Just Listed...

Turnkey single level offers sit down ocean and Catalina views. This home has three bedrooms and two baths. Bright kitchen with breakfast counter and built-in china cabinet. Living room offers cozy fireplace and vaulted ceilings. Newer interior/exterior paint, heater and vinyl fencing.

$749,900

9 Cartagena, San Clemente

http://www.pierbowl.com

Orange County Housing Report: Lower Ranges Hot, Upper Ranges Not

The government has been hard at work attempting to jump start demand. The good news is that it is really working for all homes priced below $750,000, but little has been done to help homes found above $750,000. Homes above $750,000 represent 30% of the active inventory but only 12% of demand. What’s the problem? Unfortunately, Orange County has a lot of high cost homes that just are not falling under the scope of the immediate government fixes. Thus far, the Unites States Treasury, the Federal Reserve and Congress have stepped in and poured billions of dollars into the conventional lending system. In March of this year, conventional and FHA loan limits were changed in high cost areas, like Orange County, rising from $417,000 to $729,750. They took over Fannie Mae and Freddie Mac, the two private agencies responsible for purchasing conventional loans from all of the lenders that originate these loans. And, just a few weeks ago, since Wall Street and investors were no longer buying “pools” of loans from Fannie Mae and Freddie Mac, the government announced that they would step in and invest in these pools to the tune of $500 billion. So, the government has utilized just about everything it has in its bag of tricks to keep the financial system flowing for conventional and FHA lending products. These fixes unfortunately do not touch the jumbo lending arena, loans found above $729,750. Besides extremely tough lender requirements and at least 20% down, buyers seeking a jumbo loan are facing interest rates that are about 3% higher than conventional interest rates. Conventional rates are now hovering around 5% versus jumbo rates at 8%. That’s a significant difference. Prior to the current financial crisis, the difference between conventional and jumbo rates was about a quarter of 1%. Thus, demand in the upper ranges has been dramatically affected. Since the government is not backing up institutions that make loans outside of the conventional loan limits, jumbo loans, student loans, construction loans, investor loans, etc., lending institutions are making it much tougher to qualify and are charging a lot more for them. Without the government stepping into this area of lending, the products are “riskier” and lenders must charge extra for this risk. The current “frozen financial market” could have been avoided, and the severity of the current recession as well, if the government would have stepped in sooner. The programs pulled from their bag of tricks should have each been implemented about 6-months earlier. The “subprime meltdown” in March of 2007 turned into the “financial crunch” in August of 2007 as lending virtually came to a grinding halt. In September of 2007 Bernanke, the Federal Reserve Chairman, suggested that the conventional lending and FHA lending limits should be changed immediately and not wait 6-months for the crisis to grow worse. He knew that the government needed to be aggressive and proactive and not reactionary like it tends to be with just about every other crisis. Unfortunately, the government waited 6-months. Other government programs have followed a similar fate; thus, the “financial crunch” turned into the “frozen financial market” a few months ago. Investors were no longer willing to purchase the safest investment financial investments, loans backed by Freddie Mac and Fannie Mae. The government stepped in to purchase these pools of loans, something that should have been done much earlier in the year. Fortunately, 70% of the Orange County housing market has been aided by the government’s efforts. And, there is more aid to come. The government is not going to let up until they turn around housing. Look for programs aimed at abating foreclosures, lowering interest rates further (for conventional and FHA loans) and tax incentives for buyers.

So, how do the numbers look? Let’s count our blessing first and take a close look at total pending homes in Orange County compared to last year. Currently, total pending sales is at 3,890 versus 1,659 one year ago today. That’s a difference of 2,231 pending sales, or 134% greater. The difference is nothing short of staggering. With the beginning of the financial crunch last year, demand and the total pending count suffered immensely and so did prices. Values of homes plummeted as supplies were high and demand was low. Values are still dropping in most areas today, but not at the clip that they were last year. Demand, the number of new pending deals within the prior month, dropped by 235 homes in the past month to 2,322. A drop in demand is part of the normal Orange County housing cycle through the end of the year. Last year at this time, demand was at 1,148, 51% less than today. Two years ago it was at 1,839, 21% less than today. Three years ago, demand was at 2,175, 6% less than today. The last two reports mark the first time that demand exceeded levels reached three years ago, that’s 2005. Since demand is higher today compared to the prior three years, it is expected that we are in for healthier demand in 2009. All of the ingredients are there: lower interest rates, lower inventories, better values, more affordable housing, and more government programs geared towards stabilizing housing to come. In the last month, the active listing inventory has fallen by 870 homes to 12,388, its lowest point of the year. Cyclically, the inventory drops from September through the end of the year, but this is the first time since 2004 (prior to the current downturn) that a low in inventory was reached in the month of December. From 2005

through 2007, the inventory did drop, but each year ended with more inventory than it started with. Until this year, the inventory was methodically growing and reaching new highs. Last year the inventory was at 16,128 homes, 3,740 additional homes compared to today, 30% higher. Two years ago the inventory was at 12,661, 273 additional homes compared to today. Today’s expected market time is now at 5.34 months compared to 5.18 months four weeks ago. There has been a drop in demand, but equally, there has been a significant drop in the active inventory; thus, the expected market time has virtually remained the same. Last year the expected market time was at 14.05 month and 6.88 months two year ago. The distressed inventory, foreclosures and short sales, has dropped by 276 homes in the past two weeks to 5,519 homes, its largest drop of the year. Distressed homes currently make up 44.6% of the total active inventory and 66% of current demand. 78% of all distressed homes are found below $500,000 and 92% are found below $750,000.

