MEDIAN PRICE -- UP...INVENTORY -- WAY DOWN... SALES VOLUME -- UP

What a month it has been!  It's been chaos if you're a buyer trying to find a property, and a little déjà vu if you are a seller that is getting multiple offers on your property that's for sale.  That being said, however, we are not seeing the double digit appreciation that was present in 2005 and 2006.  That is a good thing, as that was the start of the bubble that burst and caused the subsequent crash and the very slow recovery we are now enjoying.  September numbers brought some interesting news for Southern Californians.  (More specific numbers to follow.)  The median price was up 5.9% versus September a year ago.  There were 23,977 sales and that was up 16.2% from the previous year.  October numbers that are found in the next section, were even better.  But a really interesting fact from the last month of the third quarter was that local zip codes showed improvement in 53 of 83 for the county.  That shows that there isn't a concentration of business or growth in just hard hit areas such as Santa Ana, or south Orange County, where investors are flipping properties.  In fact, sales for October, the last complete month available, show that move up buyers, that elusive quadrant, has finally reemerged and these buyers are entering the market.  Obviously we need more to do so, because of inventory limitations, but it has started.  The upper end of properties over 2 million is moving more robustly than it has since 2006.  Finally, a last bit of good news is that home construction is finally on the rise, seemingly for good, not just a sputter of one or two developments, but begun in earnest by multiple builders.  In fact, 1,700 construction jobs were added as compared to September 2011, according to the Employment Development Department. This is good news, because without that vital addition of new homes, we would really see an inventory bog down in the next 2 years.  

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WHAT WERE THE ACTUAL NUMBERS

According to DataQuick, southern California home sales rose sharply in October as the previously discussed move-up buyers joined investors, shifting the mix of homes selling from the first time buyer, or investor looking for rental scenario.  Foreclosures hit a 5 year low, as short sales continued to move front and center as the primary distressed listing.  Make a note, however, that standard, or equity sales, are making a comeback as non-distressed owners may enter the market in an effort to sell and move up, or exit Orange County to become a retiree and move elsewhere.  The October total was 21,075 homes sold in Los Angeles, Orange, San Bernardino, Riverside, San Diego, and Ventura counties.  That was up a whopping 18% from the 17,859 sold in September.  The median price for the Southland was $315,000 in September and October, and that was up 16.7% from the $270,000 of September 2011.  Short sales made up an estimated 26% of the resale market in the Southland for October.  The total number of sales for Orange County was 3,148, which was up 40% from the same period a year ago.  The total number of resale houses was 2,066 and condominiums had 882 sales. New homes came in at 200.   The median price for all homes was $455,000 and for single-family it was $511,000.  The median price for condos was an even 300. Interestingly, buyers paying with all cash hit a near record 32.1% for southern California.  A final number which is somewhat sobering... 57% of all homes for sale, had multiple offers.

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ORANGE COUNTY ECONOMY REBOUNDS IN FORECAST

So read the business section headline of the Orange County Register on October 25th.  Specifically, it was talking about the Cal State Fullerton economic forecast for next year.  They expect a continued rise in home prices, and lots of construction jobs in 2013.  The next highest sector will be professional and business services, followed by leisure and hospitality.  What's really interesting is that earnings of large companies have outpaced their own forecasts, yet no one really seems to feel really good about it.  More jobs were added in September than originally forecast for the nation, and Orange County seems to be holding its own in this parameter.  Interest rates are at a 15 year low, home prices throughout California have risen for 8 straight months, and the job sector is looking positive.  Recovery?  You didn't hear it here, but could it be Orange County's dirty secret?

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INVENTORY SLIDES, GEN X AND Y, WANT TO BUY, AND THE SMALL INVESTOR

Los Angeles inventory is down 37.1% and Orange County is about there too.  The city taking national honors for the biggest slide is our own San Diego with 40.7% (according to the national KCM Blog.)  Generation X and Y, in a recent survey, were asked, "what is a fundamental indicator of success?"  A whopping 75% said it was owning a nice home and only 12% said an extravagant vacation.  Home ownership is in America's DNA.  Should the small investor attempt to buy a single-family property as a rental.  Only a discussion with your financial planner can tell you what's right for you, but here are some thoughts... 1) Nationally, rental leasing volumes were up every month for 2 years.  2) Supply of available rentals is down 11% in the same period.  3) Rent growth is expected to increase at a very strong clip in 2013.  

