Friday, July 17, 2015


The latest figures are in, through the month of May, and it all continues in a positive direction, as housing continues its recovery mode, and to be a bright spot in the U.S. economy.  At what point interest rates will be raised, and what impact that will cause, because it will have consequences, remains to be seen. The Fed has indicated later this year, although the recent job report and unemployment stats did disappoint in the area of wages, and the amount of people leaving the job search market.  That aside, the jobs that have been added and the wages that were predicted to increase last year and this, apparently have brought about the desired effect.  Overall, the U.S. gained in total sales volume from May of 2014, (all following figures based on the same time period for 2014), to rise 9.2% for May of 2015.  The Midwest led the charge with 12.4%, the Northeast was next with 11.3%, the West was next at 9% and the South straggled a bit behind at 6%.  Prices were up overall in the U.S. 7.9%.  This time, predictably, the West led at a rise of 10.2%, the Midwest with 9.4%, the South at 8.2% and the Northeast struggling at 4.8%.  (How much due to an abnormally long winter of snow and ice?)  Finally, the sales volume by price range probably addresses the health of income wage earners for the foreseeable future.  Since loans applicants are being properly vetted and there is no real stated income product out there, these purchase price quadrants warrant some belief that we have had a true recovery not just in real estate but in jobs, since real estate ultimately reflects job stability.  For the U.S. the increases in volume by price range are as follows (numbers are per $1,000): 1) 100-250=3.6%  2) 250-500=17.4%  3) 500-750=14.5%  4) 750-1 million=12.5%  5) 1 Million + =8%.  It is debatable whether we will continue to see a run up in both prices and volume as Americans anticipate the rise in interest rates.  Although the Fed has made it clear that any such rises will be gradual so as not to disrupt the economic revival.  Some economists feel the price increase has already been factored in as 30 year rates already rose the first week of July to their highest for the year, in the low 4 percentile range.  One thing is for sure, and that is that home ownership is alive and well, and as this column predicted months ago, the Millennium  Generation will continue to be a large part of the engine that drives it.


Realty-Trac, a  research firm that tracks national and regional data, has reported that fewer than 25% of single-family home and condominium purchases were all-cash for May, national figures,  the lowest level since November 2009, and down from a peak of 42% of purchases in February 2011. These figures drive home the point that the housing market is standing on its own, with traditional buyers, as investors back away from the "flip" market, of buying, rehabbing and quickly reselling properties for a profit.  This does not mean that there are not some "buy and hold" investors still trolling the market, but for now, the predominant purchaser appears to be the owner occupant, or single investors exchanging and building their investment portfolio.


A recent study by analyst firm IPSOS revealed that borrowers still have 2 strong misnomers in the area of loan qualification; how large a down payment in necessary, and what your FICO scores must be to qualify.  Happily, this column is happy to spread the truth.  More than 36% surveyed still believed a 20% down payment was necessary.  Nothing could be further from the truth.  Many people qualify at 10%, but in fact, March of this year saw 29% of all loan qualifications with a 3% down payment (FHA products mainly).  The survey on FICO scores revealed that 45% believed you must have a score over 780.  The truth about FICO scores, which can be a little like a black hole, is that FHA requires 688 and conventional, generally speaking, comes in at 757.  It always saves you time and headache to speak to a lender before you look for a home, ensuring that you are looking in your correct price range.  Another interesting note is that interest-only mortgages are making a slight comeback. United Wholesale Mortgage plans, according to an article in the OC Register,  "to expand access to the mortgages to borrowers beyond the wealthiest Americans who use so-called jumbo loans.  Interest-only mortgages carry higher risks because they can leave homeowners facing a jump in their bills down the road."  Additionally, these loans can leave homeowners upside down when there is an unexpected downshift in the market as witnessed by the Great Recession.  But the lender promises to properly vet the qualifiers for this type of mortgage.  It does have its attractions for homeowners who have liquidity in other areas of their finances.  On a $300,000 loan, the monthly output is $1,31 versus $1,326.  However, note that these loans can climb as much as 2% annually and 5% total--causing payments to jump to $1,838 after 10 years.  Clearly this is a product that may have use for a well qualified borrower who KNOWS they will be exiting the property in less than 3 years, for example, and who feels the market appreciation will be positive during that timeframe.

