inflation and restore strength in the dollar. Most economists agree that the current rates, hovering around 6%, are about as low as they will go. If you bought a condo for the current detached median price, $650,000, with 20% down, at the current jumbo rate of approximately 6.5% (5.75% 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% (7% for conventional loans or about 1 point higher than they are today), the payment would be $3,272, a savings of $8 per month. If rates were to increase to 8.5% (8% for conventional like they were at the beginning of this decade), that payment would rise to $3,599, or an extra $319 per month. If inflation was out of control and rates popped up to 10.5% (10% for conventional like they were at the beginning of 1990), the payment would be $4,281, $1,001 more every single month. So, buyers should do their homework and not just rely on the constant reporting on the pressures in pricing. There’s a lot more to making this decision, not to mention, as a buyer, it is much easier to shop when only a few are shopping. Remember the Cabbage Patch Kids craze of the 1980’s? It will happen to real estate again too.
More homeowners are pulling their homes off the market, which is evident in the current active inventory reading. The active inventory has fallen by 464 homes in the past two weeks and 1,105 homes in the past month, bringing the current inventory to 16,128 homes. Demand, the number of homes placed into escrow within the prior month, decreased by 95 homes to 1,148 new escrows. With the drop in demand, the market time increased to 14.05 months from 13.49 months two weeks ago. Last year at this time there were an additional 691 escrows within the prior month, the active inventory was at 12,661, or 3,467 fewer homes, and market time was at 6.88 months. Two years ago, there were 8,329 fewer homes on the market, 1,027 more escrows within the prior month, and the market time was at 3.59 months.
Currently, short sales and foreclosures in Orange County account for 23% of the active inventory, up from 21% two weeks ago and 19.3% a month ago. We can attribute a lot of the rise to homeowners pulling their homes off of the market; foreclosure and short sales, for the most part, don’t. Short sales and foreclosures now account for 30% of all escrows opened within the prior month, up from 26% two weeks ago. Of all the short sales and foreclosures currently on the market, 65% are below $500,000, up from 63% two weeks ago and 62% four weeks ago. 93% of all short sales and foreclosures currently on the market are below $750,000, unchanged over the past six weeks. 38.3% of the all homes under $500,000 are either a short sale or a foreclosure. For the 1,872 detached homes in Orange County priced below $500,000, 54% are either a short sale or a foreclosure.
The disparity between the detached home market and condominiums continues its normal pattern where the detached market is outperforming condominiums. Market time for detached homes is at 13.57 months versus 14.85 months for condominiums.
What can we expect for the remainder of the year and the beginning of 2008? For the remainder of the year we can expect sluggish demand due to the holiday market and more homes pulled off the market. The active inventory will start the year with a bit more than 15,000 homes. More and more homes will be placed on the market after we bring in the New Year in anticipation of more demand and a decent Spring market. The worldwide financial market will right itself within the first quarter, boosting demand and leaving us with incredible rates. Unfortunately, demand will just not meet the heavy expectations of homeowners and the active inventory will continue to rise until it eclipses the 20,000 home mark. Demand during the Spring will march along at about 15% to 20% less than last year, a healthy increase from its current stagnant levels.
What if you are a seller, how should you respond to the market? The market is a buyers market. To be successful in 2008, it is all about having the right attitude and doing what it takes to get a home sold. But, if you are a homeowner and do NOT really have to sell, don’t. If you choose to play the game, go into the venture with the knowledge that it will take patience and perseverance to be successful. Know the market. Price homes according to the comparable sales and escrows with the knowledge that many short sales are artificially priced too low in order to attract potential buyers, yet the lender will never ultimately agree to those low figures. Remember, “short sales” are not a deal even if a seller has a signed contract in hand until a lender is willing to sign off on their loss. Many are priced so low that a lender simply will not sign off on a full price offer from a willing and able buyer. Sellers need to prepare there home for showings on day 120 just as they did in the first week: all the lights are on, there’s a hint of vanilla in the air, soft music is playing in the background. You never know when THE buyer of your home is going to step through your doorway and it needs to be ready when they do. Now more than ever, sellers must rely on the expertise of a professional, experienced and knowledgeable real estate agent. The real estate agents that are still in the game are the ones that have survived the change in the market and can represent buyers and sellers in any market.
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/.
Monday, December 17, 2007
Monday, December 10, 2007
The Comfort Zone
May we all learn to step outside our comfort zone and make our lives better.
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/.
