Demand is surging and last week’s newly revealed stimulus plans haven’t even hit the Orange County real estate scene yet. Prior to diving into the numbers, let’s decipher the impact of both stimulus plans on Orange County housing. This is just an initial overview, as more details will be revealed as these programs are officially launched. First, here is how the Economic Stimulus Plan for 2009 will affect housing:
· Tax Credit - $8,000 tax credit for anybody that purchases a home and has not owned a home in the prior three years. This credit is good for all purchases of primary residences from January 1st through the end of November, 2009. For example, if a couple has a tax obligation of $3,000, with the credit applied, they would instead receive a refund of $5,000. The tax credit begins to phase out for couples with incomes above $150,000 and individuals with income above $75,000. They also must live within the home for three years.
· Conventional Loan Limit - the conventional loan limit for high cost areas will increase for high cost areas to last year’s $729,750 level. The limit had dropped to $625,500 on December 31, 2008. As a result, this will return buyer activity to homes between $700,000 and $800,000.
Here is how the Homeowner Affordability and Stability Plan will affect Orange County housing:
· Refinancing Loans – for homeowners with less than 20% equity, they can now refinance their loans. This is for all loans at or below the conventional loan limit. Remember, this now goes all the way up to $729,750 in Orange County, considered a high cost area. This program is not available for homeowners that owe 5% more than their homes are worth.
· Stability Initiative – this program is designed for homeowners who are struggling to afford their monthly mortgage obligations due to high mortgage payment to income ratios and cannot sell because prices have fallen too far. The program will reduce a homeowner’s monthly obligation to levels (debt ratios) that are more sustainable. Homeowners that are still current on their mortgage can apply as well. This program is also aimed at loans at or below the conventional loan limit. The lender will be required to modify the loan down to a 38% mortgage debt to income ratio. Lenders will accomplish this by reducing the interest rate or the outstanding amount owed. The federal government will match the lender’s reduction dollar-for-dollar down to a 31% debt to income ratio. After 5 years the rate could increase. There is a monthly incentive to stay in the home after it is modified, up to $1000 per year for 5 years.
· Low Mortgage Rates – the Treasury Department is doubling its pledge to invest money in Freddie Mac and Fannie Mae in an all out effort to keep interest rates at their current historically low levels and to maintain the proper flow of loans.
In Orange County, we are already experiencing tremendous demand in the lower ranges. These stimulus plans will ultimately help our local real estate market further. How far reaching will play itself out over the coming months, but we are already seeing quite a bit of activity earlier this year compared to 2008. A bottom in pricing in the lower ranges may be right around the corner, which ultimately would increase confidence. Establishing a bottom in the lower ranges is essential in stopping the fall in ALL ranges. In no means will the flow of short sales and foreclosures stop; however, the levels will start to drop. With lower levels of distressed homes and higher demand, the market will improve.
So how do the numbers look? In the past two weeks, demand, the number of new pending sales within the prior month, increased by 148 homes to 2,891. Last year at this time there were 999 fewer pending sales, totaling 1,820. Two years ago there were 2,463 pending sales, 208 fewer than today. It will be interesting to see the affects of the stimulus plan on Orange County housing demand over the next 60-days. The active listing inventory has remained flat so far this year, decreasing by 19 homes over the past month, bringing the current total to 11,541. Last year the active inventory was 33% higher at 15,392 homes. Two years ago there were 653 additional homes on the market, totaling 12,194. The current expected market time dropped from 4.31 months two weeks ago to 4.09 months today. This is the lowest expected market time since April, 2006. Last year the expected market time was 8.46 months and dropping. It was dropping because demand was finally being restored after a major price depreciation due to a 6-month hiatus in buyer activity. Two year ago the expected market time was 4.59 months. Total Orange County pending sales is at a much healthier level compared to the last two years. Currently, total pending sales is at 4,341, an increase of 322 pending sales in the past two weeks. In 2008, Orange County did not reach the current level until June, the tail end of the Spring market. The difference this year, the Spring market has really just begun. Last year at this time, total pending sales totaled 2,333, 2,008 fewer than today. Two years ago it was at 3,391, 950 fewer compared to today.
There are 190 fewer distressed homes on the market, both foreclosures and short sales. Since the end of November, the total number of active distressed properties has dropped by 918 homes, a drop of 16%. The distressed inventory represents 42% of the total active inventory, dropping from 44% two weeks ago. 62% of all pending sales are either a short sale or a foreclosure, dropping from 61% two weeks ago. The expected market time for foreclosures dropped to its lowest level of the downturn, .99 months. That’s correct; it stands at a little less than a month. Short sales dropped to its lowest level as well with an expected market time of 5.16 months.
What about the upper end? When the expected market time for a range falls above the 12 month mark, competition is so fierce and demand is so low that it is basically a deep buyer’s market. A change of several pending sales can adjust the expected market time dramatically, since the number is so small to begin with. Over the past couple of weeks that was demonstrated in spades. The expected market time changed considerably as demand increased. However, it is still a deep buyer’s market. For example, the expected market time for the $4 million plus market dropped from 60.0 months to 33.36 months. What happened? Demand increased from 5 to 11 pending sales and the active inventory increased from 352 to 367 homes. So, demand is up, but it is still at a level where it is nothing to write home about. Demand for every range above $750,000, with the exception of the $1.5 million to $2 million range, increased. It would be great if this trend continued, but most of these homes are financed with jumbo loans, loans above $729,750. It is still extremely challenging to procure a jumbo loan and the rates are almost 2% higher than conventional rates. These loans are scrutinized so carefully because lenders cannot sell them off to investors, so they need to keep these loans on their balance sheets instead. The government is not going to touch this sector. Instead, the upper ranges will be restored when confidence in the financial system restores to Wall Street and the international investment community.
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, February 24, 2009
Tuesday, February 17, 2009
Just Reduced in San Clemente
1408 Avenida Tranquilla, San Clemente$819,000
Nestled in the hills of Rancho San Clemente, this pristine home features numerous upgrades. Offering 5 bedrooms, 3 baths and a 3 car garage. Main floor 5th bedroom is currently used as an office. The gourmet kitchen features granite counters and opens to a spacious family room. Complete with cozy fireplace and a plasma t.v. Beautiful wood floors throughout most of the lower level. All baths feature granite counters and framed mirrors. Crown moldings, high base boards and designer paint accent the living areas. Relax and unwind in your backyard with covered outdoor living area, firepit and bar with built-in barbeque, sink and refrigerator. Central vacuum makes for easy clean up. Exterior recently painted. Situated in the sought after community of Brisa Del Mar with association pool and spa.
For a showing of this fine home call Dianna and Brian McGarvin at 949-370-2652.
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