Rent Increases in State Outpace Much of the West

Average rents in Orange County and Los Angeles County range from $1400 to $1600 a month, and may increase approximately 6% this year. A strong economy is one of the reasons, but the conversation of over 11,000 apartments into condos is another. In recent years low interest rates allowed many renters to become homeowners so rents were not raised, but now with home prices and interest rates rising, renters are stalled as landlords raise rents to match the current market. And until more multidwelling units are constructed, a shortgage of rental units allows some landlords to play catch-up to the tune of rent increases of several hundred dollars a month.

Median Price Increases in Southern Calif.

The six counties of Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange saw a median home price of $493,000--an increase from the May median price. The overall price increases have slowed, but the number of sales was also up from May. National and local Realtor associations have claimed 2006 will see an overall median price increase, nationally and locally, of about 5-6% for California statewide. Some local markets may fluctuate, but the overall appears to be stabilizing. See the Mid-Year Report at my website.

Drop in Interest Rates

The average 30-year fixed mortgage rate fell from 6.79% to 6.74% over the seven-day period ended July 13, the first time in five weeks the rate has declined, according to Freddie Mac's Primary Mortgage Market Survey. The average 15-year fixed mortgage rate fell from 6.44% to 6.37%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.39% to 6.33%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.82% to 5.75%, Freddie Mac reported.
Fees and points averaged 0.6 of a point for 30-year fixed-rate mortgages and one-year ARMs, 0.4 of a point for 15-year fixed-rate mortgages, and 0.5 of a point for hybrid ARMs. 'June's employment report caught financial markets off guard,' said Frank Nothaft, Freddie Mac's chief economist. 'In response, long-term bond yields eased a bit this week.' A year ago, the average 30-year and 15-year fixed rates were 5.66% and 5.25%, respectively, and the average one-year ARM rate was 4.39%, Freddie Mac said. "

Housing Market Cools in SoCal - Los Angeles Times

"DataQuick said that the median sales price for all homes sold in Los Angeles County last month rose 8.8% to $517,000. The county's median had been posting annual gains of 10% or more until recently." San Diego's median price for June dropped 1%, the first time in 10 years that market has lowered. Sales in Los Angeles County have decreased, although the median price increased in June.

NAR: Home Sales Expected to Stabilize In the Months Ahead

"Don't look for any big shifts one way or the other", says NAR economist David Lereah. Higher increases in interest rates are a concern, but median home prices nationally will go up about 5.3 percent overall. Sellers should understand that "abnormal" price growth has cooled. While buyers may see larger price decreases in some market and with some properties, they should also understand that certain price decreases may be expected if the seller has overreached the current market, but that it doesn't mean there will be a huge decrease overall in the market. The median price in the six Southern California counties has not dropped during the Spring (see earlier post).

Cooling Home Market Spurs Interest in Foreclosure Sales

With a slowing in the market, perhaps a stabilizing in the real estate market, foreclosures seem to have a little more allure. But there are things to know: websites listing foreclosures may be out of date, or may list properties that haven't yet met all the legal requirements for sale. In other words, approach foreclosure properties and foreclosure websites with care. Just because it's listed on a website doesn't mean the property will actually sell; and if a buyer does purchase at auction there are significant risks involved. The thought that a foreclosure property can be bought below market doesn't work out that way, because if a bank finally takes it back after completing the foreclosure process, those properties are usually listed at market. Why would the bank sell for less? Read the Wall Street Journal article for their complete story on investigating this sector of real estate sales.

Inman News reports that the Federal Reserve's recent tone hinting at possibly no further rate increases may have changed after its June 29 statement. 10-year Treasury note rates declined, so did mortgage rates which closely follow the Treasury notes and yields on long-term government bonds. Later positive predictions of June job growth may have the effect, though, of another increase in August by the Federal Reserve, which will ultimately impact the mortgage rates. Be prepared.

I've had to reconstruct the blog. Previous links and features will be added again.

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.

UCLA: No Decline in Prices

This slower market is not a sign of a recession because the Southern California and national economy is strong and there is no "vulnerability" in the job market. The speculative demand got way out of hand, which drove prices up even higher, but the speculative buyer has departed the market. Speculators enter and leave the market suddenly, since they lack the emotional component about their properties that the usual residential seller has.
So the bottom line is: "We do not predict a recession, nor do we predict a substantial decline in average nominal home prices," said Ryan Ratcliff, a UCLA economist. "The forecast is based on two arguments. There is not enough vulnerability in the usual sources of employment loss to create a recession, and the historical record suggests that average home prices do not usually fall without this kind of job loss."