So, if you are a seller, how should you approach the market? Regardless of the time of year, in a depreciating market, the time to sell is NOW. A homeowner that has to sell should not wait for the Spring market, cyclically the best time of year to sell with the highest demand. Currently prices are dropping about 1% per month. To wait a few months is risking losing additional equity. With increased demand, many markets and lower ranges may reach a bottom in pricing in mid-2009, but we expect to reach only equilibrium with no real change in price. There will still be additional foreclosures and short sales to compete with throughout 2009. These additional distressed homes will keep a lid on any potential appreciation. As a homeowner, if you have the ability to stay in your home for years to come, you will do fine. As we approach a market bottom, this in NOT the time to sell and rent. As stated earlier, in many areas and price ranges, most depreciation has already taken place. It would be better to stay within your home as your value will eventually rise again and restore much of the lost equity. The bottom line, it just takes time. Now, if you must sell, keep in mind that there is a lot of competition and a lot of the competition MUST sell due to mortgage unaffordability, job loss, foreclosure, divorce, relocation, etc. Sellers that MUST sell are motivated. As a seller, carefully arrive at price, be certain that your home is in great condition and choose the absolute best, experienced, professional agent that will help you navigate in this challenging market. As a seller, these are the only factors that you have control over. Approach this market with care. Don’t waste your time by overpricing your home and chasing the market down in price. Make sure that your home is in top showing condition to leave the most favorable impression for all potential buyers that walk through your door. And, turn to the expert with a proven track record in representing your real estate needs in this market. This is not the market to just leave the sale of your home to chance by working with the family member or friend or the “area expert.”

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/

Orange County Housing Report: The Government Will Fuel Demand

Now that the financial markets are frozen, the Federal Reserve has stepped in and will buy mortgage-backed securities to the tune of $500 billion. Almost immediately, rates dropped by about a half of a percent. As a result, more and more buyers will take advantage of rates and GOBBLE up homes right here in Orange County. Since the economy has put on the brakes as a direct result of the financial crunch and housing market, the government is poised to step in and do just about whatever it takes to get the economy back on track. The fundamental key to fixing the economy is to fix the lending crisis. We have moved from a subprime meltdown, March 2007, to a financial crunch, August 2007, to a completely frozen financial system, October 2008. The problem is that there are very few investors willing to purchase “pools of loans” on the secondary market. The financial system depends upon this. Even though current “pools” have real quality loans where borrowers actually have to qualify for the loan, nobody is stepping up to invest. The problem is that these investment pools had been rated by a few different companies and their rating systems were inaccurate and flawed. So, investors do not know who to trust at this point, and nobody has properly invested in the secondary markets. This is one crisis that is just not willing to work itself out without government support. With the government stepping in to purchase the mortgage-backed securities, suddenly rates dropped to the lowest level of the year. This is perfect timing if you are a buyer about to purchase. This is the first of many steps that the Federal Reserve, the U.S. Treasury and Congress will take to get our economy back on track. President-elect Obama has surrounded himself with a lot of talent in the past couple of weeks to address the current economy. America voted for change, and that is exactly what America is going to get. We can expect there to be sweeping changes reminiscent of Franklin D. Roosevelt. There will be programs to abate foreclosures and unemployment. There will be programs to encourage buyers to purchase in today’s housing market. So, change is in the air and Orange County housing will be a direct beneficiary. This may take a several months to totally trickle down to housing, but some of the programs, like what the Federal Reserve did earlier this week, will have an immediate noticeable impact. Let’s put a half point rate drop in proper perspective. Dropping from 6% to 5.5%, a buyer would save $158.55 per month, or $1,902.60 per year, with a $500,000 loan. Put in another way, the payment for a $500,000 loan at 6% is the same as the payment for a $528,000 loan at 5.5%. So, a buyer that had been looking at a loan of $500,000 could either pocket the savings or look at spending about $28,000 more with no effective change in their mortgage payment.