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HOMES SELLING AT A BRISK PACE, INVENTORY IS LOW AND SO ARE INTEREST RATES AND FORECLOSURES

The last time homes sold at today’s pace, it was 2009 and there was a very good reason--the tax credit.  So, for homes to be outselling that pace, there must be some pretty good reasons now...and there are.  Interest rates, for one thing, are screaming low, “in the high 3%’s low.”  Lots of investors have bought up the true foreclosed messes out there, have rehabbed them, and are now “flipping” them, meaning the investor is putting them right back up for sale.  These properties generally have a lower price point and demand for them is great.  Next up we have the fact that housing affordability ratios are at their highest level since the early 1990’s.  In fact, homes last month moved in California at the fastest pace and had the biggest year-over-year gain since 2009, according to the California Association of Realtors.  Another fact: homes sold at an annual rate of 572,260 up 21% from the previous year.  The statewide median home price for single-family resale was $312,110, up 6.6% in a year.  And although the median price for a single-family in Orange County fell 1.2% from  ($538,340), the overall median price for all properties, condos, new homes, and single-family, had risen in Orange County by 1.8% from last year.  More on the numbers later, but for now, let’s concentrate on yet another factor -- inventory.  Or better put, lack of inventory.  May of 2011 saw inventory of 5.7 months, almost normal.  By May of  2012, inventory is at 3.5 months and this month was less than 2 months in many Orange County cities.  Any time you have this level of scarcity, demand exceeding supply; homes will sell briskly, lowering the days on market by as much as 30% to 40%.  The next logical question is: If there really is such low inventory, why aren’t prices being driven up?  The answers make some logical sense.  First of all, in certain areas, prices are climbing faster.  There are multiple offers on many properties, and bidding wars are not unheard of right now.  So there are pockets of higher appreciation.  What keeps a bit of a lid on it are two factors: 1) Appraisals.  Many appraisers are hesitant to buy into any hype created by multiple offers, and the entire appraisal system has been re-hardwired to prevent a run up in prices.  Secondly, and this column has written about this before, wages.  Real estate prices ran up so fast and for so long at the beginning of 2000 and on to 2006, that wages were left way behind.  When you take away the “funny money” loans and qualify people for loans the old fashioned way, with the prerequisite that they be able to repay it, wages must be able to withstand market appreciation.  So Cal, along with the rest of the country, is a far cry from this yet.  Realistically, maybe 5-10 years away.

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WHAT WERE THE ACTUAL NUMBERS?

For the last complete month available, the total number of sales was 3,351.  That number includes single-family, condos, and new homes.  The median price was $453,000 and that was up 1.8%.  The increase of sales over the previous month was 13.7%.  The median price for single-family came in higher at $515,000.  That was an increase of 2% from last year.  Condos rose over 10.4% in median price from a year ago with $295,000.  Even new homes saw an increase in value of 4.5% with a median price of $617,750.  All categories saw double-digit increases in volume except new home sales which declined 22.56% from a year ago.  Notice of Default, which had been steadily declining, actually rose in last month to 1005, about a 10% increase.  Notices of Trustee Sale also rose slightly after plummeting in the early summer months by almost 50%.  The tally for those was 1,443.  There were 394 properties that actually went to Trustee Sale; of those, 205 were purchased by private investors, look for those properties to be rehabbed and flipped as stated above.  The other 189 properties went back to the banks, and their fates will be similar, eventually making it to the market place.  Given the current market climate, they will be quickly absorbed.

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U.S. ECONOMY LIMPS ALONG, FORGIVENESS OF DEBT TAX RELIEF LIKELY TO BE EXTENDED

The results of economic growth for this third quarter are obviously not yet available, and the second quarter results were not stellar.  Growth of 1.5%, although in the right direction, was not enough to seriously curb unemployment and start a serious job burst for most of the country.  California is better off than most of the country, and ironically, it may be our wonderful mild weather that continues to set us apart as the rest of the country struggled with floods, tornadoes, drought, and record setting heat.  Companies that left for easier environmental standards, or tax breaks, may think seriously about returning as their productivity and profits see some challenges as a result of Mother Nature.  Hmm... something to ponder.  As of now the forgiveness of debt for the 1099 income resulting from short sales has made it into Obama’s 2013 budget, to be extended to include 2013.  Although foreclosures are at a 5 year low, it is appropriate to extend this relief.  After all, foreclosures are at a low precisely because the lenders are optioning to do short sales instead.

