September 2007 newsletter - individual

HOW TO STAY BALANCED IN A CRAZY REAL ESTATE MARKET... The sub-prime meltdown is definitely causing pain for many people in the housing sector.  Lenders have been wiped out overnight and Wall Street is reeling from greedily gobbling up all the sub-prime they could find.  Greed has played a role in every decade.  The 80's was the junk bond debacle.  The 90's brought the IPO and dot com fiasco.  And this decade is sub-prime.  Unfortunately, it's the consumers who bear the brunt of the burnout.  How to stay balanced?  If you look at the history of real estate, it has always been cyclical.  Now is no different.  Anyone who bought a property during the 90's and held it 10 years probably made more money that a stock would have brought.  We can't forget that real estate is inherently practical.  You must have a place to live.  You must pay for that place so why not build equity as opposed to throwing it away on rent.  The tax savings are great but the main component that separates real estate from stocks is leverage.  You get to use someone else's money and you get to keep the equity.  Staying balanced in this market is simple.  If you don't absolutely need to sell, you probably shouldn't unless you are realistic about price.  If you do need to sell, just reducing the price, at this juncture, probably won't be enough.  Everyone is lowering their price.  Now is the time to offer incentives on closing costs and loan buy-downs.  Even though buyers will tell you they are price sensitive, (no one wants to overpay for a house), they are really payment sensitive.  That monthly payment dictates how much house they can buy.  Obviously that's partly how we got into the mess we're in, people were unrealistic.  But you can safely buy down a 30 year fixed loan for 2 or 3 years and now your home has something that your competition doesn't have... an attractive payment. 

                If you are buying right now, don't try to steal properties.  It won't work and you'll possibly ruin the chance of having a home you'd really like to buy.  Prices are not going to collapse, so be realistic.  Rather use this market, which is to your advantage, to get concessions that really matter to you.  Remember, interest rates are still great on conforming loans, that is, loans that can be sold to FNMA or Freddie Mac.  But jumbo money will cost you and will continue to dry up.  All these things must be considered in your hunt for the perfect dwelling.

WHAT WERE THE ACTUAL NUMBERS... The total number of sales for Orange County for July (the latest month available) was 2,391 which was nearly 10% lower than the previous month and nearly 20% lower than July a year ago.  It can be argued that the papers are sensationalizing the news and spinning it for the worse.  Why?  When you consider the hundreds of lenders that closed their doors, the impasse right now on Wall Street, the fact that home sales only slowed 10% is significant of a still standing real estate market.  There were 1,560 single-family sales, 580 condos and 251 new homes.  The median price for all was $640,000.  No price range had more than 355 sales except the over $700,000 which had 906.  Notices of Default rose 5% from last month to 1,167 and actual foreclosures numbered 367 which was up a paltry 3%

WILL THERE BE A FED BAILOUT... There are some pretty heady names asking for one.  Bill Gross from Pimco is urging it and others are following.  The feds have indicated that they will not bail out lenders and investors, but it would seem to be a little early to tell.  The extent of the problem is not yet fully known and how resilient the market is, is not yet known.  Expect to see a return of creative financing with loan assumptions, seller carry backs, and other solutions.

ODDS AND ENDS... According to the Kiplinger Editors there are still land developers bullish on Orange County regardless of the housing slump.  "Investor-backed Forestar Land Partners will buy more than $250,000,000 worth of land in Southern California."  Also Irvine, Anaheim, Santa Ana, and Huntington Beach will account for nearly 49,000 new homes over the next 7 years.  Yes, you read that right.  If you missed the color coded map of Orange County foreclosures by city, call me and I will get it to you.  Most of Orange County is faring well even though there are hubs of sub-prime foreclosures starting to spring up. 

YOUR REAL ESTATE PROFESSIONAL MAKES A DIFFERENCE... It is my job to stay on top of legislature that may affect home ownership.  You may want to drop a line to your congressman about a "carbon tax" bill that proposes a cutoff of mortgage interest tax deductions based on the size of the house.  The cutoff is only 3,000 square feet.  The article was in the LA Times and I can get you a copy if you would like to see it.  Finally, a note to sellers: another great option to distinguish your home from the competition is to get your home inspection up front.  That way the buyer has a comfort level in knowing right away, the condition of the home they are thinking of buying.  That, along with some smartly played concessions could sell your home in no time.  I'm always here to serve you and answer any real estate questions.  Have a great month!