Tuesday, April 7, 2015


Before you get too excited by this headline, let's face the fact that prices are very robust.  As previously reported in every local paper, the Wall Street Journal and the news, housing prices, particularly in California have rebounded about 75% of the lowest recessionary crash prices.  Despite an early article in the LA Times on March 18th,  touting a 9% increase in inventory in LA county, with multiple factors drawing in the home sellers, such as equity position, stable employment or gaining incomes, and the desire and hope of moving up themselves, that inventory has vanished almost as quickly as it was reported.  In fact, the National Housing Trend Report shows inventory has actually decreased 10.9% year over year (February the most recent month available).  What happened?  Buyers who have sat on the sideline for years, finally feeling good about exactly the same scenarios, have swept into the market and started buying up the inventory as quickly as it can come onto the market.  Why no run up in prices?  Yes we are seeing a 4% to 6% increase year over year for February, the market is tight after all. In fact, February pending sales surged beyond expectations.    But a 15% or 20% run up in prices?  Not this year.  The cash investors are largely gone, flippers are the minority, and buyers are savvy.  They will not over pay.  Therefore, the only houses that are sitting, are the ones perceived to be overpriced.  Challenge the market and you are likely to sit...and sit.  Price it correctly and the house will be gone in a week.  Who are these buyers?  Perhaps you missed the article from the National Association of Realtors that announced that Millennials have shifted their focus from careers, paying down student loan debt, easing off from living with Mom and Dad, where they have been saving money, and heading towards their own home ownership.  And the ones not living with Mom and Dad?  Since the Millennials have been dramatically shaped by the Great Recession, frugality is in their second nature.  Rents have risen in often cases, higher than what it would cost to buy.  Not willing to succumb to overpaying for any one item in their life, they are looking toward real estate.  Remember that this newsletter predicted, based on a Gallup Poll, that Millennials would become the driving force in real estate before the end of this decade, because over 64% believe in home ownership and also believe that a home is a better investment than stocks.  The best news for the single-family resale property?  The Orange County Business Council, the leading council for OC, reports that OC homebuilding isn't keeping up with the expanding workforce.  According to an article in the OC Register, it's creating a shortfall of "50,000 to 62,000 homes."  Homeowners are poised to maintain an edge as supply and demand economics drives housing.


Homes listed as of March 26th -- 5,429 -- That is down from 5,560 just two weeks earlier.  When you consider that the 1 Million-plus market equals 33.4% of all listings, the inventory on a median priced home is even tighter.  Notices of Default were at 385 for February, up 12.2% from January's 343, but significantly lower than the recession and the 3 years post recession.  There were only 93 actual foreclosures for the month of February in all of Orange County, signifying a very healthy housing market.  The total number of sales for March, the latest complete month available, was 2,074.  Single-family was 1,305 of that total, condos came in at 553 and new homes comprised 216 to complete the total.  The median price for all homes was $590,750 which was up 4.2% for the same month the year before.  The resale median was $640,000, which was up 3.1% for March, compared to March 2014.  Condos came in at $407,000 and that was a 5.8% increase.  New homes, always the highest, followed suit at $909,000, which was a 16.4% increase over the same period of 2014.  (Source: Dataquick)


It would seem that there are some good reasons for cautious optimism in the OC.  A survey was published by the California Economic Forecast, a Santa Barbara based consulting firm.  It published in conjunction with the UCLA Anderson School of Management.  It stated that driving the local economy will be tourism, apartment construction and housing, and that we can expect a resurgence in wages and salary growth.  Orange County, according to the report, is leading Southern California.  Salaries are expected to rise 2.8% for 2015 and 4.1% in 2016, the most healthy advances in over a decade.  Those Millennials will also be key, as they avoid frivolity and buy the items that creates jobs; houses, cars, appliances, technology, and travel.   Life enhancement purchases are what they are all about...not "stuff."


It's easy to drink the Kool Aid, and think that your house can be sold for whatever you want it to other words, testing the market beyond its capabilities.  This can be a very good way for the exact opposite to happen and actually get less for your home and have it take a lot longer to do so.  This market does favor the seller.  But it favors the "fair" seller.  John Knight, recipient of the University Distinguished Faculty Award from the Eberhardt School of Business, actually did research on the cost of both time and money to a seller who priced high at the beginning of their listing period and then lowered their price.  Knight states, "Homes that underwent a price revision sold for less, and the greater the revision, the lower the selling price.  Also, the longer the home remains on the market, the lower its ultimate selling price."  There are various reasons for this phenomena.  Firstly, buyers doubt the motivation of the seller; thinking they don't really wish to sell, they lowball.  Or, they think there is something "wrong" with the property, because it's been on the market so long and they lowball.  Finally, they may recognize that the seller has built in "negotiation room" into their price and so the buyers give them more than what they bargained for, which is a lowball offer.  And since the property was overpriced, there probably are not competing offers, which would force the buyer to make a better offer.  That only happens when a property is priced correctly, drawing many buyers to it.  

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