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HIGHEST PRICED HOME

Ever wonder what properties the other 1/4 of 1/4 of the 1% buy?  (Let’s face it; it’s not the other half...) The highest priced home in California was in Los Angeles for $125 MILLION! Here are the others: 2) Santa Barbara - $79 million  3) Bradbury - $78 million 4) Laguna Beach  $65 million. Wow!

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WHAT WILL NEXT 5 YEARS BRING TO HOUSING PRICES?

Does this sound like a loaded question?  There may be as many answers to that question as there are people in the USA, but it seemed like a good lead off question for this month's report.  In fact, the opinion reflected in the following numbers are reported by "Pulsenomics", a group of 100 economists, investment strategists, and housing market analysts.  After their conference they reported housing prices to start upward in 2013.  Here is the 5 year projection:  (A) 2012 - (-).4%  (B) 2013 - (+)1.3 %  (C) 2014 - (+)2.6%  (D) 2015 - (+)3.2%  (E) 2016 - (+)3.5%.   The average pre-bubble (1987-1999) annual appreciation was 3.6%.  How can Pulsenomics make such a prediction when the housing market still seems in such dire trouble?  There are several factors to consider.  Firstly, the plummet of "shadow inventory."  It is at its lowest number since 2008.  In fact, according to Mark Fleming, the chief economist for CoreLogic, "Since peaking at 2.1 million units in January of 2010, the shadow inventory has fallen by 28%.  The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices.  This is one of the reasons why some markets that were formerly identified as deeply distressed, like Arizona, California and Nevada, are now experiencing price increases."  Prices in southern California certainly have not skyrocketed, nor does any Realtor or economist wish them to do so.  A lesson, hopefully, has been learned regarding ascending markets that rise on false theories or practices.  However, there are slight bumps upward in certain areas only.  Literally, a price may rise for a certain neighborhood, based on competing properties, or simply more buyers for that area than sellers.  But you will note that overall, prices remain flat for 2012, even slightly down.  Those are national numbers and obviously California is on different footing, particularly southern California, which has been projected to recover more quickly than northern California, and the rest of the country. 

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IF INVENTORY IS SO LOW, WHY AREN'T PRICES RISING NOW?

This is a good question.  Isn't housing economics simply the law of supply and demand?  And if it is, with inventory so low, (and inventory is low, with the possibility that pending sales will rise above available homes for sale, a true market anomaly), why aren't prices rising more quickly right now?  The answer to these questions may not be obvious, but there are some reasonable answers.  First of all we are in a counter-intuitive market.  So what would seem to be an obvious outcome is not, and in fact, the opposite occurs.  In this case, prices are still going down, despite some listings that sell over list price, in some price ranges or neighborhoods.  Remember that the list price was aggressively LOW, not HIGH, to begin with.  And although historically low interest rates, (seriously 3-4%??), are driving the demand which is rapidly lowering available inventory, there is a key factor which is keeping a lid on housing prices--- WAGES.  In fact, this column will report it first, that as long as wages stay flat, and they have been flat for the last 7 years, prices will be forced to keep a lid on it.  Why?  Simple.   Housing affordability is part and parcel to a healthy housing market.  We saw what happened in 2006 with double digit appreciation.  That was appreciation that was so fast, there was no way wage increase percentiles could keep up.  Housing appreciation went to 11% in southern California, and the industry created unsustainable financing, (a nicety for horrible loan programs), that propelled a booming market well past when it should have adjusted and created the terrible mess we have been in for the past 5 years.  Some industry analysts believe we are in for 5 more years of pain, some believe, as in the previous article, that we are beginning to climb out now.  Time will tell, but it does appear that the housing market has and is stabilizing.

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WHAT WERE THE ACTUAL NUMBERS?

The total number of May sales for Orange County, (the last full month available), was 3,124, not including trustee sales auctions, where investors paid cash at the courthouse steps for 169 properties.  There were 1,542 equity sales, (non short), for single-family, and 506 equity sales for condos.  The short sales numbered 371 for single-family and 238 for condos.  Bank owned listings sold nearly all that was listed with 304 single-family and 163 for condos.  There were 1,294 Notices of Default recorded, down nearly 35%, and 987 Notices of Trustee Sale, which has declined sharply from monthly highs of over 1,700 in 2011.  The median price for all of Orange County for all homes was $435,000 which is up 2.4% for year over year for May (2011).  The slight increase comes from rises in condos and new homes, not single-family which actually declined 1%.  However, the big news is in the volume of homes sold which rose 23.1% in May 2012 compared with May 2011.  It would seem we are headed in the right direction.