The Comfort Zone
Unknown
About 10 years ago, I started a job as a trainer for a Telemarketing agency. In one of my first classes the head trainer told a very motivating story that I would like to share with you.
He began by drawing a diagram of a stick man standing in the middle of a circle. To make it more interesting, he drew things like a house, a car, and a few friends inside the circle.
He asked the question "Can anyone tell me what this is?" In a long silence, one guy decided to throw out "the world?" The trainer said "That's close, this is your Comfort Zone. Inside your circle you have all the things that are important to you. Your home, your family, your friends, and your job. People feel that inside this circle they are safe from any danger or conflict.
"Can anyone tell me what happens when you step out of this circle?" A strong silence came over the room. The same eager guy abruptly announced "You are afraid". Another guy said "You make mistakes". The silence continued and the trainer smiled and said "When you make mistakes what can the result be?" The first guy shouts "You learn something."
"Exactly, you are learning." The trainer turned to the board and drew an arrow pointing from the stick man directly to the outside of the circle. He proceeded to say "When you leave your Comfort Zone you put yourself out there, in front of the world to be in a situations that you are not comfortable with. The end result is that you have learned something that you did not already know, you expand your knowledge to become a better person." He turned again to the board and drew a bigger circle around the original circle, and added a few new things like more friends, a bigger house etc.
"The moral of the story is that if you stay inside your Comfort Zone you will never be able to expand your horizons and learn. When you step out of your Comfort Zone you will eventually make your circle bigger, to challenge your mind and grow to be stronger, and all in all a better person."
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/.
The Comfort Zone
Unknown
About 10 years ago, I started a job as a trainer for a Telemarketing agency. In one of my first classes the head trainer told a very motivating story that I would like to share with you.
He began by drawing a diagram of a stick man standing in the middle of a circle. To make it more interesting, he drew things like a house, a car, and a few friends inside the circle.
He asked the question "Can anyone tell me what this is?" In a long silence, one guy decided to throw out "the world?" The trainer said "That's close, this is your Comfort Zone. Inside your circle you have all the things that are important to you. Your home, your family, your friends, and your job. People feel that inside this circle they are safe from any danger or conflict.
"Can anyone tell me what happens when you step out of this circle?" A strong silence came over the room. The same eager guy abruptly announced "You are afraid". Another guy said "You make mistakes". The silence continued and the trainer smiled and said "When you make mistakes what can the result be?" The first guy shouts "You learn something."
"Exactly, you are learning." The trainer turned to the board and drew an arrow pointing from the stick man directly to the outside of the circle. He proceeded to say "When you leave your Comfort Zone you put yourself out there, in front of the world to be in a situations that you are not comfortable with. The end result is that you have learned something that you did not already know, you expand your knowledge to become a better person." He turned again to the board and drew a bigger circle around the original circle, and added a few new things like more friends, a bigger house etc.
"The moral of the story is that if you stay inside your Comfort Zone you will never be able to expand your horizons and learn. When you step out of your Comfort Zone you will eventually make your circle bigger, to challenge your mind and grow to be stronger, and all in all a better person."
Monday, December 3, 2007
Market Time Report: ‘Tis the Season to BUY
November 29, 2007
Now that the Thanksgiving leftovers have been depleted, we move on to the next holiday season, the absolute “best” time of the year to be a buyer. Unfortunately, consumers seem to look at only one factor in purchasing: price. If prices are trending down, they simply don’t want to purchase. The logic used is the same used in shopping. For example, if you were looking for a high definition flat panel television set, yet every day the news reports and newspapers detailed that the market for flat panel televisions was down and that prices would fall, you would be inclined to wait. HOWEVER, there are a lot of factors in buying a home which most consumers simply do not consider. Purchasing a home is far more complex than going down to the local electronic store and purchasing a television. In purchasing a home, a buyer should consider the following factors in addition to pricing trends: current interest rates, the number of choices in searching for a home, a gift from Uncle Sam in the form of a tax break and historical long term investment data for housing in Orange County. I have been accused of being biased because I am in the industry. I am sure the skeptic naturally questions buying right now, but that’s because they are looking at purchasing based solely upon the trend in pricing. There is also a segment of the market that is very vocal about the impending doom of real estate. Many have expectations of prices dropping by 20%, 30% or more. First, a large portion of