So, how do the numbers look? It is too soon to see the impact of the change in rates on demand. This change comes in the midst of the Holiday market, the slowest season for Orange County housing. The impact may not be felt until the end of January, the beginning of the Spring market. Current demand, the number of new pending sales within the prior month, dropped by 111 homes in the past two weeks to 2,446. Last year at this time, though, there were only 1,243 pending sales, 49% fewer. Two years ago there were 531 fewer pending sales, a 22% difference. The total active inventory is now at 12,947 homes after dropping by 311 homes in the prior two weeks. Last year there were 3,822 additional homes on the market and 625 additional homes two years ago. The expected market time is currently at 5.29 months, a small increase from 5.18 months two weeks ago. Last year the expected market time was at 13.49 months and 7.09 months two years ago. There are now 5,795 distressed homes on the market, foreclosures and short sales, a drop of 6 homes in two weeks. Last year there were 3,525 distressed homes on the market, 2,270 fewer. The difference is that the today’s distressed inventory has been at a plateau since June. Last year at this time the distressed inventory was rapidly increasing. In November 2007 alone, the distressed inventory increased by more than 500 homes. 78% of all distressed homes are below $500,000, compared to 63% a year ago. 93% of all distressed properties are found below $750,000, the same as 2007. The distressed inventory represents 45% of the total active inventory and 66% of demand versus 21% and 26% respectively one year ago. Back in June of this year the distressed inventory represented 40% of the active inventory and 49% of demand. There were actually 103 additional distressed homes on the market and 123 additional distressed homes embedded within demand. The big difference currently is that we are in the throes of the Holiday market and there are fewer discretionary home sellers, sellers with equity in their homes, on the market. Discretionary sellers don’t have to sell. They have a choice and would rather enjoy the holidays.

So, if you are a buyer, how should you approach this market? My educated bet is that the government’s comprehensive attention to the economy, financing, foreclosures and housing will have a significant impact on the Orange County housing market. Factoring in Obama’s New Deal after he takes his oath of office in January and factoring in the delay in implementation, I am actually going to call a bottom in the market at around June 2009. It could come even sooner, time will tell. I am certain the doomsayers, a.k.a. the “bloggers,” will eat me alive, but the fundamental ingredients are all there: robust activity in homes below $500,000, lower interest rates, home affordability at levels not seen in years, more government programs to come. The below $500,000 range is significant as it represents 70% of the active inventory. Also, it is important to note that the lower ranges always lead in a housing market recovery. Home prices have already completed a majority of their movement. From August 2007 through February 2008, prices dropped between 3 to 5% per month. Now, they are on pace to drop between ½% to 1%, but will stop and plateau in about six months. So, if you are a buyer willing and able to stay in your home for the next several years, be assured that your investment in your home will more than pay off. Many discount the notion that we will ever return to rapid appreciation, but in markets like today, prices often drop below the “true” bottom as “would be” buyers hesitate and sit the market out until they are assured that the “water is perfect.” Yes, I am saying that current pricing is below where pricing really should be. This will be proven out in a couple of years from now after everybody is properly informed that the market bottomed out a while ago. Economists and experts alike can never tell you precisely when a bottom is occurring; instead, after there is months of data, they will establish that a bottom occurred somewhere in the past. For the first year after a bottom is called, buyers will be skeptical and sit the market out, waiting for the “herd.” After many buyers enter the market, the new “herd mentality” of our economy will ignite a wave of buying that will drive demand through the roof and we will realize rapid appreciation once again. The naysayers can chime in again and point to charts, experts and economists that state the opposite, but nobody is picking up on the newest element of our current economy, the “herd mentality.” If you need proof, take a look at Wall Street over the past month and a half. The swings up and down are unprecedented. There is no rush right now, but if I were a buyer, I would isolate the perfect home for my family right now. Do not be afraid to the pull the trigger. Even if prices drop a few percentage points more, know that in the long run you will do fine. Orange County housing is an excellent long term investment and much better than stocks and bonds. Be very aware that in arriving at price, the average sales to list price ratio for all of Orange County is 97% and for foreclosures it is 101%. If you are contemplating writing an offer at 90% of the asking price, be assured that the data is not in your favor and that the chance that your are wasting everybody’s time and paper is rather significant.

So, if you are a seller, how should you approach the market? Unfortunately I have already heard of sellers willing to wait for the government to step in to fix the housing market. As a seller, if you have to sell within the next 18 to 24 months, you are not sitting in as good of a position as buyers. Sellers that have the ability to sit on the sidelines longer will be fine. So, even though we are in the midst of a Holiday market, if you have to sell, price your home according to the market value, or slightly below, and have your home ready to show each and every day, from day 1 to day 101. As a seller you never know when the buyer of your home is going to walk through your door, so be ready. In arriving at price, be acutely aware of your location and condition. Are there power lines nearby? Can you hear street traffic from your home? Is your home in perfect move-in condition? Remember, with so many homes on the market, competition is fierce and if two homes are identical, but one has a better location, that is the home that will always sell first. As a seller, carefully choose the agent that is going to represent you in the sale of your home. It’s not about price; it’s about experience and knowledge to help navigate through the challenging housing market. It is not brand that will sell your home. It is not the “area expert” that will sell your home. It is not the licensed friend or family member that will sell your home. To be successful in this market, you need an actual expert in real estate. Somebody that knows the local market inside and out with data, a proven track record and experience. This is the market where the agent interview is the most important element in selling your home. So, interview carefully and do not jump to a quick decision. I personally know of an individual who went with the “subdivision” expert over the “market “expert to save in commission dollars. He sold the home with the subdivision expert after 14 months on the market and $250,000 in price reductions. Had he paid a few thousand dollars more and hired the market expert, he would have netted an additional $140,000. The moral to the story: if you are a buyer or seller, hire an expert to best represent your family.
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/