January 24, 2008
As is customary for this time of year, the Orange County real estate market is beginning to rev its engine before we begin the Spring market. The buzz in the coffee room, what I refer to as the trenches, is one of the absolute best barometers for gauging upcoming activity not yet reflected in the numbers. Two weeks ago I detailed how agents are busy chauffeuring buyers around Orange County and open house activity had picked up. That has translated into offers being written and an increase in demand. It looks as though this increase in demand will continue to pick up continuously through March, the cyclical height for the past three years running. The current active inventory is now at 15,245 homes, an increase of 301 homes in the past two weeks, or 2%. The inventory will continue to grow, as more and more sellers come onto the market in anticipation of better demand in the Spring. At least the inventory is not growing at a ridiculous pace given the slower pace of demand, which leaves me to conclude that everybody is growing accustomed to this market. Sellers are no longer expecting a fantastic Spring and are only entering the market if they really have to. Gone are the speculative sellers placing their homes on the market to “test the waters.” I sincerely hope that this trend continues. Demand, new escrows within the past month, increased by 222 homes in the past two weeks to 1,219 escrows, a 22% increase. With the inventory climbing at a slow pace and a sharper increase in demand, the market time dropped in the past two weeks from 14.99 months to 12.51 months. There are many cities with a market time of less than 10 months. But, we must remember that anything above six months is considered a buyers market. For perspective, last year at this time there were 11,895 homes on the market, demand was at 1,930 escrows and the market time was at 6.16 months. Two years ago, there were 8,068 homes on the market, demand was at 2,061 escrows and the market time was at 3.91 months.
How about some EXTREMELY GOOD NEWS for the real estate market? Interest rates have dropped substantially in recent weeks and are reaching historic lows. President Bush and Congress’ economic stimulus package that they are pushing through at warp speed will not only put checks into taxpayers pockets around May of this year, it will also include an increase to the conforming loan limit, temporary, and the FHA limit, permanent. The ramifications of this change will be felt in the Orange County real estate market like an earthquake. There is a liquidity problem in the financial markets, where the six lenders that are offering jumbo loans, loans above the $417,000 conforming loan limit, have to keep every loan made within this category because Wall Street and the rest of the worldwide financial markets have not warmed to purchasing pools of loans yet. That will eventually happen, but for now, an increase in the conforming and FHA loan limits equates to much lower interest rates, historically low, enabling buyers to afford more. Demand WILL increase. The increase in the FHA loan limit is important because it allows borrowers to borrow up to 97% of the value of a home even with more risky credit. This increase will replace the loss of subprime loans. The FHA is much better at financing riskier consumers and they have been doing that with great care for years. It is obvious that subprime needs to be regulated and FHA is the way to go to regulate it. This will allow many consumers to refinance their subprime and riskier loans and will save many homeowners from losing their homes. Not all foreclosures are due to the home being worth less than the market value; many homeowners simply cannot afford their payments that have reset or will eventually reset. Expect demand to increase right here in Orange County as a direct result of the stimulus package and a huge refinance boom.
Even with the passing of the economic stimulus bill, we will not be out of the woods because we still have to digest the large number of foreclosures and short sales currently on the market, with more to come. 25.7% of the current active inventory is either a foreclosure or a short sale, where a seller tries to sell for less than the total loans against the home, subject to the lenders approval. Most of the troubled home activity, 69%, is below the $500,000 mark. 94% is below $750,000. 44.5% of all properties below $500,000 are either a short sale or a foreclosure. If you look at just detached homes, that number climbs to 58.4%. It is important to note that with so many homes in the lower ranges weighing down the inventory, we can expect the median price for the county to continue to drop in the coming months.
The recent run-up in demand had a pronounced effect on the detached home market compared to the condominium market. The detached home market’s supply dropped from 15.14 months to 11.96 months. In comparison, the condominium market dropped from 14.27 months to 13.47 months.
What can we expect in 2008? The market is going to continue to ramp up as we enter the Spring Market, from Super Bowl through May. The active inventory will grow, but at a much slower pace. We can expect market time to drop through March. As soon as the economic stimulus package is passed and the gate to increased conventional and FHA loan limits is opened, we can expect demand to receive almost an instant boost. We may be able to point to the bottom of this cycle to that point in time; only time will tell. The Summer market, June through most of August, could be interesting, with decent demand due to the stimulus package. Cyclically, most Summer markets include a drop in demand from the Spring highs, a continued increase in the active inventory and an increase in market time. This year, the big difference could be more demand. In the Autumn market, the end of August through Halloween, the current active inventory typically reaches a peak and then starts to drop as many sellers throw in the towel, anticipating the slower market to come. The active inventory will most likely peak at around 20,000 homes, depending upon how far the economic stimulus package stimulates the market. It may only reach 18,000 homes. Demand will drop slightly and Market Time will not change much. The Holiday market, from Halloween through the first couple of weeks of the New Year, will show the largest reductions of the year in inventory due to sellers pulling their homes off the market. Demand will drop to its lowest levels of the year.
