HOME SALES PRICES AND VOLUME UP ACROSS THE U.S., POINTS TO CONTINUING RECOVERY

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.

INVESTORS AND CASH BUYERS BACK AWAY FROM U.S. HOUSING

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.

LOAN SURVEY SHOWS MANY BORROWERS STILL UNSURE OF QUALIFYING

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.

INVENTORY TIGHTENS--BUT THE MARKET AVOIDS A RUN UP IN PRICES,SO FAR

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.

WHAT ARE THE ACTUAL NUMBERS

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)

COULD THINGS BE LOOKING UP FOR ORANGE COUNTY ECONOMY?

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."

A REMINDER FOR THE HOME SELLER

It's easy to drink the Kool Aid, and think that your house can be sold for whatever you want it to be...in 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.  

THE NUMBERS ARE IN FOR 2014--PRICES WERE UP, VOLUME DOWN--BUT DON'T EXPRECT THAT TREND TO CONTINUE IN 2015

The New Year, that is 2015, has started with a much bigger bang than 2014 did.  In fact, it started to pick up at the end of 2014.  The total number of sales for November, 2014 (condos, single-family resale and new homes) totaled 15,643 for all of So Cal. (This includes Ventura, LA, OC, San Bernardino, Riverside, and San Diego.)  That number jumped an astonishing amount to 19,205 for December 2014, a 22.8% jump.  So you can imagine how anemic  the numbers were all year as the total for Orange County for 2014 was 33,844, down 8.2% from 2013's total.  That number was for all homes as stated above.  The median price, meanwhile, hit $585,000 and that was up 9.3% from 2013.  This completed two back to back years of fairly rapid appreciation gains, and experts rightly predicted a heavy slowdown, which actually started last winter, with appreciation steadily dropping all last year.  There was a total of 20,496 single-family resale, 9,166 condos sold and 4,182 new homes.  This year already is showing strong signs of volume recovery as interest rates promise to stay down...for now.  But many buyers are getting the message loud and clear from the Fed, that rates will probably rise sometime this summer.  This is a strong motivating factor for "fence sitters", who are waiting for that perfect time to buy.  The perfect time to buy is when you are financially and emotionally motivated, don't worry about the market,  but in particular, inventory is expected to strengthen this spring as more and more sellers are able and willing to sell, having enjoyed two strong years of equity growth.  You can expect to see our strongest "move up" market in over 7 years as people who want to do something, as well as those who have to do something, all enter the market.

FOREIGN BUYING POWER FOR HOMES HITS INTERESTING HICCUP

Most of us have read about or if you were selling a higher end home, may have experienced, the foreign nationals who have been snapping up properties in the US, particularly in So Cal, especially the OC.  Now listing inventory of the higher priced homes are starting to pile up as these buyers grapple with the stronger dollar.  It is a conundrum.  On the one hand, their money doesn't go nearly as far.  On the other hand, compared to many foreign currencies, the dollar is the safest haven and hedge against inflation.  Even said, listing agents might be compelled to obtain price reductions to move their high end properties.  Be patient and be realistic are the watch words for this market.  Even with this being the case, these off shore buyers will still bring competition to the high end.

AFFORDABILITY--A GLOBAL CHALLENGE

So read the headline of a recent OC Register article.  But there was a great chart from Demographia that listed the top 10 cities with the least affordable homes, in terms of the ration of an area's median home price to local median household incomes, from a study of 86 cities.  The good news is that greater OC isn't on the list, the bad news LA is, but the good news is that at least it's #10.  The cities you ask?: 1) Hong Kong  2) Vancouver, BC  3) Sydney  4) San Francisco  4) tied- San Jose  6) Melbourne  7) London  8) San Diego  9) Auckland, New Zealand  10) Los Angeles

WHAT WERE THE ACTUAL NUMBERS FOR OC?

The last complete month is December2014 and the numbers are: Total sales - 2,880, which is down 6.8% for the same month of 2013; The median price for all homes was - $591,000 which rose a mere 3.7% (much more sustainable and will lead to a healthier market for 2015); The total number of resale homes was 1,726, both price hikes and volume nearly flat at less than 1% for both; Condos sold a total of 744 and the price was $390,000 volume down 4.2% and prices up 4.8%.

HOMEOWNERS'RISING EQUITY SHOULD CAUSE MARKET TO STABILIZE

Rising equity will always have a stabilizing effect, because it allows all segments and price ranges in the market to make independent decisions regarding their home, which ultimately cause more interaction between price ranges and people move up or down in size and price according to their need of growing family, empty nesters, and retirement.  Equity is a very liberating quality in homeowner economics.  And although credit standards tightened immensely after the recession, there are now emerging more loan programs, the resurgence of some old programs and some revamps even in government lending such as the lowering of the FHA mortgage insurance by almost half a point.  On a median priced home, that can be over $200 a month or even more.  That increases a buyers, "buying power", tremendously.  All who are looking to buy should speak with a lender to find out exactly how much you qualify for...buyers may be surprised by their purchasing powers.  Sellers are also in a great position.  At last it would seem we may be trending to a totally equitable market.  It has been sometime.  Surely the results will be an encouraging factor in our economy for the year ahead.  

