A SUSTAINABLE RECOVERY WITH A FEW HICCUPS ALONG THE WAY

No economic recovery is perfect, in any sector; jobs, manufacturing, import/export, tourism, restaurants/services, and housing. There will be recovery and sputter, ebb and flow. Let’s concentrate on housing. There has been much positive news that relates to housing, primarily jobs and construction. New homes are still off a full 50% from a “normal” market, but the housing projects and construction starts by America’s biggest builders are definitely making a comeback. In fact, they are the highest they’ve been since 2008. In fact, new home sales jumped 18.6% last month, even as sales for single-family resale slowed. The volume of sales for existing homes fell for 8 consecutive months. Before anyone starts screaming that the sky is falling again, must remember that we are reporting a decline in sales for 2014 compared with 2013, which had been the hottest year since 2006 with double digit appreciation. For the volume to flatten out and prices to stabilize, southern California needed inventory. It appears that at last this is happening. The problem now...watch out sellers. You cannot simply tack on an extra fifty or one hundred thousand to your sales price, because that’s what your neighbor did last year. Prices have softened, you have more competition, and buyers are taking their time. With interest rates staying so low, there is no real outer motivating factor to drive a rapid market. Classic economics would tell you we are far from a neutral market, we still don’t have enough inventory. But it certainly feels that way, as buyers peruse through open houses and are reluctant to make offers. If you are a seller who has a location or floor plan and no competition, you no doubt may still field multiple offers. But don’t expect necessarily an all out bidding war. Part of the reason is that more of the buyers are now millenials. They won’t overspend to get exactly what they want, as the baby boomers did when they were the driving force behind the market. Millenials are pickier, they are conservative about their debt, and a deal must make sense for them. Plus, many have been living in multi-generational family situations, and they are in no hurry to move.

MORE ON MILLENIALS, THE BETTER YOU UNDERSTAND THEM

The big statistic is that 3 of 4, or roughly 75%, plan on buying a home in the next 5 years. As far as student debt goes, it’s not as bad as you think; 58% owe $10,000 or less and 18% owe between $10,000 and $20,000. The biggest mitigating factor will be what the Fed does with interest rates in 2015 through 2016. By 2017, one would fully expect interest rates to be floating in an organic economic system once again. We’ll see.

WHAT WERE THE ACTUAL NUMBERS?

The total number of homes sold, all categories, was 2,981. (This for May, the last complete month available.) That was off 18.3% compared with May of 2013. Resale homes hit 1,855. a decline of 21%. Condos sold at a pace of 786 and lost 22.4% year over year. New homes hit that high of 340 and rose in volume by 18.1%. The median price of all types blended was $595,000 and that was up 10% year over year. Prices are definitely diving back down. Appreciation overall is expected to stay around 4% to 6% for 2014. Single-family resale rose 8.3% and condos 11%. Foreclosures continue to hover near an 8 year low. All of So Cal had 10,010 Notices of Default, or NOD’s, for the first quarter of 2014. Orange County had a paltry 1,244 NOD’s.

IF WE PUT REAL ESTATE AND MUTUAL FUNDS SIDE BY SIDE, HOW DOES IT LOOK?

Looking at real estate as an investment, putting aside the considerations that it also provides shelter, and a tax write off, here is the breakdown of return on in vestment, by age group: 1) 18-29 Real Estate - 25% / Mutual Funds - 21% 2) 30-49 RE - 34% / MF 23% 3) 50-64 RE - 30% / MF 28% 4) Over 65 RE - 31% / MF - 28% Hopefully, you have found some good information with which to evaluate your own situation in regards to the real estate market.

HOME PRICES ARE SLOWING, INVENTORY DOWN, GREAT TIME TO SELL?

