Thursday, November 17, 2011


This headline was posted by the KCM Crew, authors of a blog for a real estate website called, "Keeping Current Matters."  It's a great name for a blog, because in real estate, keeping current does indeed... matter.  The above mentioned article randomly addresses the many negative articles regarding real estate, many of which have been published in local southern California papers.  This newsletter, although not political, strongly disagrees with scare tactics and negative ploys designed solely to sell papers.  After numerous recent articles all playing on the word, "scary", a pun on the Halloween holiday, let's level the playing field with some real numbers and let you, the discerning and intelligent reader, make up your own mind. 

Local papers would have you believe that the sky is, in fact, falling; real estate will never recover and will never be the same. More on that later, with some real numbers that are a little sobering.  But first, homeownership itself; is it dwindling?  Is it, "on its way out?"  Hardly.  In fact, pick up a copy of the recently released Fannie Mae 2011 3rd quarter National Housing Survey.  Both Generation Y (birthday mid-1970's to mid-1990's) and Generation X (mid-1960's to mid-1970's) have stronger beliefs in the importance of homeownership than those of the general population... yes that would be the boomers, and boomers have loved real estate.  It seems clear that as the economy improves, so will housing demand.



In fact, local associations of Realtors and Multiple Listing Data indicate that inventory is quite low.  Part of the reason sales have slowed is there simply isn't enough saleable product out there.   In this type of market, there will always be properties on the market that are technically available inventory, but simply have too many problems to overcome.  They need a particular type of buyer.  These properties can make it appear there is more inventory than is actually "saleable."  Frankly, it is surprising that people who can buy, have chosen to back away from the market because of predictions of a triple dip.  It's a "cost vs. buy" analysis.  If you believe in home ownership, its tax deductions, its features of durability and stability for yourself and your family, then prices coupled with interest rates should make for a fairly attractive picture.  Yes, prices could go down, but what it actually costs you, may never be better.  Also loan programs could change and availability could change, since lending has been very volatile.  But what won't change is the historic and undeniable return on investment that occurs in real estate every 10 years.  Sometimes the cycle is shorter; sometimes the downturns (such as this one) are annoying.  But check on a property, any property, and see what it sold for in 2000, and what its value is today, in the midst of our worst downturn.  REMEMBER THE PROMISE OF MORE ON THE TOPIC, "REAL ESTATE WILL NEVER RECOVER?..."


        DOW +6.7%          S&P -12%             NASDAQ -30%          REAL ESTATE +43%



Well, both are true.  October 31st, CNN Money reported: "Home prices headed for triple dip."  Fiserv (a financial analytics company), has predicted a 3.6% fall in prices on a national basis by next summer.  Now remember, southern California is a very different place than Las Vegas or Florida.  But still, nationally it means that the Case-Shiller Home Price Index is going to fall to 35% below its peak in 2006.  But what Ken Johnson, Ph.D. (Florida International University and Editor of the Journal of Housing Research) points out, is that the dip depends on circumstances being in place to lessen the impact that market anxiety causes.  What circumstances?  According to Johnson they are sometimes referred to as "housing affordability measures, and some of them are:  1) Price of income to the house 2) mortgage payment to income  3) buy versus rent analysis for various markets that encourage buying.  Did you know that the payments to income ratios are at a 30-year low in all 50 states?  Why haven't the local papers reported that?  The downturn in prices will bring more affordability factors into play for more people, especially the Gen Xers and Gen Yers, which is where the pent up demand is going to come from in the first place.

Also of interest locally to southern California is the best prognosis for recovery you can have: skilled labor, desirable location, and economic resiliency.


Saturday, July 9, 2011


This was the headline of the Orange County Register on Sunday May 22nd.  The entire real estate section was focused on all the housing developments that are picking up steam by most So Cal builders.  The California division president of Fieldstone communities delivered the following quote, "It makes sense (to build) again.  We can deliver a product where there's demand.”  This column has been emphasizing for a few months, that the lapse in building over this fairly prolonged period of time, will result in heavy pressure on the resale market.  That's good for homeowners who have hung in there, despite the odds, and have stayed current on payments and are riding out this temporary loss of equity.  Why do I say temporary?  Let's look at investments for the last ten years.  There is not enough space here to do a comparison chart, but do your own.  Take a look at the S & P 500, the Dow Jones, Nasdaq, and Real Estate.  Let's see which one, held from 2000 to 2010 (the worst decade, all agree, in real estate) and see which investment fared best.  The short cut answer: real estate.  Also, with that investment, you managed to leverage your money and buy something somewhere between 10 X's and 5 X's your investment, depending on your down payment.  You more than likely fixed your housing cost, unlike renting, and if you didn't use your home like an ATM, you have built equity.  Let's not forget one of the best tax breaks for the middle class, interest deduction.  Buying real estate doesn't sound so bad... No wonder they're building again.  All agree building has been in the tank.  This column has reported how low permits and percentages have been off.  So after nearly 2 years of a blank in the building department, 28 developments have started the building process in one way or another.  According to Irvine-based housing consultant John Burns, "builders are coming out of hibernation."  The projects together include approximately 3,000 homes and townhouses and duplexes.  Compare that to the paltry 1,600 of 2008-09.  But catch up doesn't happen overnight.  Short sales and foreclosures will continue to be a part of the market mix for several years to come, and certain buyers will be drawn to them for either "patience equity" or investors looking to rehab and sell.  Equity, or standard sales, will continue to rule the qualified buyer who can afford to pay market rate for a turnkey property.