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CHAPMAN REPORT FORECASTS OC HOME PRICES TO JUMP 7.1% IN 2013

The median price in OC is expected to rise for 2012.  But does 7.1% seem like "pie in the sky?"  First of all, OC is predicted to lead California in recessionary recovery on almost all fronts, and California will likely beat most parts of the country.  But look carefully at what the Chapman Report actually reports.  They see a decline in the number of foreclosed homes and homes selling "short."  We already discussed the fact that the shadow inventory is shrinking.  The absence of those homes, that represent the low end of the market in pricing values, will allow equity properties to force prices up slightly for averages, but probably not a big jump in appreciation overall.  Nonetheless, we are on track for a stronger housing market.  They reported that homebuilding is projected to increase 27.3% this year and 15.1% in 2013, nearly triple what it's been.  Finally, Chapman predicts a housing shortage over the next eight years as construction still lags behind population growth.  As this column has reported in past months, the millennium generation believes in home ownership, is coming of age, and wishes to buy.  Expect the housing market to be as resilient as the citizens who live here.

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HOME SALES RESEMBLE BARGAINS AGAIN...DELINQUENCIES ARE DROPPING...FEWER LEAVING STATE, DATA SHOWS

These are just a few of the newspaper headlines recently.  In fact, there is a lot of positive news.  Even though the National jobs report was bleaker than expected, southern California's, although still shy of pre-recession numbers, has been one of the healthiest rebounds in the state.  Perhaps "rebound" is still too strong a word to describe our job market, but nonetheless, the local unemployment rate is third lowest in the state and the best in our region, according to the state Employment Development Department.  The top spots for low unemployment belong to Marin and San Mateo counties in the northern part of the state, Orange County bests all others down south with 7.4%.  Although there is still some hesitation on the part of employers to hire freely, there is still more reason to be optimistic than a year ago.  Now what about housing bargains?  This column has often argued that to have a mentality that it is better to rent than to own at any time, is perhaps to simplify the home ownership debate to a most basic level of nothing more than out of pocket expenses per month.  In other words, why own and have a house payment of two thousand dollars, when you can rent for $1,400.  But this argument forgets tax savings, equity build up and more importantly, (as we covered in recent months), an inflation hedge.  If you buy a home with a fixed rate mortgage, which right now is in the high 3 or low 4 percentiles, your housing costs in twenty years will be exactly what it is now.  Anyone want to venture a guess what your $1,400 rent payment will be in 20 years.  And you will never receive a dime of that back because you can't sell your rent house or apartment, you don't own it.  As housing demands rise, and they are rising the quickest they have in the last decade, landlords have good incentive to raise rents, simple supply versus demand.  Affordability is another big incentive as it hit the highest mark ever for the country at 77%.  Probably the best incentive, is the housing payment itself, driven by low interest rates.  You can get one right now for just about 13.5% of your income.  Granted, this is a generalization because it's based on the national median housing cost, and the national median income.  Housing costs are higher here, obviously, but so is income.  Plus FHA has become a big part of the housing home loan picture, with many borrowers qualifying even though they earn over $100,000.  What about fewer leaving the state?  California had its biggest mass exodus in 1993,4,and 5.  Those of us who lived here, remember it well.  It was a dismal time.  Defense spending plummeted, causing massive layoffs in defense, a major California employment sector, and military bases simply disappeared.  Southern California basically lost a million jobs over 5 years.  Although the numbers were nothing close to that in 2005,6,and 7, the state did see the highest numbers in a decade.  But by 2009, the number fell to 112,000, which for a state with California's population, is not a startling number.  But if you look at 2010, we have a population increase and no net exodus.  This according to the Tax Foundation-- an anti-tax group that's not partial to California, but still reported that we're losing fewer people to other states.   All told, there is reason to be optimistic about where California is headed.  We have oceans, beaches, desert, mountains, skiing, and moderate temperatures, and a more highly skilled work force than most other states.  We have some good reasons to be optimistic.  People need to live somewhere.  Ain't real estate great?

