"OPINION HAS CAUSED MORE TROUBLE ON THIS LITTLE EARTH THAN PLAGUES OR EARTHQUAKES." ~ Voltaire. 

All I know is:  The pristine properties that my Clients  like and want to put offers on..have other people making offers, too. 

« Demand for O.C. homes now passing ‘06 pace Calif. home price down 24%, nation's worst »O.C. homes seen undervalued, 1st time since ‘03

by Jon Lansner/Orange County Register columnist Economists at Global Insight and National City Bank    
say Orange County housing is now 5.2% undervalued
- yes, undervalued. That's the first time this math shows
local homes as relative bargains to broad economics since
the second quarter of 2003. It's also the largest
undervaluation since the final three months of 2002.This O.C. undervaluation contrasts to 6.1% overvaluation found for the previous quarter; 22.8% overvaluation in 2007's first quarter; and a peak overvaluation of 35% in 2006's second quarter. (Chart shows O.C. valuation - overvalution is above the 0% line, undervaluation is below - since 1985.) Global Insight/National City economists track home valuation nationwide by mixing pricing data with interest rate, income and other demographics data.

The undervalution fits with evidence that O.C. bargain hunters are nudging home sales up, with recent Re/Max data showing new purchase deals in the works at a two-year high. Clearly, Global Insight/National City's new undervalued rating for O.C. is a result of falling home prices. By this math, O.C. home prices fell in the 1st quarter at a 19.7% annual rate, steepest drop in this database dating to 1985. O.C. prices are off 24.4% vs. the peak reached in 2006's final quarter by Global Insight/National City's count. (DataQuick has O.C. homes off 24% from its June ‘07 peak!)

Look at it this way: Global Insight/National City sees O.C. homes as the 123rd best bargain out of the 330 markets nationwide tracked. For the first quarter, the nation's best housing bargains, by Global Insight/National City's math, can be found in Houma, La., (33.7% undervalued) followed by Houston (33.1%) and Shreveport, La. (30.7%.) The most overvalued properties are in Atlantic City, N.J., (55.6% overvalued) followed by Bend, Ore., (49.5%) and Longview, Wash. (40.2%)

James Diffley of Global Insight says, "The large price adjustments we have seen are precisely what was required before we could begin to talk of recovery." Adds colleague Jeannine Cataldi: "The housing market will take some time to recover as consumers are constrained not only by tighter credit standards, but rising costs in other areas of the economy. There is also excess supply that needs to be absorbed, plus the rate of foreclosures entering the market needs to slow before housing can begin to pull out of its current downward trend."

The full report can be found HERE and HERE.

A must read article from Peggy

Nothing ever stays the same.  Yes, we're at the tipping point of "the changing of the buyer's perception" in regards to the housing market. My best indication of this fact:  My phone is ringing allot more with investors and homebuyers.  My Pending deals are at 2006 levels and our Inventory of homes for sale is below 2006 levels.

The Housing Crisis Is Over

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

By CYRIL MOULLE-BERTEAUX
Wall Street Journal           May 6, 2008; Page A23

I love charts!  When two lines cross, something is changing.  Pending deals are up.  New Listings are down.  Inventory of homes "For Sale" is down.  We are now at a 4 month supply of homes down from a 10 month supply of homes for sale.

This is our Neighborhood. 

This is NOT include Newport Beach or Laguna Beach. 

This is NOT include Corona or Santa Ana. 

Is this a new trend?  The last two month have been following along these lines.

Call or email me if you'd like to discuss this.

Great Read but Peggy adds a 4^th  lesson : 

Remember that "one" of the reasons you are getting a discount from the bank on this home is because you are not receiving any disclosures about the home's history.  We may see some surprised buyers if they don't take the time to do their due diligence BEFORE they purchase a Bank Owned home.  

Real estate bargain hunting:  Three lessons

•1.       There really are bargains out there. And you should follow along, whether you're in the market or not. True, buying foreclosures has been a game mainly for real estate professionals trolling the market for desperation. Owners had typically let the place fall apart along with their finances. These homes weren't for everyone. Now, with declining prices and the irrationally exuberant lending of the recent past, foreclosures are coming to more respectable owners in more respectable areas. Upshot: if you shop carefully you can get far more for your dollar than even a few months ago.

