Quote for the Week: Buy Now If You See the Home You Want

"The plain fact is that you don't know when real estate will be at bottom until it's too late. If you see a home you love, buy it now if you plan to be in it a long time. And know that the headline writers want to whip you up and make you crazy about the economy. They sell fear. Stay calm and stay well to do." Ben Stein "Don't Panic - Buy Index Funds and Real Estate"

Long Beach long beach real estate 'Voice this!

Read It All Here: Gary Watts' Mid-Year 2007 Report--Foreclosures, The Media, The Subprime Market and Where It's Going

"I am holding to my original forecast for this year. I knew the 1st and maybe the 2nd quarter would be a rough one. I think the Fed will cut the interest rates later this year, and home prices will begin to firm up and even appreciate in the fall, especially as we head to 2008 and the election year!" Gary Watts.

Mid-Year Real Estate Update By Gary Watts, Orange County Economist, Real Estate Broker:

"I. Three Decades of Real Estate

A. It was 36 years ago, after graduating with a degree in Economics and advanced studies in psychology, that I landed a job (during a recession) as a salesman at a television and appliance store in a new community called El Toro, California. One Saturday morning, a real estate agent “floated” into the store. I asked him why he was so happy. He replied, “Yesterday I closed my biggest deal ever. I sold an oceanfront home in San Clemente for $28,000!

1. Loans were at 7% that year. Today they are 6.33%. I have seen 3 recessions, 3 recoveries and a year when lenders had absolutely no money to lend. I have seen an inflation rate of2l%, home loans at 18% and worked through a 15 year period of double-digit interest rates for home loans. Today, we are within 1% of a 40-year low for home loans.

2. Before beginning my career in real estate, the experts like those in Business Week in 1969 said: “The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000.”

3. Six years after getting into the business (1977), National Business magazine said: “The median price of a home today is approaching $50,000 ... housing experts predict price rises in the future won’t be that great”

4. I remember in the early ‘80’s a seller telling me that he had owned a lot of real estate for a long time but the glory days were over and we would never see price increases like in the past. Maybe he was reading Money Magazine in 1985 when they reported: “The golden-age of risk free run-ups in home prices is gone.”

5. My all-time favorite was when the San Francisco Examiner said in 1996: “A home is where the bad investment is.”

B. Since the Early 1990’s

1. The early ‘90’s was the only time in my 36 years that the median home price here in Orange County declined. Over those 6 years, the median home price declined 19.33% or a yearly decline of only 3.22%.

2. However, it only took the following two years to erase almost the entire loss, and before the decade ended, real estate had gone up 37 ~6% -almost twice the decline of the previous 6 years!

3. Since 2000, homes have appreciated over 100%!4. If I add up the appreciation rates for each of the 4 decades here in Orange County, the 37-year average comes to 14.9% yearly!

II. The Media

A. Today’s media plays up bad economic news now more than ever, which leads to misconceptions about economic realty.

B. And since our potential buyers and/or sellers have greater access to this mis­information, it is more important than ever for all of us (as real estate professionals) to be well informed.

C. Historically, housing downturns last only 27 months, and if you begin counting from late 2005, we are in the 20th month. Maybe, just maybe, the end is in site!

1. Since the 2005 downturn, our home prices are still on the positive side.

2. If we take just the past 12 months, our resale homes are down 0.07% from May of last year, while condos are down only 1.6%.3. The condo market has been most affected by the sub-prime issues; these effects are quickly disappearing.

III. The Sub-Prime Market

A. The worst is over, which helps explain why the sub-prime loan problems have almost left the front pages of the media. It might surprise you and your clients to know that only 1/2 of 1% of all loans in the U.S. are sub-prime!

1. These exotic loans became a major influence in the early 2000s. but anyone obtaining them up through 2004 had very few problems due to rapid equity growth. Many with no-money-down purchases soon found they had 20% (+) equity within a year or two!

2. So most of the problems were with the loans that originated in 2005 and2006. During that time, they represented approximately 23% of all loansbeing funded.