the segment is fence sitting buyers rooting for the market to drop to a point where they can afford a larger home. The problem with that theory is that even with all of the pressure on price because of supply and demand, homeowners are simply reluctant to drop prices swiftly. There is stickiness to pricing that has been a character of the present market since it first slowed back at the beginning of 2006. Many think that bank foreclosures will drop the value in neighborhoods because bank owned homes are “deals.” As somebody who sold hundreds of bank owned foreclosures throughout the 1990’s, I must dispel this myth. Most banks will do whatever they can to achieve market value and they will hold firm on price. They are very aware of any the value of any home in their portfolio through a real estate broker and an appraisal (sometimes multiple appraisals). They will opt to rehabilitate a home by addressing all cosmetic repairs and necessary repairs with new carpet, new paint inside and out, replacing the roof, new fixtures, new faucets, new windows, etc. They will do whatever it takes so that the property shines inside and out. They are only willing to work with serious buyers. There are some ridiculously low prices on homes currently on the market, and they are ALL short sales. The price may be attractive, but the sale is “subject to lender approval.” Unfortunately, the price is not set by the lender; instead, the seller and buyer set the price in hopes to entice a borrower to write an offer in a slow market. Remember, lenders are not slouches and they are not willing to give away thousands of dollars so that a homeowner can get out from underneath a home. Instead, they will do their homework and obtain a broker’s, or multiple brokers’, opinion of value, and a certified appraisal, or even multiple appraisals. Remember, they want to recoup as much of their asset as possible. Many short sales are submitted and rejected. Buyers should look for listings with preapproved short sales where a reasonable sales price has already been established. Unfortunately, this is the exception and not the rule.
The talk around the coffee pot these days centers around the numbers of buyers who are comfortably perched on the fence waiting for the “best” time to buy. An economist at a conference last week aptly stated that “nobody is going to ring a bell at the bottom of the market.” Plus, these fence sitters are just factoring the pressure on pricing. So, let’s take a closer look at what most buyers are not considering in their decision to purchase:
RATES: Bernanke and the Federal Reserve may be looking to cut the discount rate again in December, and they may even cut it a couple more times in 2008. However, when you hear that the Federal Reserve has cut the discount rate, it does not affect the long term, 30-year fixed rates used to purchase a home, directly. The cut only has an immediate effect on short term rates like equity lines, credit card debt, etc. Interest rates can only go so low. Most economists agree that the current rates, now below 6%, are about as low as they will go. The new Federal Reserve, under the guidance of Bernanke, is not interested in keeping the discount rates at the current low level, either. The recent credit crisis has forced them to reverse course in their methodical increases since the beginning of 2006. Many are now pointing a finger at the old Federal Reserve, under the guidance of Alan Greenspan, for artificially stimulating demand in real estate by keeping rates at very low levels for several years. With rates at the current low levels, the general public is now accustomed to low rates. Many do not recall that rates were at 8% at the beginning of the 2000’s and they were at 10% at the beginning of the 1990’s. They have been much higher than that too. But, just as we became accustomed to low rates, when rates do rise, and they will rise, the general public will get used to an environment of increasing rates, just as we have with the price of gasoline. We may not like it, but there is very little we can do about it. If you bought a condo for the current detached median price, $650,000, with 20% down, at the current jumbo rate of approximately 6.5% (5.75% 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% (7% for conventional loans or about 1 point higher than they are today), the payment would be $3,272, a savings of $8 per month. If rates were to increase to 8.5% (8% for conventional like they were at the beginning of this decade), that payment would rise to $3,599, or an extra $319 per month. If inflation was out of control and rates popped up to 10.5% (10% for conventional like they were at the beginning of 1990), the payment would be $4,281, $1,001 more every single month. As you can imagine, the higher the purchase price, the higher the loan amount, the greater the effect on the payment as interest rates rise.
CHOICES: The beauty of a buyers market is the vast number of choices in the marketplace. Gone are the days where buyers had to overbid on homes only to settle on their fourth choice. Instead, buyers have a plethora of homes to choose from in order to isolate the best fit for their family. That’s a luxury that buyers were begging for just two years ago. Buyers should not fall into the trap of waiting for the market bottom. Bottom watchers end up entering the market when demand is on the rise and run the risk of settling on their second or third choice.
TAX BREAK: Many forget to consider the huge gift from Uncle Sam, a wonderful yearly tax write off of interest and taxes, a huge savings for homeowners.