FOR SALE BY OWNER…MAYBE NOT, IF YOU LOOK AT THE FACTS

The "FSBO" seller has a lot of issues to resolve to successfully sell their home.  They must contract with or negotiate with many entities, which can all snarl up with problems.  To name a few, there is the contract itself, and its inherent liabilities of disclosure, the buyer's agent, which they are likely to have, an inspection company, termite, obligations of radon, mold, and other environmental issues, an escrow company, a title company, and the buyer's lender.  And the facts are 88% of buyers look online and only 21% in the newspaper, while 43% actually buy from an online find, 9% from a sign in the yard, and 1% from a newspaper of other print ads.   Why is this important?  A FSBO simply cannot get their properties into all the search engines that a real estate agent can provide.  They cannot get the world wide exposure that a real estate agency can get, and they can't gain access to the networking core that Realtors have.  If you have all the time in the world, and money, maybe...but the best reason to use an agent?  According to KCMBlog.com, a seller will net on average 13% more, using an agent.  Food for thought.  

IT IS A HAPPY NEW YEAR--IF YOU PLAN ON BUYING OR SELLING REAL ESTATE IN 2015

Indeed it is!  In case you've missed the headlines, dating all the way back to early December, which proclaimed, "A More Balanced Market," all the way to Saturday, January 23rd's, "Home Sales Projected To Increase As Prices Level," 2015 is poised to be, "everyone's" market.  Just what is meant by that?  A more balanced market is also a more neutral market, favoring neither buyer nor seller.  As much as a buyer or seller may wish for "their" market, it isn't healthy and it excludes many potential customers to the market.  Meaning that a hot buyer or seller market, generally excludes people who WANT to do something, and because it is not a balanced market, you only get the people who HAVE to do something.  This leaves a lot of people not jumping in the pool, so to speak, which isn't much of a party.  The annual price appreciation for Orange County homes in October was 10.2%, compared with 18.7% a year earlier (Source: CoreLogic and DataQuick).  Appreciation is expected to level off even more this year, down to 4% to 6%, according to the National Association of Realtors. Recall the headline just mentioned, "As Prices Level Off..."  In fact, pending home sales are rising in the U.S.  Signed contracts for previously owned homes rose slightly in November, even through the holiday and only 17 working days to the month.  In fact, contracts were up 4.1% from November 2013 (NAR).  After the robust recovery of 2013, many dropped out of the unbalanced market, so essentially, 2014 became a recovery year independent of most economic factors, such as remaining low interest rates and a growing economy.  The real key to success for 2015, is that we are looking at the beginning of a sustained recovery and growth cycle.  Sellers are aware that homes are taking longer to sell, which means more inventory will hit the market.  Buyers are able to look through more homes, which is increased competition for sellers.   Prices are expected to level, allowing more buyers to enter the market, which increases the affordability index. All of which is a wonderful recipe for a substantial year in real estate, truly a WIN/WIN for all.

KEYS TO THE '15 HOUSING MARKET

This column has long stated that the key to a healthy real estate market was contained in one critical area -- jobs and wages.  If you didn't catch the OC Register article, by Jonathan Lasner, "12 Keys To The '15 Housing Market," it may be worth it to you to go online and take a look.  Summarizing, a couple of key points on which these two authors agree, are jobs and wages, "lendability", and the U.S. dollar.  To explain: 1) The housing market has enjoyed the past 3 years primarily on low interest rates, motivating many into buying higher than they would like, based on cheap money.  However, this has been an artificial stimulant to the extent that at some point, jobs simply must be there.  Now they have returned averaging 2% annually, the last 3 years, the fastest rate, according to Lasner, since the turn of the century.  2) Lendability - at some point, rates must rise, and sometime this year, just might be the time.  Although it is doubtful we would leave the high 4's or very low 5 percentile, the ease with which borrowers can borrow, might just take up the slack of the higher rates.  In other words, credit requirements loosening just a bit.  You can expect this as competition between lenders heats up.  3) The U.S. dollar -- A safe haven once again, expect investors and foreign buyers to remain strong this year.  This will keep buyers honest, and yet, these buyers refuse to overpay, which keeps sellers honest.  All in all, 2015 is shaping up to be a robust year for all who want and need to take action in the real estate market.

WHAT WERE THE ACTUAL NUMBERS?

The total number of sales for November (the last complete month available), was 2,441, which was down 7.3% from November of 2013, not a surprise given the hot 2013 market.  The median price for all homes rose, however, to $585,000, an increase of 4.5%, right where we should be. The median price for single-family resale rose 4.9% to $640,000.  Condos saw the same percentile to $391,250.  There were sales of 1,508 for resale single-family, 631 condo sales and 302 new homes.  One of the key areas to watch for 2015 is new construction.  Expect much more inventory and brisk sales in that arena.  Foreclosures are at a nearly 10 year low with only 16,833 Notices of Default filed for the entire state, 3rd quarter of 2014, the lowest since the 2005 mark of 15,337.  In November, foreclosure resale's represented a mere 5% of the total number of sales.  Absentee buyers-- mostly investors -- bought 23.2% of the homes sold in November, and would include foreign buyers as well.  This is not an unhealthy number as owner occupied intent still drives this market.