April Real Estate Newsletter

April 2008 Newsletter

FIRST THE GOOD NEWS!  ORANGE COUNTY HOME SUPPLY AT 11 MONTH LOW... As of the end of March, the most recent numbers available, the county was left with 7.5 months worth of inventory. The term "market time," defines the inventory line by how long it would take to sell all the homes listed at the current pace of sales. This is the lowest inventory in a year.  But even more of a silver lining is the fact that a true down market, by definition, must have 15 months inventory according to the National Association of Realtors. Then why is our market so sluggish? There are several reasons. First of all, there is a lack of money.  Lenders are running skittish and are hesitant to buy mortgage backed securities.  Secondly, people are afraid.  It is always nerve wracking to buy when everyone is selling, even though that is exactly when you should buy. People that buy their homes now, with the guarantee of low interest rates, will be the ones bragging in 10 years about what a great deal they got on their home all the while sitting on a pile of equity. The key reason for the improvement in inventory is of course sales.  According to the OC Register the latest count for deals in escrow was 2.083, (March 25^th), up 109% from January 19^th's wintertime low.  Read on to find out what's causing the surge.

WHAT'S CAUSING THE SURGE AND WHAT ABOUT ALL THOSE FORECLOSURES?... The surge is caused plain and simple by buyer demand.  Right now, if a home is properly priced for its condition, it will sell.  Because of incredibly bad publicity, buyers have sat and sat and sat on the sidelines.  Many of them can wait no longer to buy. AND THEY SHOULDN'T WAIT ANY LONGER.  RIGHT NOW IS A GREAT TIME TO BUY PROPERTY!  That's not to say it couldn't get even better in terms of prices declining, but the unknown quotient there is interest rates.  Right now, we know that interest rates are great.  We know the Fed has been very proactive in trying to guard the market from a true crash and all indications are it will continue to do so. Right now is the best inventory. As this buyer cycle peaks, less desirable property will be available and in less quantity. According to Dataquick Information Services we so far have seen a 12.9% median price drop in LA county, 16.1% drop in Orange county (bringing it back to 2004 levels), and 21% down in the Inland Empire. Some buyers are targeting foreclosures, looking for that great deal. There are some deals out there, but you may also find yourself in a multiple offer situation because if it's a deal, others will sniff it out as well.  The big difference to this market, compared to the blow out of the 90's is that this time around, people have jobs. We lost almost 1,000,000 jobs in the 90's.  This market is nothing like that.  This time we have people waiting for the affordability index to rise so they can buy a home.  BIG DIFFERENCE!  When the housing market peaked, the affordability index was 11%.  Today it is 32%. BIG DIFFERENCE! 

RECESSION OR NO RECESSION, WHO DO YOU BELIEVE? ... That's a great question because everyone is weighing in on this issue.  Traditionally a recession is defined as two consecutive quarters of a declining Gross National Product. According to the LA Times, "The National Bureau of Economic Research, a private association of leading economists, makes the formal determination of a recession.  The bureau defines recession more broadly than two negative quarters of GNP.  It says a recession is ‘a significant decline in economic activity spread across the economy, lasting more than a few months."  UCLA economists say it will be close, but no recession.  David Leonhardt, a columnist for the New York Times says, "If history is a reliable guide, the recession of 2008 is now unavoidable."  The crux of his argument is the jobs report and the fact that, "American households are still not earning as much annually as they did in 1999 after inflation adjustments."   The Wall Street Journal agreed with the jobs data suggesting recession.  The problem we have with our economy right now is that the spending frenzy was fueled by a run up in housing prices.  People spent their equity.  How will we recover?  Where will the next expansion be providing real jobs and real growth?  I'll tell you exactly where it will be: Environmental Capitalism. Saving the planet will create huge industries and jobs.  Remember you heard it here first.  It will be the next internet, .com, and techno etc, business boom.  Real estate, on the other hand, is a cycle.  It always has been; it always will be.  However, the circumstances of each cycle are usually different.  This time around it seems everyone, and I mean everyone, from Governors to state senates to the Fed, the American Congress and in between, ignored the warnings of the sub prime crescendo until it reached critical mass.  No one wanted to "interfere" with the "free market."  Therefore, it ultimately comes to an end and we are suffering a heavy correction.  But make no mistake; housing will recover as it is slowing doing right now, believe it or not.  Most of the prognosticators of the housing slump are speaking of a national scenario.  Regionally, our outlook is different.  Why?  We do have jobs, we have weather, and we're nearly built out so we don't have a lot of extra land sitting around like Las Vegas or Texas.  Southern California will always be where the rest of the country would like to be.

WHAT WERE THE EXACT NUMBERS AND WHAT SHOULD YOU DO?... There were 1,471 sales in February ‘08, the latest statistics available.  That is 14.4% up from December '07.  That breaks down to 975 single-family resale, 345 condos, and 151 new homes. The sales were evenly divided by price range which reflects the lowering prices because people could buy more house with less money. There were 1,739 Notice of Default filed but far fewer actual foreclosures at 732.   WHAT SHOULD YOU DO?  If I haven't had an opportunity to visit with you about your real estate aspirations, now might be a good time.  The Wall Street Journal had an awesome article in its Personal Finance section entitled, "PLAYING THE HOUSING SLUMP:  IS IT TIME TO MAKE YOUR MOVE?"  Although I won't recapitulate the whole article here, it makes some excellent points about trading up, doubling down, and helping hand.  The latter is a reference to helping your kids buy a home.  RIGHT NOW WITH THE NEW FHA LOAN LIMITS, it is again an exciting time in real estate.  FHA has a 3% down program.  Although it is a fully documented loan, it does allow that 3% to be a gift.   Fannie Mae also has raised loan limits based on median price for your area.  To find out more about the limits you can visit http://www.efanniemae.com/.  With the median prices coming down, you can get a lot of house for the money right now.  It is something to seriously consider for your kids or yourself.  THESE LOAN LIMITS MAY ONLY BE WITH US FOR A YEAR!  Don't miss out!  Please call me and let's talk about short sales, foreclosures, or many other opportunities.

THIS IS NOT THE TIME TO REPRESENT YOURSELF IN A TRANSACTION... It may be tempting, but don't do it.  Foreclosures are nearly always sold "as is."  This can lead to disaster without professional assistance.  Short sales can linger for months and jeopardize your deposit if you are not careful.  If you do need to sell, there are ways to make your home more enticing to buyers and protect the price integrity.  I would love to talk to you about all these issues.  Please feel free to call me anytime.  If you would like a copy of any article mentioned in this newsletter, just give me a call.  Have a great month!