LONG TERM INVESTMENT: Markets move in cycles. We are currently experiencing a buyers market. Historically, we have had many sellers markets and many buyers markets. But, the fact remains that homes in Orange County have ALWAYS beat the prior record height after EVERY cyclical downturn. Another fact is that Orange County is running out of land in which to build additional homes. People aspire to live here because of the weather, the beaches, the recreation, and the great lifestyle. Movies and television shows feature Orange County as their backdrop. Why? It is simple, Orange County sells.
Many homeowners are opting to pull their homes off the market, which is evident in the current active inventory reading. The active inventory has continued its descent, falling by 464 homes in the past two weeks to 16,769 homes. Over the past four weeks, the active inventory has dropped 685 homes. Demand, the number of homes placed into escrow within the prior month, decreased by 52 homes to 1,243 new escrows. The market time increased slightly to 13.49 months from 13.31 months two weeks ago. The small drop in demand and small increase in Market Time can most likely be attributed to the long Thanksgiving weekend. Last year at this time there were an additional 672 escrows within the prior month, the active inventory was at 13,572, or 3,197 fewer homes, and market time was at 7.09 months. Two years ago, there were 8,671 fewer homes on the market, 1,166 more escrows within the prior month, and the market time was at 3.36 months.
Currently, short sales and foreclosures in Orange County account for 21% of the active inventory and 26% of all escrows opened within the prior month. Of all the short sales and foreclosures currently on the market, 63% are below $500,000, up from 62% two weeks ago and 59% four weeks ago. 93% of all short sales and foreclosures currently on the market are below $750,000, unchanged over the past four weeks. 35.3% of the all homes under $500,000 are either a short sale or a foreclosure. For the 1,758 detached homes in Orange County priced below $500,000, 50% are either a short sale or a foreclosure.
The disparity between the detached home market and condominiums has returned to normal for this time of year (it took a brief hiatus because of the financial crunch). Market time for detached homes is now at 12.92 homes versus 14.46 months for condominiums.
What can we expect for the remainder of the year and the beginning of 2008? The year is almost complete, but we can expect much of the same demand while the active inventory continues its decline to the 15,000 home mark. With demand around the same level and the inventory dropping, market time will improve slightly. We can expect demand to pick up after the first few weeks of the New Year and continuing to pick up through the Spring market. Demand will be between 15 to 20% less compared to 2007, but will be much higher than its current level. With many homeowners anticipating the Spring market, many will mistakenly place their home on the market with the expectation of the ability to sell fast. However, with the inventory starting at 15,000 homes, it will quickly blossom to the 20,000 home mark. More short sales and foreclosures will be placed on the market to compete with traditional sellers.
What if you are a seller, how should you respond to the market? First, if a seller has a home valued below $2 million, a majority of the market, do not wait for the Spring to sell. In a buyers market, if you have to sell, sell early and price your home according to the market value right out of the gate. Do not risk chasing the market down in value. It is also extremely important to heed the following warning: do NOT place your home on the market unless you absolutely, unmistakably MUST sell NOW. The only exception to this rule is the high end, homes above the $2 million mark. Now more than ever, sellers must rely on an experienced, tuned-in real estate expert to guide them. Price is important, but it is not always the answer. Sometimes, there just is no demand for a given period of time. Patience is very crucial for success. Price is becoming increasingly difficult to determine because of so many short sales with artificially low prices that may entice a buyer but will never be accepted by a lender. Thus, there is a lot of homework and preparation necessary to establish price. 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. Keep in mind, with so many choices, the better the condition, the higher the probability in procuring an offer. So, address all cosmetic repairs, just as lenders are apt to do in today’s market. Don’t be afraid to replace worn carpet and paint scuffed walls, If a roof is leaking, fix it or replace it. It can take months to sell a home; BUT, the home should ALWAYS be in showing condition. You will never know when the buyer of your home is going to come through and you want your home to show its absolute best.
Steven ThomasRE/MAX Real Estate Services
President"Outstanding Agents! Outstanding Results!"
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/.