There is no doubt in anyone's mind, who works in real estate full time, that 2011 has had an uneven edge to it.  One month sales seem solid, the next, it sputters.  The real culprit in this is not affordability; it's at an all time high.  It's not selection, there is ample inventory, and it's not a lack of qualified buyers or motivated sellers.  The real culprit is the impression that the media has given as to the availability of money.  Many people think it's tighter than ever.  Getting a loan is difficult.  Actually, that's not true.  So if you are a buyer who has been staying away because you think you can't get a loan unless you have a 740 FICO and 20% down, go start looking for your dream home, because that's not the truth.  Do you have to be qualified?  Yes.  Do you have to have a job?   Yes.  Can you get a stated income loan?  No.  Can you get a fully documented FHA, VA, or Conventional loan?  YES!!



If you care about your right to own property, if  you believe in the last true deduction for the middle class that amounts to more than a hill of beans, this should be a cause you that catches your attention.   Eliminating home interest deduction is definitely part of the deficit reduction conversation, and it shouldn't be.  For those of us who are not wealthy, and cannot take part in the many loop holes that keep corporations and individuals from paying their fair share, this is our best deduction.  Please contact your federal senators and congresspersons and make your voice heard.  If we don't take a stand as homeowners, they will take it for us.  Fight for your right to the American Dream and to an honest deduction that should be a matter of course.



These were a couple of very encouraging headlines starting out the second quarter of 2011.  Not only were these figures higher than expected, but unemployment also dipped to its lowest level since 2008.  In a recent article OC Register writer Jonathan Lansner had a similar headline, "Job Growth Could Cure Ailing Market."  The gist of the article is really found in the Beacon Economics updated housing forecast for California.  Research manager Jordan Levine finds some optimism that is driven by, "rising employment and incomes, which we project to grow by between 4% and 6% on the income side and 2% to 3% on the employment side."  In other words, people really do need jobs to buy a house.  And their income needs to be proportional to the price.  Something the sub-prime and stated loan programs seemed to forget.  The other encouraging things was that these jobs were "real" jobs; not seasonal, not minimum wage, but substantial jobs in technology, import, service, management, and manufacturing.  Originally the Fed thought job recovery would be 5 complete years.  Statistics now suggest that job recovery will happen by installment, both in types of jobs and location.  Remember, it is projected (see last month for details) that California may be a little slower than some parts of the country, since we were hit so hard by the loan meltdown, but Southern California, specifically Orange County, was projected to emerge first.



There are also articles stating the opposite.  "Winter Doldrums Worsen, Defying Usual Pattern," was seen on March 16th.  It was published just as demand was taking off.  More on the actual numbers later, but they are down compared to both the month before and the year over year.  But remember, a year ago we had a federal tax credit that was driving thousands of buyers into the market.  This year that is gone, and so the numbers we have may not be quite as high, but they reflect the true market and the true level of recovery.  According to the Orange County Home Inventory Report from Steven Thomas, pending sales at the beginning of the year were1,856.  Since then, it has increased by 61%.  What may be more interesting is a look at "market time" which is how many days on the market it takes a property to sell.  You take that number and combine it with how many properties are available and you get your "market inventory."  In other words, if not another home came on the market starting today, how many months would it take to sell everything we've got, at our current pace.  A seller's market is said to be under 6 months, an even market about 6 months, and a buyer's market at more than 6 months.  Well, right now, believe it or not, that number is under 6 months.  And yet prices are falling.  We may never see this exact market phenomenon again.  Buyers are sensing that there are some very good deals on the market.  But because financing is tight and because there is much competition from REO (real estate owned by banks), cash is king and cash can generally get a lower price.  But, having said all that, it is not uncommon right now to see multiple offers on in demand properties in good locations in the right price range.


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