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WHAT ABOUT THE ELEPHANT IN THE ROOM? HOUSES THAT ARE "UNDERWATER." WHO'S IN IT DEEP?

According to Zillow, 9,200 homes are worth half their mortgage.  Another 14.1%, or 62,500 households, owe about 20% more than their homes are worth.  And approximately 8.2%, or 36,600 homes, owe 40% more than their home is worthy.  Now without getting into the debate of how many of these homes were bought at market value in the past 12 to 14 years, and were refinanced two and three times, while owners took maximum cash in hand, much like an ATM, it can be argued that all but the most severe waterlogged properties, will, if held long enough, become once again equity properties for their owners.  But less the reader believe, erroneously, that every property is in danger, give you some numbers to bring comfort to the discouraged.  According to LPS Farm 2.0, a data company for title companies, there is a total of 696,776 residential properties in Orange County, that includes condos and single family residences only, both owner occupied and non-owner occupied (rentals).  When you look at that number, you can see there is a lot more home equity in this county than there is waterlog.  It's just that writing about the positive through all of this downturn, doesn't sell papers.  In fact, for the last full month available, there were 1,337 equity sales or single family residential properties in Orange County and 591 distressed sales (includes short sales and bank owned).  Condos didn't fare quite as well, but still, there were 427 equity sales of condos.

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WHAT WERE THE ACTUAL NUMBERS?

The median price for a home for Orange County was $488,000, which was down just 1.4% from 2011, indicating the bottom of the market and a nearly stable market as well.  There were2,038 closed sales of single family resale and that was up 16.8% from the previous year, month over month.  When you add in condos and new home sales, the grand total is 3,059 and that is up 14.1% from the previous year.  There were 1,214 Notices of Default filed, down almost 25% from 2011 monthly totals and Notices of Trustee Sale, the last notice prior to foreclosure plummeted down to fewer than 1,000, after totaling nearly 1,750 month after month in 2011.

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HOME OWNERSHIP STILL THE DREAM FOR AMERICA

A survey recently completed that appeared on the blog, "Keeping Current Matters", reveals that 91% of Americans surveyed, still say owning a home is a part of their American Dream.  But even more encouraging is the number of the "renting generation", that is 18-34 year olds who have yet to enter the market, an amazing 84% say they intend to buy.  Couple that with the affordability index that we have right now, and the real estate recovery would seem confirmed.  Just don't expect to go up as fast as it did to begin the first decade of this century, and don't expect it to go up as fast as it came down.  Finally, a note regarding short sales.  If you find yourself upside down in your home and have mitigating factors that are causing a need to move, don't assume you can't sell your property short.  There are some myths out there concerning that proposition, and you owe it to yourself to have an expert evaluate your position.  Here are two myths: 1) banks don't want to participate in a short sale.  Nothing could be further from the truth.  Banks have finally realized how much money and time they save by allowing a Realtor to sell and close escrow successfully in a short sale process.  You may even be eligible for "cash for keys" to help with your relocation.  2) The short sale process is too difficult and they often get denied.  That was true five years ago.  Banks dragged their heels and the transactions were dubbed "long sales" by those of us in the industry.  But today, the average short sale takes about 90 days unless there are unforeseen circumstances.  Make sure you know all your options. 

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OPEN HOUSE SUNDAY, JULY 8th • 1-4pm

2226 Crestview Cir., Brea

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COME PICK UP A FREE FLAG FOR THE HOLIDAY! OPEN HOUSE SUNDAY, JULY 1, 1-4 PM

12812 Via Aventura, North Tustin

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DID YOU HEAR THE ONE ABOUT...NO HOUSING INVENTORY?