Now that the Thanksgiving leftovers have been depleted, we move on to the next holiday season, the absolute “best” time of the year to be a buyer. Unfortunately, consumers seem to look at only one factor in purchasing: price. If prices are trending down, they simply don’t want to purchase. The logic used is the same used in shopping. For example, if you were looking for a high definition flat panel television set, yet every day the news reports and newspapers detailed that the market for flat panel televisions was down and that prices would fall, you would be inclined to wait. HOWEVER, there are a lot of factors in buying a home which most consumers simply do not consider. Purchasing a home is far more complex than going down to the local electronic store and purchasing a television. In purchasing a home, a buyer should consider the following factors in addition to pricing trends: current interest rates, the number of choices in searching for a home, a gift from Uncle Sam in the form of a tax break and historical long term investment data for housing in Orange County. I have been accused of being biased because I am in the industry. I am sure the skeptic naturally questions buying right now, but that’s because they are looking at purchasing based solely upon the trend in pricing. There is also a segment of the market that is very vocal about the impending doom of real estate. Many have expectations of prices dropping by 20%, 30% or more. First, a large portion of the segment is fence sitting buyers rooting for the market to drop to a point where they can afford a larger home. The problem with that theory is that even with all of the pressure on price because of supply and demand, homeowners are simply reluctant to drop prices swiftly. There is stickiness to pricing that has been a character of the present market since it first slowed back at the beginning of 2006. Many think that bank foreclosures will drop the value in neighborhoods because bank owned homes are “deals.” As somebody who sold hundreds of bank owned foreclosures throughout the 1990’s, I must dispel this myth. Most banks will do whatever they can to achieve market value and they will hold firm on price. They are very aware of any the value of any home in their portfolio through a real estate broker and an appraisal (sometimes multiple appraisals). They will opt to rehabilitate a home by addressing all cosmetic repairs and necessary repairs with new carpet, new paint inside and out, replacing the roof, new fixtures, new faucets, new windows, etc. They will do whatever it takes so that the property shines inside and out. They are only willing to work with serious buyers. There are some ridiculously low prices on homes currently on the market, and they are ALL short sales. The price may be attractive, but the sale is “subject to lender approval.” Unfortunately, the price is not set by the lender; instead, the seller and buyer set the price in hopes to entice a borrower to write an offer in a slow market. Remember, lenders are not slouches and they are not willing to give away thousands of dollars so that a homeowner can get out from underneath a home. Instead, they will do their homework and obtain a broker’s, or multiple brokers’, opinion of value, and a certified appraisal, or even multiple appraisals. Remember, they want to recoup as much of their asset as possible. Many short sales are submitted and rejected. Buyers should look for listings with preapproved short sales where a reasonable sales price has already been established. Unfortunately, this is the exception and not the rule.
The talk around the coffee pot these days centers around the numbers of buyers who are comfortably perched on the fence waiting for the “best” time to buy. An economist at a conference last week aptly stated that “nobody is going to ring a bell at the bottom of the market.” Plus, these fence sitters are just factoring the pressure on pricing. So, let’s take a closer look at what most buyers are not considering in their decision to purchase:
RATES: Bernanke and the Federal Reserve may be looking to cut the discount rate again in December, and they may even cut it a couple more times in 2008. However, when you hear that the Federal Reserve has cut the discount rate, it does not affect the long term, 30-year fixed rates used to purchase a home, directly. The cut only has an immediate effect on short term rates like equity lines, credit card debt, etc. Interest rates can only go so low. Most economists agree that the current rates, now below 6%, are about as low as they will go. The new Federal Reserve, under the guidance of Bernanke, is not interested in keeping the discount rates at the current low level, either. The recent credit crisis has forced them to reverse course in their methodical increases since the beginning of 2006. Many are now pointing a finger at the old Federal Reserve, under the guidance of Alan Greenspan, for artificially stimulating demand in real estate by keeping rates at very low levels for several years. With rates at the current low levels, the general public is now accustomed to low rates. Many do not recall that rates were at 8% at the beginning of the 2000’s and they were at 10% at the beginning of the 1990’s. They have been much higher than that too. But, just as we became accustomed to low rates, when rates do rise, and they will rise, the general public will get used to an environment of increasing rates, just as we have with the price of gasoline. We may not like it, but there is very little we can do about it. If you bought a condo for the current detached median price, $650,000, with 20% down, at the current jumbo rate of approximately 6.5% (5.75% 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% (7% for conventional loans or about 1 point higher than they are today), the payment would be $3,272, a savings of $8 per month. If rates were to increase to 8.5% (8% for conventional like they were at the beginning of this decade), that payment would rise to $3,599, or an extra $319 per month. If inflation was out of control and rates popped up to 10.5% (10% for conventional like they were at the beginning of 1990), the payment would be $4,281, $1,001 more every single month. As you can imagine, the higher the purchase price, the higher the loan amount, the greater the effect on the payment as interest rates rise.
