October 2007 newsletter - individual

THE SUB-PRIME MELTDOWN CONTINUES TO HAUNT HOME SALES... Everyone has seen the headlines of the continuing woes for lending and subsequently, home sales.  The question is what does it all mean and how long will it continue?  Conservatively, the lending industry has lost 20,000 jobs and countless small mortgage companies and more than a few industry giants.  However, money itself is not the problem.  Kenneth Harney, a writer for the Washington Post Writers Group deftly noted that money is still plentiful.

                "The majority of mortgage products remain relatively unaffected by troubles in the sub-prime segment, and interest rates for 30 year fixed-rate loans remain in the low 6% range for people with reasonable good, not perfect, credit backgrounds."

                The article goes on to state that the only real change in money is that loan underwriting programs have regained a strictness that allows only borrowers who can truly afford a loan, to receive that loan.  The rash consumerism of both the borrowers of sub-prime and Wall Street who voraciously snapped up those loans is gone. 

HOME SALES is another matter.  Unfortunately the effects of those sub-prime loans are going to be felt for some time.  How long depends on where you live and how subject your city and even your neighborhood is to high numbers of those loans.  Simply put, once these loans adjust, we are left with high numbers of people who cannot afford the payments.  These problem loans become foreclosures.  Foreclosures drag down the home prices in their neighborhoods.  Buyers become aware that prices are sliding and they decline to enter the market until they feel satisfied that prices are as low as they are going to go.  You begin to see the cycle.

HOW DO WE BREAK THE CYCLE AND WHAT DOES IT MEAN... Sellers and buyers need to be aware during this market.  All real estate markets are cyclical and this one is no different.  The market may cycle for different reasons, but it does cycle.  First of all, sellers must be realistic about price and condition of their property.  They must understand that staging a property for sale and open house is crucial right now.  IF YOU DON'T ABSOLUTELY HAVE TO SELL RIGHT NOW, DON'T SELL, BECAUSE YOU WON'T LIKE THE PRICE YOU WILL HAVE TO SELL AT.  But if you do have to sell, getting it properly priced at the very beginning, staging the property so the buyer can easily see themselves in the property, will ensure you the very best offer usually in the quickest time.  BUYERS!  DON'T WAIT TOO LONG TO BUY.  INTEREST RATES MUST BE A PARAMOUNT CONSIDERATION.  UNLESS YOU ARE A SPECULATOR, YOU WILL BE IN YOUR HOME LONG ENOUGH THAT A FEW MONTHS WILL MAKE NO DIFFERENCE IN YOUR LONG TIME APPRECIATION.  BUT ONE HALF A PERCENTAGE POINT IN INTEREST WILL MAKE A HUGE DIFFERENCE IN YOUR PAYMENT. 

ALLEN GREENSPAN STATES IN HIS NEW BOOK THAT DOUBLE DIGIT INTEREST RATES WILL BE NEEDED TO CURB GLOBAL INFLATION... Is that true, or is he trying to sell books.  Who knows, but interest rates are pretty good right now.  Buyers must take this into consideration when contemplating when to buy a home.  There are more factors affecting interest rates than anything else in a transaction.

BUYERS MAY WANT TO BUY BEFORE THE INVESTOR/ SPECULATOR RETURNS TO THE MARKET... No one knows exactly when.  It could be as early as second quarter 2008 -- This projection is for Orange County.  Inland Empire will lag significantly due to the higher number of sub-prime loans - or it could be as late as first quarter 2009.  But the true homebuyer has a better shot prior to that.  Yes, speculators may initially bring prices lower still.  But once they have snapped them up, they will make improvements and place them back on the market for a higher price to make a quick profit.  Speculators are a prime reason prices went so high so fast, in the first place.

NOW MORE THAN EVER A REAL ESTATE PROFESSIONAL MAKES THE DIFFERENCE... Make no mistake; this market has hit many hard.  Standard Pacific Builder has halted dividends to save money.  The OC Register had an article which wondered what took the Fed so long to recognize the slump and lower rates.  Local job growth went from 2% to "virtually nil."  We are having our slowest sales since 1995.  The total number of sales the latest month available (August) is 2,285 for single-family and condo resale and new homes.  This number is 33.9% lower than a year ago and that  number was 33% lower than the year before that.

                I can help you with any real estate challenge you may have.  If you have questions on whether selling now is right for you, please call me.  If you wonder if now is the time to buy, there are many positives for you to consider such as interest rates, selection and seller concessions, namely loan buy downs that could make a huge difference for you.  Now is the time when we need to talk about real estate more than ever.  Also, the privilege of serving your family and friends is the life blood of my business.  I hope to hear from you.