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%.

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.

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.

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! 

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.

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.

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."

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%).

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?

HOME SALES PERK UP & PRICES FALL...NOT AS MUCH AS YOU MIGHT THINK

Orange County home prices rose 9.5% in August (the latest full month available) and that's good news, no matter how the papers try to spoil it.  The papers posted that prices dipped to their lowest in 5 months, but that is a misleading quote.  Did prices go down? No.  Did the median price go down?  Yes.  There is a difference.  When you have nearly 400 more sales in one month, and the number of sales under $400,000 is nearly 4 to 1 to home sales over $700,000, your median price is going to fall.  It does not mean that prices dipped nearly 5% as recent headlines read.  In fact, even as prices fell in some areas by 1-3%, other prices rose depending on location, condition, and competition.  Homes that are in prime condition and properly staged to represent a home a buyer could picture themselves living in, are likely to garner over list price, especially if they are equity sales.  If the recent market has taught us nothing else, it is that buyers everywhere are tiring of the, "patience equity" achieved by hanging around for months during a short sale escrow.  They can last 3 months to a year.  Buyers are showing up in droves for properties that are in an equity position, prepared to pay a premium to be able to close in 30 to 45 days.  Sellers that are in that position, may well be in the driver's seat, especially if the only competition in their neighborhood is distressed properties.  The exact numbers will be featured in a later paragraph, but here are some big numbers for the state: there were 37,734 new and resale houses and condos sold statewide in August.  The number of sales typically does increase from July to August, but to give it some context, the lowest July is 29,764 in 1992 and a high arrived in 2005 of 73,285.  It is easy to see we're way above the low, but nowhere near  the high.  In fact the average is 48,344.  We do have a ways to go, but for some who remember the sting only California really felt in the early 90's, it's not your imagination, it was worse then,  than it is now.

WHAT WERE THE ACTUAL NUMBERS?

Orange County's total number of sales was 2,780.  That was an increase of 13.2% over July and a 9.5% over August 2010. The median price declined 4%.  There were 1,834 single-family resales, 793 condos, and 153 new homes.  There were 1,264 sales under $400,000 and it plunged to 440 sales from $400,000 to $500,000.  Prices from $500,000 to $600,000 dropped even further to 341.  Just when you thought it couldn't go lower, $600,000 to $700,000 fell to 227 sales.  Finally, over $700,000 came in at 478.  There were 2,007 Notices of Default, and 1,466 Notices of Trustee Sale (the final step before foreclosure).  There were 712 properties that actually went to Trustee Sale; of those 204 were purchased by investors, and 508 went back to the bank.  Those 508 represent the next batch of REO or real estate owned, bank properties that will be hitting the market in future months.  Now some good news:  If it seems like all properties on the market these days are distressed, they truly aren't.  For example, of the 1,871 single-family resale (discrepancy from above numbers is simply a different data provider),  1,271 were equity, only 300 were short sales and 280 were bank owned sales.  In other words, 1,271 to 580.  A whole lot more equity activity is going on than people think.  And there is a better price point.  Sellers who worry that they won't get as much value because of comparable sales dragging them down, median per square foot values were, $288, $252 and $237, respectively.  We are not out of the woods, and no one is saying that we are, but, there are buyers, there are sellers, there are many people entering into real estate transactions, and it is possible to get a loan.