3. In Orange County, 2005 was our peak sub-prime funding year. Yet these loans represented only 20.9% of all the mortgages funded that year.

4. Today, sub-prime lenders that need to sell their loans are liquidating their paper for $.96 on the dollar.

5. For some of the banks that provided the sub-prime money:
a. Bear Sterns 1St quarter profit slipped to $361.7 million.
b. Morgan Stanley (holding $5.2 billion in sub-prime loans) had a 60% jump in earnings.
c. Goldman Saks earned $2.33 billion in the past year.

B. The media will still report about massive delinquencies and huge foreclosures in the sub-prime market but those reports will not be accurate.

IV. Delinquencies vs. Notices of Default vs. Foreclosures

A. Delinquencies cover any missed payment — even if it is just one month, it gets reported as a delinquency.

1. The delinquency rate on sub-prime loans is running 13.77%, which is up13.44% from the previous year.
2. The delinquency rate on prime loans is only 2.57%.3. Combining the two rates with the loan volume gives you a delinquency rate in the U.S. for all loans of 4.84%. The record low is 4.0%.4. California’s delinquency rate is 3.25%.

B. Notices of Default are filed when lenders’ loans have been delinquent for a specific period of time. These loans begin the foreclosure process. The four states of California, Florida, Nevada and Arizona currently have the largest amount of loans in the foreclosure process. Yet, in their 1st Quarter, 24 states saw a decline in foreclosure starts!

1. Only 3.23% of all sub-prime loans have entered the foreclosure process, with most of the defaults occurring on loans from Jan. 2005 to Feb 2006.
2. Only 1.28% of all 1st Quarter of 2007 saw 46,760 Notices of Default filed by lenders. California has 8.2 million homes and condos with 5.6 million mortgages. Therefore, in the 1st Quarter of this year, only 0.008% of all mortgages entered the foreclosure process for the quarter.
4. The all time record for filings was the 1st Quarter of 1996, with 59,987 notices filed. However, since then, California has built almost 2 million more homes, so the percentage of Notices of Default is still very low!

C. Foreclosures occur when the buyer has been unsuccessful in curing the debt and either a lender or an investor has acquired the property.
1. For sub-prime loans, 68% of the buyers are able to prevent the foreclosure by either refinancing the property or successfully selling their home.
2. For prime loans, the foreclosure rate is 0.86%. Last year, the U.S. saw a combined foreclosure rate of only 1.09%!
3. During 2006, California saw a foreclosure rate of only 1.17%!
4. Last year in Orange County, 5,680 defaults resulted in 697 foreclosures. This means only 12.2% of the defaulting homeowners actually went to foreclosure. We could also say that 87.8% were successful in either selling or refinancing their properties. This rate is below our 17-year average. Of that 12.2% of defaulting homeowners, only 38% of them experienced an actual loss at the sale!

D. A final note about foreclosures: The #1 reason they occurred was due to fraud. The # 2 reason was unethical lending, followed by #3 - loss of job, and finally #4 was medical reasons. By the way, the mortgage insurers are in a good position to cover losses at these (high) levels.

V. The Orange County Real Estate Market

A. There is no doubt that this market has its challenges, but for those of us who have been in the business for many years, this market, although weak, is so much stronger than during previous market downturns.
1. Orange County has the 2nd lowest unemployment rate in the State.
2. Labor analysts forecasted our job growth at l%, but it ended the year at 2% with a total of 29,100 new jobs created.
3. This has helped prices (for the most part) to remain neutral.
4. The wealth of this County is quite incredible and it will continue to keep the local economy growing.
5. Last year, our population increased by 21,200 people.

B. Sales:
1. Home sales are down by 24.8% and condo sales are down by 40.9%.
2. If you remove the flippers and speculators, and have fewer investors and second home purchasers, one can easily see why sales are down.
3. Year to date we are at 13, 336 total sales. If we stay at this pace, we will have sales of 32,006, which is 10% below last year’s sales.
4. Outlook: stronger sales for the later half of the year equaling or surpassing last year’s total sales.