Buyers, what to do? If you are a buyer, the economic stimulus package is designed to stimulate you. You are the beneficiary of legislation that increases your borrowing capacity, coupled with rates that drop your monthly obligation. For a buyer it’s the perfect storm: historically low rates, increased loan limits for both conventional and FHA loans, a ton of choices and plenty of sellers and banks eager to receive an offer. With the passing of the stimulus package, I am confident that we will reach the bottom of this cycle shortly. HOWEVER, nobody will be ringing a bell to signal the bottom. Instead, know that you are entering the housing market at a very opportunistic time. After pre-qualifying for a loan, isolate the ideal home that best matches your “wish list” and write an offer. Carefully arrive at the offer price by evaluating the most recent sales and escrow activity. Avoid writing low ball offers considering that the average sales to list price ratio for the entire county is 94%. That does not mean that as a buyer you should bring in an offer at 6% below the asking price; instead, do some diligent research with your real estate agent and take a look at the sales to list price ratio in that area and consider that the seller’s asking price may be aggressive and could ultimately lure other buyers to write an offer. There are still homes that sell for full price in today’s market. As a buyer, do not kid yourself into thinking that these historical rates will last forever. Instead, we have all become accustomed to low rates. Bernanke and the Federal Reserve, who just dropped the short term rate by ¾ of a percent, will definitely raise rates to avert inflation just as soon as the economy is out of the woods. So, in the future, we can EXPECT higher rates. As a buyer, you MUST consider how the future interest rates in comparison to current historically low rates will affect your future payments and borrowing capacity. For example, a home at $625,000, 20% down with a 5.5% interest rate will have a monthly payment of $2,839. If prices were to drop another 10% for the year, but rates were to increase to 6.5%, the $625,000 home would become $562,500 but the monthly payment would still be $2,844, slightly higher. If rates were to increase to 8%, the same rate as in 2000, the payment would then increase to $3,302, an increase of $463 per month. If rates were to increase to 10%, the same rate as 1990, the increase in payment would be $1,110 per month! So, looking at price as the only barometer to purchase is foolish and only a piece of the puzzle. This IS the year to buy. Be assured that Southern California real estate has always been a historically wonderful long term investment.
Sellers, what to do? For sellers, do not become overzealous given the latest developments. Given last month’s demand, there are still 14,026 sellers who will not be successful in selling their homes over the course of the next month. There is tremendous competition, which includes sellers who are upside down on their loans and bank foreclosures who don’t have a choice and MUST sell. If you are a homeowner contemplating selling your home in the current market, you too should sell if and only if you really have to sell. In this market it is all about location, condition and price. As a seller, you really only have control over price and condition; so, make sure that you have an excellent asking price based upon a realistic and careful analysis of the market and a home that is in excellent condition and shows well. Your real estate agent can provide guidance on enhancing the showing experience and the cosmetic repairs that may need to be addressed in preparing your home for the market. As a seller, remember to pack your patience and be just as ready for a showing on day 120 just as you were in the first week of placing your home onto the market.
Steven ThomasRE/MAX Real Estate Services President
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/
Saturday, January 26, 2008
Tuesday, January 22, 2008
NAR Commends Federal Reserve Board on Timely Interest Rate Cut
Statement: NAR Commends Federal Reserve Board on Timely Interest Rate Cut
WASHINGTON, January 22, 2008 -
The following is a statement by Lawrence Yun, chief economist of the National Association of Realtors®, on today’s action by the Federal Reserve Board:
"Today’s 75-basis-point cut in the Fed funds rate to 3.50 percent is a very good step in the right direction to boost the economy and send a clear message to both the market and to consumers. This strong rate cut will help lower mortgage interest rates and lessen the burden of adjustable-rate loans that are resetting in the current environment. It also could help stimulate business investment in the wake of market uncertainties. We commend the Federal Reserve Board on its bold action, but at the same time we urge it to keep a close watch to see if additional action is needed."