•2.       The free market still works. To find the bottom of a market -- either yours or one you plan to buy into, track the lowest foreclosure sales. Have a real estate professional help you examine the statistics. The bidding war on the foreclosure speaks volumes about the real market price.

•3.       It's still about location. Obviously, not every foreclosure in every neighborhood is an opportunity. Vines suggests: "The best bargains are found in neighborhoods with a lot of new construction and sales in 2005-2006, priced somewhat above the median price for the greater area."

Watching the foreclosure market will give a snapshot of where you are and where you're going with real estate. And you might find a good deal along the way.

By Jennifer Openshaw,  Peter Sander contributed to this article.

This reminds me of 1992. My Buyer's were full of fear and couldn't move forward. Some got great deals and a few really miss out on a wonderful opportunity.

Should We Ignore The Headlines?

From Time Magazine; February 2008

I recently came across this article that summarizes perfectly the current state of the real estate market here in South Orange County. And surprisingly...it has nothing to do with finding steals at 20-30% below market value, bottoming out prices or agents trying to trick their clients into buying when it's not right for them.

Famed Money Manager is perhaps best known for his timeless wisdom that you can beat the pros by focusing on stocks of companies where you either work or shop or have some other edge. But a more relevant Lynchism today is this gem: Ignore The Headlines!

That's no easy thing. How do you tune out all the chatter and ink on recession, housing, subprime woes, the credit crunch, rogue traders, insolvent bond insurers, $100 oil and nukes in Iran? It's enough to make you sit on your thumbs and wait before making any big moves. But what, exactly, are you waiting for?

There has rarely been a moment in history when you couldn't scare yourself into doing nothing. And yet, as Lynch observed nearly 20 years ago, "in spite of all the great and minor calamities that have occurred ... all the thousands of reasons that the world might be coming to an end--owning stocks has continued to be twice as rewarding as owning bonds."

A top reason to not buy stocks, in Lynch's view, is if you don't already own a home--in which case, that should be your first investment, since an owner-occupied home is nearly always profitable. Through a spokesman, Lynch reaffirmed these views to me--housing debacle and all.

When prices are falling, few people have the discipline to buy stocks, a house, gold, art or any other asset. But those who do pull the trigger excel in the long run. As John D. Rockefeller famously said, "The way to make money is to buy when blood is running in the streets."

And the streets are stained crimson. Start with stocks. They have been pummeled this year. GDP braked sharply last quarter, and there has been plenty of panic about a recession. The Federal Reserve is slashing short-term interest rates at the fastest clip in decades. But if you stick to your steady, diversified plan while everyone else is retreating, you will be happy years from now. For one thing, Fed rate cuts always lift the economy eventually, and the stock market typically starts responding just as headlines get gloomiest. Sure, the market could fall again before recovering. But the recession may be half over already--or we may avoid one altogether. You just never know.

As for housing, certainly some skepticism is in order. Formerly sizzling markets in Florida, Nevada, Arizona and California probably haven't seen the worst headlines just yet, though they may well be close. And "jumbo" mortgages, those more than $417,000, are likely to remain artificially high for a few more months while banks work through their credit issues.

But let's say you are emotionally ready to be a homeowner. You have good credit, plan to stay put for five years and have been waiting for the perfect entry point. It's time to get serious--before an inevitable rise in interest rates wipes out your advantage. "The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher," says Jim Svinth, chief economist at mortgage firm Lending Tree. So anything you gain by a further drop in prices might be offset by rising financing costs.

Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today's rate of 5.5%. Monthly principal and interest come to $994.31. Let's say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you'd have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you'd rather not be.

It's more complicated if you must sell before you can buy. But that logjam won't persist forever--and if it appears you'll be trapped for a few years, try to refinance at today's lower rates. Risks always seem most acute when the headlines give you ulcers. But that's exactly when you should think long term--and get off your thumbs.