C. Listings:
1. Last year our listing inventory grew, from the beginning of the year to the peak summer months, in excess of 100%!
2. This year, our listing inventory has grown by only 50%!
3. As of two weeks ago, there were only 209 bank owned properties in our MLS, which represents 0.013% of our inventory — not enough to put pressure on the housing market.
4. Although foreclosures may triple this year, this amount will still not be enough to hurt the housing market.

D. Forecast

I am holding to my original forecast for this year. I knew the 1st and maybe the 2nd quarter would be a rough one. I think the Fed will cut the interest rates later this year, and home prices will begin to firm up and even appreciate in the fall, especially as we head to 2008 and the election year!

Please remember that every decade someone thinks the housing market will collapse. Every decade someone wants to tell you that housing appreciation is over, but in my 36 years of meeting people, I never have met a person who regretted buying their first home!"

Long Beach

Buyers: There's No Time Like Right Now

Real estate supply and demand goes in cycles, it always has. Sales are down, inventory is up past the 6 month level, but what else is happening? Interest rates are creeping up, and there are no predictions for any decreases by the Federal Reserve on the horizon. Don't be one of those people who, two years after the fact, comes back and wants something from today's market that's not around any more, i.e., more inventory to choose from, lower rates, or even a lower price. Did you know that so far this year, the median home price in Los Angeles County is higher than last year? In fact, it is in the top 10 areas of median price increases in the state. If you want more information about loans or real estate, contact me by phone or e-mail. See my site at www.juliahuntsman.com for more information or a property search that is updated throughout the day.

Long Beach

Los Angeles Median Price Still Going Up

Sales are down 20% for six Southern California counties combined, but the median price for Los Angeles County was $528,000 in February (per Dataquick Information Systems), an increase of 7.8% from February 2006.

"Basically, the economy in L.A. County is much stronger than anyone imagines. You have that driving the bus," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

The oft-predicted population growth factor was cited by Kyser as one feature of the current Los Angeles housing market, a factor which does and will likely continue the demand for housing now and and in the future, and is a driving force behind condo conversions and loft developments in commercial areas of local cities.

Sales volume fared a little better than other areas--in Los Angeles County, the sales volume was 11.1% below that of February 2006. See the Orange County Register's article on home prices hitting a new record.

Rear View Mirror is Always Clearer Than the Windshield

Among the ten biggest homebuying mistakes: Waiting for a better market and interest rates.

You only have the market you're living in right now, and that market is also tied to whatever the economy around you is doing. Think about how long you plan to live in that property, and find the best loan for it. In the past, 30-year mortgages were just about the only choice. But the national average shows that most people move again in about 7 years, whether it's due to job choices or a growing family. Getting a good interest rate is tied to your debt and to your FICO score, and as long as you have lower debt and a good credit score, you will probably be able to pick out a 5 or 7-year fixed rate which could save you money on your payment. Even if you have to pick a more costly loan to buy a property in the naer term, you always have the choice of refinancing when the market becomes more advantageous. Remember, real estate happens in cycles, and you can't predict the future. The opportunities you see before you right now may actually work out the best for you in the long run. That is why waiting for a better market is only waiting. People typically look backward later on and see what it was they missed, and then find it all too easy to live in the past. Take a careful look now and do the work that is necessary to make the best choice possible.

Southern California, Homebuying

It used to be we had the book, and they had to come to us for information.”

That quote from Rob Levy, a real estate broker in Portland, Oregon refers to the MLS book, an artifact from ancient past history as long ago as the late '90's, a piece of history that by now is probably little known to younger prospective buyers entering the market for the first time who are used to quick access to information. That was back when a trusted Realtor was considered the major source of information about homebuying and selling. Fast forward now to a time when real estate information is everywhere in print and on the internet, it's so much everywhere from so many sources, that choosing the right information from the right source takes labor, time and a lot of self-education for the buyer. It's becoming important to know where to look.