WASHINGTON, January 22, 2008 -
The following is a statement by Lawrence Yun, chief economist of the National Association of Realtors®, on today’s action by the Federal Reserve Board:
"Today’s 75-basis-point cut in the Fed funds rate to 3.50 percent is a very good step in the right direction to boost the economy and send a clear message to both the market and to consumers. This strong rate cut will help lower mortgage interest rates and lessen the burden of adjustable-rate loans that are resetting in the current environment. It also could help stimulate business investment in the wake of market uncertainties. We commend the Federal Reserve Board on its bold action, but at the same time we urge it to keep a close watch to see if additional action is needed."
Saturday, January 12, 2008
Market Time Report: Slowly Waking from the Holiday Hibernation
January 10, 2008
There’s no more eggnog in the refrigerator and already broken New Year’s resolutions are put off until next year. These are great reminders that the holidays are in the past and the housing market’s engine is beginning to thaw. There is a buzz in the coffee room again as more and more buyers are being chauffeured around Orange County in search for their home. This is cyclically the time that the real estate market ramps up as buyers start entering the market. By the end of January, demand will be significantly higher as more and more sellers start placing their homes on the market in anticipation of the Spring market. However, Sellers should know by now that the Spring will be tempered by rising inventory and lower demand, similar to 2007. The current active inventory is at 14,944 homes, a 1,184 home drop in the past four weeks, or 7%. On January 1st, the active inventory started the year at 14,724 homes; so, the inventory is already growing in anticipation of a better market. Demand, new escrows within the past month, dropped 34 homes in the past two weeks to 997 escrows. On January 1st, demand was at 944 escrows, so it too is already growing. Market time dropped slightly in the past two weeks from 15.05 to 14.99 months. Last year at this time, there were 11,643 homes on the market, demand was at 1,496 escrows and the market time was at 7.78 months. The inventory last year compared to this year is very similar in almost every price range with the exception of properties listed below $500,000. Last year, there were 3,083 properties listed below $500,000 versus 6,129 today, nearly double. The subprime fallout really hits homeowners in that range. 42.1% of all properties below $500,000 are either a short sale or a foreclosure. If you look at just detached homes, that number climbs to 56.7%. 67% of ALL short sale and foreclosure activity is below the $500,000 mark as well. So, it is no wonder that range is being hit the hardest. With so many homes in the lower ranges weighing down the inventory, expect the median price (that’s the middle value sold in a month) to continue to drop. Two years ago, there were 7,635 homes on the market, demand was at 1,573 escrows and the market time was at 4.85 months.
Currently, the condominium market is a bit better than the detached home market. The condominium market is at a 14.27 months supply compared to 15.14 months for detached homes. 31.3% of the current active inventory is vacant. For condominiums, the vacancy rate is actually 35.8% compared to 29.2% for detached homes. 29% of the active condominium inventory is either a short sale or a foreclosure versus 24.3% of the detached home market.
What can we expect in 2008? Look for Capitol Hill, the Bush Administration, and the Federal Reserve to really address the Financial Crunch in the first half of the year. Everybody is beginning to realize that lowering rates will not restore liquidity to the financial markets. Instead, we will most likely see a change to the conforming loan limit from $417,000 to $625,000, and some sort of troubled homeowner bailout. It is an election year and everybody is going to want to be part of the solution to restoring the U.S. economic engine. Until then, we can expect further tempered demand. As January rolls along, expect demand to rise from current levels. After the Super Bowl, the official start of the Spring Market in sunny California, demand will continue to rise, at about 80% of last year’s levels, and the inventory will rise. It is silly, but many homeowners are still banking on the Spring market as the perfect time to sell. Market Time will drop somewhat during the Spring this year, but will remain above a 10 month market. The Summer market, June through the first few weeks of August, will be marked by a further increase in the inventory and a slight drop in demand from Spring’s highs. Unfortunately, many sellers will continue to place their homes on the market because it’s sunny and summer. Summer is when many buyers want to already make their move in anticipation of the coming school year. It starts to get a little late to just open up an escrow the further summer winds down. Market time will grow during the Summer market. In the Autumn market, the end of August through Halloween, the current active inventory typically reaches a peak and then starts to drop as many sellers throw in the towel, anticipating the slower market to come. The active inventory will peak at around 20,000 homes. Demand will drop slightly and Market Time will not change much. The Holiday market, from Halloween through the first couple of weeks of the New Year, will show the largest reductions of the year in inventory due to sellers pulling their homes off the market. Demand will drop to its lowest levels of the year. We can expect market time to rise if not enough homeowners pull their homes off the market.