One recent headline in a local paper pointed out "January's Chill."  They meant the prices of the homes had fallen from December 2011, along with the sheer number of sales.  However, January over January (2011 vs. 2012) only showed a differential of 3%.  The numbers will be revealed later in this newsletter, but it will seem a paradox when one realizes that although those numbers might be right, they don't properly reflect what's happening in the actual, real time, market.  And that is...not enough inventory, and lots and lots of buyers.  In fact, late February statistics from market analyst, Steve Thomas, indicated that according to the current pace of sales and the houses available according to the Multiple Listing Service, we were down to 2.1 months of inventory.  This means that if not another house were listed from this point forward, in 2.1 months there would be no more houses for sale.  To give this some perspective, a neutral market, meaning not favoring seller or buyer, is considered to be 6 months.  In 2008 we had a huge buyers market as the inventory hit over 1 year in certain parts of Southern California.  But the times, they have a-changed.  According to Mr. Thomas, for homes priced below $500,000, demand is up 32% compared with last year.  Houses in that price range generally last no longer than 45 days and many of them are snapped up immediately with multiple offers numbering 5 or more.  Active listing inventory dropped in February to the lowest for this time of year since 2005.  What are some of the reasons?  The obvious first is the dirty, little, secret that the media doesn't want to talk about because it doesn't sell papers, but the fact is, the economy is getting better.  Second most obvious reason...almost free money.  Which correlates with reason number three, easier credit, simply more loans going down.  But of all these, perhaps the most important is that people are feeling better about buying.  Not just houses, but about buying everything.  Could it be that people are sick and tired of having a "recession mentality?"  California Association of Realtors has found that affordability is at an all time high in the state.  Certainly this may be true for the baby boomers and every generation since. By CAR's math, if a person or family makes about $60,000, they can qualify for a loan that will buy them an entry level home or condo.  In fact, the median price of Orange County's housing just dropped below $400,000 for the first time in years.  What does this all mean?  Well, good news for sellers who list NOW.  Less competition still, at this point, and a good pool of buyers with money available.  Buyers will be challenged to find a property, at least until more houses hit the market this spring, but will still be able to find some good deals, because the whole marketplace is one "good deal."  Could we see appreciation this spring?  Maybe.  But even if it costs a little more to buy a property with multiple offers, wouldn't you like to know what that property will be worth in 10 years.  Even in the worst downturn ever, properties bought in 2000 saw appreciation of approximately 40%.

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WHAT WERE THE ACTUAL NUMBERS?

The total number of sales for January (the last full month available), in Orange County was 1,872.  This number included 1,218 single-family, 574 condos, and 80 new homes.  The volume of sales was down 27% from December, and only 3% off January 2011.  Prices were down 5.5% overall, with single-family down 6.3% and condos off 9.6% from the previous year.  But a silver lining for the entry level as prices actually went up year over year.  The price range of $400,000 and under shot up 6.9% and $400,000 to $500,000 improved 1.7%.  As expected, the higher price ranges suffered the most decline in volume, especially the $600,000 to $700,000 price range which was off by 20% from January 2011.  There were1, 204 Notices of Default recorded.  This number somewhat reflects the banks intent to short sell many properties, rather than foreclose, as actual foreclosures numbered only 530.  The average monthly payment continues to float downward reflecting the lowering of and stability of interest rates.  It was recorded at $1,958, a decline of nearly 5% from the previous year.

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SOUTHLAND HOME PRICES MAY BE DECLINING, BUT DON'T LET THAT DISSUADE YOU FROM TAKING ACTION

Most economists agree that this year will be better than last year.  But everything this year already seems better.  Restaurants are crowded again; the expensive luxury line hotels experienced a huge surge in 2011.  Theme parks are crowded, and the malls packed once again.  This doesn't necessarily mean everything is rosy.  California's "shadow inventory" has been estimated as low as 5 months and as high as 11 months.  This bodes much better for us than many other states, and certainly other states with even the same "shadow" number, will take much longer to climb out from under because they don't have the volume of transactions or growing populations that we enjoy.  Who is still underwater in a negative equity situation?  A lot of people.  According to KCM Blog, 11.1 million homes are under water, or approximately 22.8% as of 4th quarter last year.  That number increased from the 3rd quarter which was 10.7 million homes and 22%.  Before you panic, this only makes common sense.  If prices are going down, then people are losing equity.  But not all these people are trying to sell, nor should they.  And perhaps, in closing, one should reflect on an important aspect of home ownership, namely, where we live and how we live.  It's great that for many people, housing prices appreciate and it becomes their greatest investment.  But not everyone can live on a coast or in an urban center where there is demand.  Yet despite that, home ownership remains the American Dream, and home ownership first flourished on farms and rural areas, and appreciation was slow, if it was there at all.  No, back in the day, you created the haven where you rested, relaxed, and were sheltered from the storm.  You made your payments and at the end of your working life, you had paid off your home and now could sell it or pass it on to your kids.  Perhaps we all need to remember, houses were never meant for a stock certificate mentality...buy and short hold, then sell. It may be time to return to the true meaning behind the housing market -- a place to call your own, build equity, and eventually, actually own.  See you next month.