Like the buyers in the article, "Buyers Who Go It Alone" by Buck Wargo, REALTOR® Magazine Online, they may think it's easy because maybe their first transaction was smooth. But different real estate cyles have a tendency to change situations, plus new laws in real estate impose additional requirements and disclosures, which may leave both buyers and sellers in quandry in the middle of a transaction if they decided to leave a qualified REALTOR® out of the mix.

Internet tools, such as MLS searches on REALTOR® websites and other online media article, are great resources not available in the past, and a non-pressured way of looking. But I'm also finding in this market that there are those who have done very little prior research and would rather come into the open house and talk personally with a Realtor, and I'm wondering if there isn't so much universal information to be sifted through, that despite media publications to the contrary, most prospective buyers and sellers want "local, up close and live" talk from a professional whose business it is to provide specialized expertise and knowledge accumulated from experience and competence.

Long Beach, CA, open house, homebuyer

Your House Is A Home, Not A Tech Stock

Everywhere you read, it's all about the slowing housing market, or worse. Nobody likes to feel they bought or sold at the right time, but to make the best move you can you need to know your future plans a lot more than you need a crystal ball. Playing the wait-and-see game, as this Los Angeles Times 9/10/2006 article shows, doesn't always work out. Real estate is cyclical in nature, and if you buy and plan to stay at least five to seven years, you are more likely to be making a good investment. "But housing is not bought and sold as easily as tech stocks ... People who are rolling the dice, and not getting into real estate for the right reasons, are putting themselves at risk," says John Karevoll of Dataquick. "If you're planning on living in the property for three to five years or more, you can make a good investment today," he said. "It won't be as good as if you bought three years ago, but it will be better than if you wait until interest rates go up." So trying to time the market and sell early or wait to buy, as some people have learned, can be the wrong move for the wrong reasons. First and foremost should be an assessment of your needs, then try to match those needs with the best loan and the best house that you can get at the time.

The Return to a Normal Market?

This Los Angeles Times article (July 23, 2006) may not stay available online much longer, but it's a good discussion of the current Southern California market picture. People afraid of a return to the '90's recession may be worrying unnecessarily. As has been stated often, the market fundamentals today are vastly different than those of the '90s, says John Karevoll of Dataquick Information Systems. He, and many other economic sources including California Association of Realtors, still predict an overall appreciation in the median home price of 6% or more, in the Southland and statewide. While one simply cannot know all the future events, Karevoll is willing to be quoted saying in a worst-case scenario, homeowners should not lose more than 7% of their homes' value. So the current standoff between buyers and sellers, with buyers waiting for a huge drop in prices, is not supported, not in this article anyway. Areas with overbuilding in condos have seen a drop, but that does not mean all condo prices in all areas are losing. Some sales figures, or lack thereof, reflect a dropoff in activity after a long held back huge demand has been met, and then overmet. The frenetic activity from selling a home in a week or two has definitely slowed, but many younger buyers see that as a "drop in the market" because they never experienced anything else, or what the historical "norm" has been of 30-90 days on the market.

Federal Reserve: No Changes for Now

After 24 increases in the federal funds interest rate, the Federal Reserve holds off on further increases this week. There may be more increases in the future, but the cooling in the housing market and moderated economic growth are the current reasons cited for no further hikes at this time.

Why the Housing Boom Will Stay

Harvard University's Joint Center for Housing Studies points out the main pillars of the housing market in its 2006 report, where downturns in the market will not outweigh the long term factors:

Several factors are at work.

Booming household growth. The nation will add 1.37 million new households this year. Part of this is natural population increase but this has also been bolstered by foreign migrants.

Graying boomers. As boomers have aged and prospered, they have begun to buy vacation or second homes in increasing numbers. This trend will widen as they near retirement.

Changing household composition. Social and cultural changes add to the number of households. There are more single-person households than in the past. Fewer adult children live with their parents; they establish their own homes. Increases in divorce rates result in the division of multi-person households into smaller ones. Family sizes have shrunk; a community may have about the same population but more households.

Minority gains. Ownership among formerly under-represented minorities has increased. Black and Latin home ownership has always trailed that of whites but the past 10 years has seen minorities making great progress.