Buyers, what to do? I am consistently ridiculed for recommending buyers to purchase in this market. I must be biased, right? Not so fast. I thought it was a great time to purchase back in 1995 when the newspapers, television and the droves of buyers sitting on the fence highlighted the ill effects of the then current downturn. Everybody was waiting for the bottom. The only problem is that nobody rings a bell when we hit the bottom of the real estate market. Instead, many did not purchase in 1995, nor 1996, but opted to wait until 1997 or later, after prices were already on the rise. Nobody knows it’s a bottom until well after the bottom. Do not buy if you are looking to move in just a couple of years. But, if you are planning on living in your home for longer than just a couple of years, your timing could not be better. First, prices are soft. They average sales to list price ratio 94%, so take that into consideration before writing lowball offers and wasting tremendous time. Second, there are a ton of choices. Buyers were begging for more choices three years ago. There are many more homes to see in isolating the perfect home for your family. Third, and often the most ignored, rates are at historical lows and as soon as the market rebounds, rates will rise, cutting into affordability. For example, a home at $650,000, 20% down with a 6.5% interest rate will have a monthly payment of $3,280. If prices were to drop another 10% for the year, but rates were to increase to 7.5%, the $650,000 home would become $585,000 but the monthly payment would still be $3,272, almost unchanged. If rates were to increase to 8.5%, the same rate as in 2000, the payment would then increase to $3,599, an increase of $319 per month. If rates were to increase to 10.5%, the same rate as 1990, the increase in payment would be $1,001 per month! So, it is not JUST about price. Third, for those waiting for the sky to fall to much more affordable levels and expecting gigantic drops, that is what many buyers were anticipating during the downturn of the 1990’s and the early 1980’s and… It’s real simple, regardless of the downturn, there is stickiness to pricing. Prices just don’t return to prior run-up levels. Finally, Southern California, with low humidity, a lot of sunshine and plenty of outdoor activities is not only a great place to visit, it is historically a wonderful long term investment and a great place to call home.
Sellers, what to do? For sellers, the answer is much simple: place your home on the market only if you really MUST sell and have no other choice. Dress your home for success; meaning, market your home in the best possible condition using builder model homes as an excellent reference point. Best in condition, best in location and best in price equate to a successful sale. Have your home in showing condition on day 100 and not just the first few weeks; you never know when the buyer of your home will come walking through the door. There is a ton of competition, so pricing is essential; the better the price, the better the chances. In arriving at price, use only homes in escrow, very recent sales and aggressive listing prices. If you don’t have the best location, price your home accordingly. Lastly, remember there are 14,944 homes on the market and only 998 were placed into escrow within the last month. Given last month’s demand, 13,946 sellers will not be successful in selling their homes over the course of the next month.
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/
There’s no more eggnog in the refrigerator and already broken New Year’s resolutions are put off until next year. These are great reminders that the holidays are in the past and the housing market’s engine is beginning to thaw. There is a buzz in the coffee room again as more and more buyers are being chauffeured around Orange County in search for their home. This is cyclically the time that the real estate market ramps up as buyers start entering the market. By the end of January, demand will be significantly higher as more and more sellers start placing their homes on the market in anticipation of the Spring market. However, Sellers should know by now that the Spring will be tempered by rising inventory and lower demand, similar to 2007. The current active inventory is at 14,944 homes, a 1,184 home drop in the past four weeks, or 7%. On January 1st, the active inventory started the year at 14,724 homes; so, the inventory is already growing in anticipation of a better market. Demand, new escrows within the past month, dropped 34 homes in the past two weeks to 997 escrows. On January 1st, demand was at 944 escrows, so it too is already growing. Market time dropped slightly in the past two weeks from 15.05 to 14.99 months. Last year at this time, there were 11,643 homes on the market, demand was at 1,496 escrows and the market time was at 7.78 months. The inventory last year compared to this year is very similar in almost every price range with the exception of properties listed below $500,000. Last year, there were 3,083 properties listed below $500,000 versus 6,129 today, nearly double. The subprime fallout really hits homeowners in that range. 42.1% of all properties below $500,000 are either a short sale or a foreclosure. If you look at just detached homes, that number climbs to 56.7%. 67% of ALL short sale and foreclosure activity is below the $500,000 mark as well. So, it is no wonder that range is being hit the hardest. With so many homes in the lower ranges weighing down the inventory, expect the median price (that’s the middle value sold in a month) to continue to drop. Two years ago, there were 7,635 homes on the market, demand was at 1,573 escrows and the market time was at 4.85 months.
Currently, the condominium market is a bit better than the detached home market. The condominium market is at a 14.27 months supply compared to 15.14 months for detached homes. 31.3% of the current active inventory is vacant. For condominiums, the vacancy rate is actually 35.8% compared to 29.2% for detached homes. 29% of the active condominium inventory is either a short sale or a foreclosure versus 24.3% of the detached home market.