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SOME GOOD NEWS AT LAST AS OUR LOCAL ECONOMY, INCLUDING REAL ESTATE, APPEARS TO TURN THE CORNER

Hang on to your hats for this month's column because there is going to be a lot of information to absorb, nearly all of it positive!  Many reports have emerged as we began 2012 that would seem to indicate that the economy is, in fact, getting better.  Last month we quoted an economist that said the economy would improve, but that it wouldn't "feel like it did."  Well guess what?  It is noticeable.  Jonathan Lansner, who has been particularly pessimistic, in general and specifically to real estate, has written several recent articles that have been...well, encouraging.  National job stats say we added 243,000 jobs in January, and unemployment dove to a 2 year low of 8.3%.  Orange County, according to Lansner, added 40,000 in December.  That's the largest increase in Orange County, "working folks since January 2001 -- yes, 11 years ago."  The stock market had its best rally in over 4 years, returning to pre 2008 levels and has seemingly stabilized and is inching slightly upward.  What other intrinsic factors have led to everyone "feeling better?"  There isn't enough space in this newsletter to deconstruct all the elements of this now slow but steady recovery.  However, let's hone in on the real estate side.  First of all, interest rates... The fed's decision to keep them low through 2014 was met with a positive rally on Wall Street.  Buyers are willing and able to buy.  In fact, there are inventory issues, as in, not enough product to go around.  A seeming paradox is prices dipping slightly even with increasing demand.  Wild stuff.  But if a property is properly priced, expect multiple offers if you're a seller, and increased demand if you're a buyer.  Obviously there are exceptions to this depending on condition and location of the properties.  California added more construction jobs than any other state in the country for the past year.  Construction is a very important indicator of recovery for California.  Generally speaking, the first sign of recovery is car sales, check mark here, as last year was a banner year, particularly for Detroit.  After cars come houses, and new ones are a part of that.  There were only 302,000 new homes sold in the US in 2011, according to the Commerce Department.  And that was the worst year since 1963.  So construction coming back in California... Awesome! 

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WHAT ARE INVESTORS, BANKS, AND MEDIA SAYING ABOUT HOUSING?

Warren Buffett, the greatest investor of the last century privately has told the people closest to him that, “buying a home right now will be the best opportunity in their lifetime."  Here are some other quotes:  Washington Post -- Housing Market and Economy Showing Encouraging Signs... The Wall Street Journal -- From Bottom Up, Sign of Housing Recovery... USA Today -- Housing Outlook is More Upbeat... Freddie Mac -- With the New Year comes a sense of cautious optimism.  There are some positive signs in the job market and consumer confidence; housing is starting to raise hopes for continued gradual economic recovery... Fannie Mae -- The housing sector will likely take incremental steps forward in 2012.

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WHAT WERE THE ACTUAL NUMBERS?

The numbers for December (the last complete month available) are as follows:  The total number of sales was 2,572.  That was a 12% increase in volume over November but still 6% down from December 2010.  There were 1,621 single-family resale, 750 condos and 201 new homes sold.  1,066 of the 1,621 were equity sales and the rest were distressed, either short sales or bank owned properties.  Condos were split 50/50 equity to distressed.  There were 1,019 Notices of Default (a 22% decline from the previous year) and 535 foreclosures trustee sales.  Of those, 382 went back to the banks and the rest sold to investors who attended the auctions.  A more interesting number is the 1,700 Notices of Trustee Sale recordings.  Conceivably, all these should go to auction.  And yet that number is few than 600.  Where are the other 1,100 preforeclosures?  The bottom line?  Short sales.  The banks would far rather sell short, than foreclose, for many reasons.  If a person is in a distressed property in the process of foreclosure, they likely can get a postponement and sell the property short.  The average monthly payment has decreased to $1,948, thanks to low interest rates, a 5% decrease from the previous year.

