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.