CHOICES: The beauty of a buyers market is the vast number of choices in the marketplace. Gone are the days where buyers had to overbid on homes only to settle on their fourth choice. Instead, buyers have a plethora of homes to choose from in order to isolate the best fit for their family. That’s a luxury that buyers were begging for just two years ago. Buyers should not fall into the trap of waiting for the market bottom. Bottom watchers end up entering the market when demand is on the rise and run the risk of settling on their second or third choice.
TAX BREAK: Many forget to consider the huge gift from Uncle Sam, a wonderful yearly tax write off of interest and taxes, a huge savings for homeowners.
LONG TERM INVESTMENT: Markets move in cycles. We are currently experiencing a buyers market. Historically, we have had many sellers markets and many buyers markets. But, the fact remains that homes in Orange County have ALWAYS beat the prior record height after EVERY cyclical downturn. Another fact is that Orange County is running out of land in which to build additional homes. People aspire to live here because of the weather, the beaches, the recreation, and the great lifestyle. Movies and television shows feature Orange County as their backdrop. Why? It is simple, Orange County sells.
Many homeowners are opting to pull their homes off the market, which is evident in the current active inventory reading. The active inventory has continued its descent, falling by 464 homes in the past two weeks to 16,769 homes. Over the past four weeks, the active inventory has dropped 685 homes. Demand, the number of homes placed into escrow within the prior month, decreased by 52 homes to 1,243 new escrows. The market time increased slightly to 13.49 months from 13.31 months two weeks ago. The small drop in demand and small increase in Market Time can most likely be attributed to the long Thanksgiving weekend. Last year at this time there were an additional 672 escrows within the prior month, the active inventory was at 13,572, or 3,197 fewer homes, and market time was at 7.09 months. Two years ago, there were 8,671 fewer homes on the market, 1,166 more escrows within the prior month, and the market time was at 3.36 months.
Currently, short sales and foreclosures in Orange County account for 21% of the active inventory and 26% of all escrows opened within the prior month. Of all the short sales and foreclosures currently on the market, 63% are below $500,000, up from 62% two weeks ago and 59% four weeks ago. 93% of all short sales and foreclosures currently on the market are below $750,000, unchanged over the past four weeks. 35.3% of the all homes under $500,000 are either a short sale or a foreclosure. For the 1,758 detached homes in Orange County priced below $500,000, 50% are either a short sale or a foreclosure.
The disparity between the detached home market and condominiums has returned to normal for this time of year (it took a brief hiatus because of the financial crunch). Market time for detached homes is now at 12.92 homes versus 14.46 months for condominiums.
What can we expect for the remainder of the year and the beginning of 2008? The year is almost complete, but we can expect much of the same demand while the active inventory continues its decline to the 15,000 home mark. With demand around the same level and the inventory dropping, market time will improve slightly. We can expect demand to pick up after the first few weeks of the New Year and continuing to pick up through the Spring market. Demand will be between 15 to 20% less compared to 2007, but will be much higher than its current level. With many homeowners anticipating the Spring market, many will mistakenly place their home on the market with the expectation of the ability to sell fast. However, with the inventory starting at 15,000 homes, it will quickly blossom to the 20,000 home mark. More short sales and foreclosures will be placed on the market to compete with traditional sellers.
What if you are a seller, how should you respond to the market? First, if a seller has a home valued below $2 million, a majority of the market, do not wait for the Spring to sell. In a buyers market, if you have to sell, sell early and price your home according to the market value right out of the gate. Do not risk chasing the market down in value. It is also extremely important to heed the following warning: do NOT place your home on the market unless you absolutely, unmistakably MUST sell NOW. The only exception to this rule is the high end, homes above the $2 million mark. Now more than ever, sellers must rely on an experienced, tuned-in real estate expert to guide them. Price is important, but it is not always the answer. Sometimes, there just is no demand for a given period of time. Patience is very crucial for success. Price is becoming increasingly difficult to determine because of so many short sales with artificially low prices that may entice a buyer but will never be accepted by a lender. Thus, there is a lot of homework and preparation necessary to establish price. 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. Keep in mind, with so many choices, the better the condition, the higher the probability in procuring an offer. So, address all cosmetic repairs, just as lenders are apt to do in today’s market. Don’t be afraid to replace worn carpet and paint scuffed walls, If a roof is leaking, fix it or replace it. It can take months to sell a home; BUT, the home should ALWAYS be in showing condition. You will never know when the buyer of your home is going to come through and you want your home to show its absolute best.
Steven ThomasRE/MAX Real Estate Services
President"Outstanding Agents! Outstanding Results!"
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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