What can we expect in 2008? Look for Capitol Hill, the Bush Administration, and the Federal Reserve to really address the Financial Crunch in the first half of the year. Everybody is beginning to realize that lowering rates will not restore liquidity to the financial markets. Instead, we will most likely see a change to the conforming loan limit from $417,000 to $625,000, and some sort of troubled homeowner bailout. It is an election year and everybody is going to want to be part of the solution to restoring the U.S. economic engine. Until then, we can expect further tempered demand. As January rolls along, expect demand to rise from current levels. After the Super Bowl, the official start of the Spring Market in sunny California, demand will continue to rise, at about 80% of last year’s levels, and the inventory will rise. It is silly, but many homeowners are still banking on the Spring market as the perfect time to sell. Market Time will drop somewhat during the Spring this year, but will remain above a 10 month market. The Summer market, June through the first few weeks of August, will be marked by a further increase in the inventory and a slight drop in demand from Spring’s highs. Unfortunately, many sellers will continue to place their homes on the market because it’s sunny and summer. Summer is when many buyers want to already make their move in anticipation of the coming school year. It starts to get a little late to just open up an escrow the further summer winds down. Market time will grow during the Summer market. In the Autumn market, the end of August through Halloween, the current active inventory typically reaches a peak and then starts to drop as many sellers throw in the towel, anticipating the slower market to come. The active inventory will peak at around 20,000 homes. Demand will drop slightly and Market Time will not change much. The Holiday market, from Halloween through the first couple of weeks of the New Year, will show the largest reductions of the year in inventory due to sellers pulling their homes off the market. Demand will drop to its lowest levels of the year. We can expect market time to rise if not enough homeowners pull their homes off the market.
Buyers, what to do? I am consistently ridiculed for recommending buyers to purchase in this market. I must be biased, right? Not so fast. I thought it was a great time to purchase back in 1995 when the newspapers, television and the droves of buyers sitting on the fence highlighted the ill effects of the then current downturn. Everybody was waiting for the bottom. The only problem is that nobody rings a bell when we hit the bottom of the real estate market. Instead, many did not purchase in 1995, nor 1996, but opted to wait until 1997 or later, after prices were already on the rise. Nobody knows it’s a bottom until well after the bottom. Do not buy if you are looking to move in just a couple of years. But, if you are planning on living in your home for longer than just a couple of years, your timing could not be better. First, prices are soft. They average sales to list price ratio 94%, so take that into consideration before writing lowball offers and wasting tremendous time. Second, there are a ton of choices. Buyers were begging for more choices three years ago. There are many more homes to see in isolating the perfect home for your family. Third, and often the most ignored, rates are at historical lows and as soon as the market rebounds, rates will rise, cutting into affordability. For example, a home at $650,000, 20% down with a 6.5% interest rate will have a monthly payment of $3,280. If prices were to drop another 10% for the year, but rates were to increase to 7.5%, the $650,000 home would become $585,000 but the monthly payment would still be $3,272, almost unchanged. If rates were to increase to 8.5%, the same rate as in 2000, the payment would then increase to $3,599, an increase of $319 per month. If rates were to increase to 10.5%, the same rate as 1990, the increase in payment would be $1,001 per month! So, it is not JUST about price. Third, for those waiting for the sky to fall to much more affordable levels and expecting gigantic drops, that is what many buyers were anticipating during the downturn of the 1990’s and the early 1980’s and… It’s real simple, regardless of the downturn, there is stickiness to pricing. Prices just don’t return to prior run-up levels. Finally, Southern California, with low humidity, a lot of sunshine and plenty of outdoor activities is not only a great place to visit, it is historically a wonderful long term investment and a great place to call home.
Sellers, what to do? For sellers, the answer is much simple: place your home on the market only if you really MUST sell and have no other choice. Dress your home for success; meaning, market your home in the best possible condition using builder model homes as an excellent reference point. Best in condition, best in location and best in price equate to a successful sale. Have your home in showing condition on day 100 and not just the first few weeks; you never know when the buyer of your home will come walking through the door. There is a ton of competition, so pricing is essential; the better the price, the better the chances. In arriving at price, use only homes in escrow, very recent sales and aggressive listing prices. If you don’t have the best location, price your home accordingly. Lastly, remember there are 14,944 homes on the market and only 998 were placed into escrow within the last month. Given last month’s demand, 13,946 sellers will not be successful in selling their homes over the course of the next month.
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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