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5 TRENDS TO EXPECT FOR 2012

According to bloggers at KCM Blog we can watch these trends emerge: 1.) Buyers will return -  We're already seeing it as housing supply dips below 5 months (6 months inventory is considered a neutral market).  2.) Foreclosures will increase - Yeah, maybe, but this newsletters say the banks will defer more to short sales.  3) Prices will soften - This was covered already and is more applicable to other parts of the country that don't have the demand and population of So Cal.  Expect more stability than not, unless you are in outlying areas such as Victorville, Hemet, Sun City, Palm Springs, etc.  4.) Short sales increase - The appropriate response to this is... !!!  5)  This last trend isn't from KCM, but is more local fodder, namely inbound moves by the three major van lines jumped by 6% the past year.  Although a state by state analysis roaming the internet put California in neutral as far as migration goes, the moving statistics don't lie.  Allied, Atlas, and United all reported a 6% increase.  That's sizeable.  This column will end on this note of optimism; there are a lot of positive indicators, statistics, and trends on which to hang your positive outlook.  But an even more organic way of testing is people's attitudes, parking lots at malls and restaurants, durable goods sales and traffic.  All of these are moving in an upward direction, so as our cousins in England always say, "Keep Calm, and Carry On."  See you next month.

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WHAT WILL 2012 BRING FOR SOUTHERN CALIFORNIA REAL ESTATE?

Well, gee, let me get out my crystal ball and take a look... No it isn't meant to be a completely flippant statement, but at this point, everyone is guessing, if they're honest about it. But we can make some pretty good calculations, and estimations based on what's actually happened and inventories. First of all, you must remember that home ownership is about a whole lot more than a cash investment. Yes, it's a hedge against inflation (more on that below), and yes, it's the only investment where you can leverage your cash on such a large transaction. Those points alone should make real estate attractive. But houses were never meant to be ATM's, as many have sadly discovered, and they were not meant to be flipped as fluently as trading stocks, which still others have discovered. But for the long term buy and hold mentality, it's hard to beat real estate. And, that philosophy was just discussed by 3 economists in the New York Times in the December 31st Business section. But home ownership is much, much, more. It is where you raise your family, it is your sanctuary, and it is a quality of life embedded in your investment. But maybe most importantly, it's a way to protect your housing dollar from ever rising again...EVER. To find out what next year will look like? Read the whole newsletter, and you should get a pretty good idea. A summary statement might be, look for the beginnings of the turnaround, for prices to bottom out by 2nd quarter, interest rates to stay killer for at least 6 months, and the overall economy to do its part, as it's projected to grow about 4% this year (last year was approximately 2.7%).

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WHERE WILL HOUSING PRICES GO THIS SPRING?

This column is not about to make serious predictions, but there are some indicators worth noting. First of all, the slough off of foreclosures last year due to moratoriums and fraudulent robo signing issues should be off the radar and allow foreclosures to ramp back up. That should mean more competition with the short and equity seller, as well as some pent up listing activity of people who didn't want to list during the holidays. The first and second quarter is always when you see the most listing activity. Following are 4 brief statements by various entities about spring pricing. Zillow believes we not see a bottom in prices until the first quarter of 2012. Standard and Poor thinks prices will drop 5% in the next few months. JP Morgan Chase believes prices will depreciate 6% to 7% over the next 6 months. Barclays says prices will fall 7% by the end of the first quarter of 2012. One thing everyone seems to be in agreement on: housing prices will bottom out by mid-2012 and then stay flat, bringing this down market to an end. A long recovery may be in the offing, but it will be hard for buyers to stay on the sidelines with current pricing and interest rates. Don't be fooled by a house that MAY decline another 2%-3%, but be stuck with a higher interest rate on the loan that more than eradicates any savings on the housing price.

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WHERE IS THE SILVER LINING?

The silver lining in real estate is always the future: because the future is where the pent up demand is heading. If you think this overly optimistic, think about the following...
Trulia conducted a survey with Generation "Y", trying to determine future buying trends. One of the questions asked was whether or not they believed in home ownership as part of the American Dream. A staggering 65% said "Yes!" In fact, it was integral to their future plans for family and investment. So where are they? Many are living at home, saving money, and waiting. In fact, the number of young people living with parents in 2003 was approximately 4 million. By 2007 that number had increased to 4.7 million. This year that number is 5.9 million. That's a lot of people who intend to buy, when you figure out 65% of that number. That doesn't include move up buyers of Generations "X" and "Y" who are already in the market. And it doesn't consider the retiring of the "Boomers" and the transfer of wealth. As this year progresses, there will likely be ups and downs. But we planning for an optimistic year ahead. Why not?

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