There is a perception, perhaps a misconception, that the time to sell, must be when everyone else is... After all, the market is hot, right? Everyone is doing it. The fact is, the great investors and money makers of our time, generally speaking, are taking action that is counter intuitive to what is happening in the financial and societal trends of the current moment. Inventory is in fact, at time of publication, at 1.9 months, traditionally by definition, a seller's market. (six months inventory is considered a neutral market, for your information). And yet, seller's are hardly laughing all the way to the bank. The Case-Shiller Index indicates prices may dip slightly. So what gives? Here is the true story that the newspapers won't or can't give you because of lack of understanding of real estate. Right now there is 1.9 months of inventory, not because houses are flying off the shelves as quickly as owners list them, but because owners are listing their properties for sale. There is a hesitation. Perhaps one reason is that the people who regained massive or respectable equity positions, did in fact sell and those that remain are waiting for the rest of their equity to return. Being still 24% down from our high of 2006, -- coupled with the prediction that appreciation this year will be 6% to 8%, not the 20% we luckily (and scarily) achieved last year, -- they may be waiting for a while. Buyers on the other hand, have watched that 20% rise, and are determined not to over pay for their property. They too have read the headlines that prices are slowing, and are mistakenly thinking there is a bubble that will burst and are waiting for that to happen. They too, will have a long wait. There is no bubble. Prices rose quickly but the money and qualification process was real and people have skin in the game. Foreclosures are at an 8 year low (more on that later). Hence, we are in the midst of a learning curve. A period or lull in the market when everyone adjusts to the latest adjustment. It will happen. But no one will be happy. That is the point of this article, accept the fact that whether you are a seller or a buyer, you probably will not love either position right now, even though there is nothing wrong with either position. Sellers need to accept the fact that they are not going to make a killing this year. They cannot list $50,000 about the last comparable sale, just because it worked last year. It isn't going to work this year, save unique properties. Buyers need to accept the fact that they aren't going to get a steal. Not this year, or next year either. But what they will get, is an opportunity to come into the California real estate market, and achieve a greater return on a10 year average than any other investment they could make. Let's remember however, that home ownership should be more than the investment. It is where you raise your family and create your memories. And by the time you realize the tax breaks, and that you are building equity rather than throwing away rent, it is a pretty sweet deal. There are plenty of sellers and buyers out there, that must act regardless of market conditions. To them it is prudent to say, "Go to it, before you have more competition. Because Spring is coming and with it everyone else..." 

HAVE YOU SERVED OUR COUNTRY? SOME MYTHS ABOUT VA LOANS

Don't believe everything you hear. If you wish to use your VA loan eligibility, here's some information: 1) You can only use it one time. Not true. You have one eligibility, but since properties are bought and sold and rarely kept until the loan is paid in full, you may have many different VA loans on properties. 2) It will expire if not used. Not true. 3) You can only have 1 loan at a time. Not true. Talk to an experienced loan officer but it is possible to have multiple properties with loans. 4) If you have a short sale or foreclosure, you cannot get another VA loan. Also untrue. Adjustments are made to your entitlements. 

HAPPY NEW YEAR...WHAT TO EXPECT IN 2014

Most key analysts expect a slightly better market in 2014 than we had in 2013.  There are several reasons for this; improved employment, better and easier financing, a stabilizing economy with growth in the right direction and finally, a larger and improved inventory.  There is a certain unknown quotient in a changing Fed Chairman, but by all accounts, Janet Yellen's direction of the Fed aims to keep monetary policy, "highly accommodative."  In fact, it appears that Yellen gets the fact that real estate drives the economy, and most experts expect her, "to continue on Beranke's path," so stated Karl Case, co-founder of the S&P/Case-Shiller home price index.  Any projections of doom, are very tempered, the only one found at press from economist Essie Adibi from Chapman University, who said the probability for housing doom was "low."  It would have to come, according to him, from high inflation and low productivity, both of which are very long shots.  In fact, inflation has not even been a blip on the economic screen and is not projected to occur in 2014.  John Karevoll of DataQuick foresees, "the welcome decline into deserved obscurity of real estate naysayers and their canned think-tank narratives...the naysayers will become irrelevant as they doubt the housing's continued march to more normal, positive conditions.  Good riddance to them."  Rather strongly worded, but isn't it about time we stop doubting a shred of positive news and rather, embrace our economy for what it is and settle our lives around it, which includes buying homes for our families and our lives.