Are you a buyer who has been sitting on the fence? Congratulations - Now Jump Off!

I believe we are currently at the bottom of the market in an important segment of the real estate market. That segment in Orange County, California are financed single family properties priced under $500,000 and condos priced under $300,000.

While I will share quantitative support for this theory, the basis of my opinion is founded on the principal of contradiction. I believe that contradictions provide advanced warning of market peaks and valleys. For example, the contradiction between prices and affordability, coupled with the contradiction between common sense and lending practices, pointed to a market peak a few years ago.  (Yes, there was more to it, but we're on to this market now.)

Here are the contradictions that support our market bottom under $500,000 as stated above.

1. Decreasing real estate prices contradicts increasing demand for the same. Demand is up 20% over last month and hasn't seen these high levels since 3^rd quarter, 2005. Supply is down 10% over last month and hasn't seen these low levels since 2^nd quarter, 2006.  

2.  Artificially low interest rates contradicts inflationary spending policies.  With inflationary times, we should see higher interest rates. Low interest rates have increased demand. When the tide shifts, higher interest rates will curb some demand, giving cash buyers their market bottom in about six months in my estimation.

3.  Government intervention on real estate supply contradicts free market demand. Fannie Mae holding off on releasing foreclosure properties onto the market? What a crazy idea that was. Why reduce supply when demand is high? Get them off the market so we can clear out this mess.

Here are the facts from the trenches, not the reports from the media.

1. We have only a 3 week supply of bank owned foreclosures on the market. Six months would represent a market equilibrium between buyers and sellers. They are, as they say ... "selling like hotcakes".

2. Bank owned properties are selling within days with multiple offers, often over list price. The exceptions are overpriced, aged listings in need of repairs not factored into the price. The reasons are supply, demand and poor pricing guidelines by the bank.

3.  Cash is king. Because of tight lending, both equity sellers and banks alike are willing to take a lower cash offer over a financed offer - especially FHA offers. Why? The carrying costs and perceived market risk of holding a property for another 60 days if its falls out of escrow.

The bottom line - if you are a buyer in the Orange County (and most parts of Riverside County) financing property under $500,000, it's time to take your search more seriously. Interview and hire an expert buyer's agent who understands the current market. Make sure your agent is aggressive and will do their best to get as you the information necessary to make the right offer that gets accepted.

We advise our buyers to ignore the listing price. Why? Price is a marketing tool - nothing more. And for the banks, it's not even a tool - it's a guess. Instead, simply select properties you are interested in. Then, have your agent determine the "current market" value of those properties based on recent sales and escrows. Your offers should not be based on momentum, fear and certainly  not the listing price. Your offer should be based on each property's current value.

If the current market value is $300,000, and the property is priced at $275,000 - it will get multiple offers, up to and even over market value. Why over? It's the auction principal and momentum of demand. Don't get caught in this trap. Cap your offers at market value, unless you are willing to pay the "premium" for your dream home.

If the current market value is $300,000, and the property is priced at $325,000 - it will sit on the market with birds chirping. Don't ignore these properties because they are "over your price range". They are not - they are just overpriced. Offer fair market value or less. A motivated seller in today's market will recognize that you have submitted their only offer. In addition, because they are not involved in the momentum of correctly and underpriced houses, they will fear further market declines. These homes present a very unique opportunity and should be considered in your search.

It's an exciting time in our market. For first time homeowners, we have low interest rates, low housing prices, tax breaks, excellent affordability and decent supply. For investors, we have low interest rates, high cap rates, good cash flow and a widening pool of tenant applicants to choose from.

If you've been sitting on the fence, congratulations ... now jump off.