Take Another Look: No Housing Bust

This link to Kenneth Harney's Los Angeles Times article of October 16, 2006 will not last indefinitely, but it's well worth reading. Mortgage interest points have declined in recent months to 1 percentage point above 40-year lows; mortgage applications are up; unemployment is down; pending home sales are up as of NAR's October 2 report. The market is returning to 2003 levels, which was in itself a banner year for real estate sales.

All of which begs the question, "Just what kind of housing bust is this anyway? With gloom-and-doom purveyors forecasting imminent crashes in dozens of metropolitan areas, how could such key fundamentals as jobs, interest rates and even pending home sales simultaneously be trending in the opposite direction?" It's not a bust, it's a correction.

In a nutshell: "So, what's the source of some of the confusion about just where housing is headed? Mike Moran, chief economist of Wall Street's Daiwa Securities America, minces no words: The financial press and TV news shows are over-dramatizing what is a normal and long-predicted cyclical re-balancing, and 'portraying it as a catastrophe,' he said." With such eminent notables as the vice-chairman of the Federal Reserve, a managing director at JP Morgan Chase and the chief economist at Morgage Bankers Association all pointing out the "robust" economic indicators, buyers should certainly be taking note of the not-so-big market dip in prices.

Home Price Forecast

Every day predictions can be found somewhere in the media as to where future prices will end up. Some local prospective buyers are expecting to see a 20 percent price drop in the Long Beach area in the next few months. That we are in a slower market, and a softening market, is more obvious. That predictions do not always come true ... we know about that, too. However, the Long Beach/Los Angeles area market, based on current projections, doesn't show that kind of a price drop, just check the list of cities and scroll down to Los Angeles to see an approximate 5 percent drop over a period from 2006 to the end of 2008. Another prediction is that interest rates for now and in the next several months will not be increased by the Federal Reserve. That is as good a prediction as any, and should be very helpful to those buyers thinking about making a move soon. See a property search from the local MLS here.

The Number of Pending Home Sales

... rose in August compared to July, 2006. This index is used by the National Association of Realtors to rate activity in sales. If there is an anticipated reduction in listings on the market, as this index might show, that may mean price stabilization in the near future. Demand gets closer to supply. Pending home sales usually close 30-60 days. September and October data will tell more of the story. See this website for more real estate information.

Quote of the Week

"Someone who really wanted to know what is going on would have to dig deep to find reality: a decline in median prices just means that more cheaper homes are selling than expensive ones; the median says nothing about the fate of an individual house or neighborhood, or city." Lou Barnes, Inman News.

For instance, some news sources quote a different monthly median price than others because they calculate in the price of condos with homes for the monthly median selling price--in the majority of markets condos sell in a lower and separate niche than single family homes. To commingle them gives a different picture than when compared separately.

Where Are the Prices Going?

Per Inman News today, "Already, home prices have dipped in some markets. 'There are some cities and some states that have experienced slight price declines so far this year, but we are very far from a Great Comeuppance in which the extraordinary appreciation of the last five years is taken away,'" according to the Edward Leaver about the UCLA Anderson Forecast scheduled to be delivered today. Factoring in inflation, "the forecast calls for the market prices of homes to hold steady, which equates to a drop of about 15 percent to 20 percent in real terms because of continuing inflation. Also, the forecast calls for a lowering of the Federal Funds Rate from its current level of 5.25 percent to 4.5 percent by mid-2007."
That's a significant drop, but maybe not impossible.

A separate Anderson Forecast report, "The California Report," also does not expect a recession for the state. "We are still firmly convinced that the national economy is the primary driver at the state level: statewide home prices (in California) are unlikely to decline significantly unless there is a recession," and a recession means a significant cut in jobs, and a cut in paychecks. That's what we had in the 1990's--so do the buyers who think they're going to get a "deal" with a 30 percent or more drop in prices think it will necessarily happen in a vacuum and their paycheck will not be affected and their buying power will automatically increase? It doesn't work that way--while it will take a while for some sellers to get the message, that doesn't mean the buyers will be getting the selling price of 1999. It's best to take advantage of the lowest interest rate you can get: Interest rates impact the monthly payment more quickly than an increase or decrease in home prices.

California Median Price Up, Sales Volume Not

Fulfilling the general anticipation of a slowing increase in price appreciation, California's median home price, according to California Association of Realtors, reached an all-time high in August, 2006, of $576,360, a 1.6% increase over August, 2005. August 2006 price increased 1.7% over July, 2006. The homes are on the market 90 days or longer has quadrupled compared to last year, and sales volume has dropped 30.1% compared to last year. Home prices in specific areas however increased by as much as 46% (Ladera Ranch) compared to a year ago. Manhattan Beach has the greatest median home price ($1,850,000), with Santa Barbara, once the highest median price in the state, trailing 10th at $1,107,000. The statewide appreciation was anticipated for all of 2006 to be 5-6%.

What Is The Current Time On Market

What’s the time on the market. A quick check in our local MLS for houses in 90803 (Long Beach near the coastline and adjacent neighborhoods) shows 117 single family residences at an average active list price of $1,444,122, with 25 in escrow: That means about 4.68 months inventory on the market for houses. Some people don’t think this shows an extraordinary supply vs. demand, although it certainly provides a much better opportunity for buyers to see what’s on the market and having some time to think it over before making an offer. With 76 condos (not including lofts or own-your-owns), on the other hand, at an average price of over $581,000, there is almost a 7 month supply in the same area. Still a great buy for buyers to be near the ocean in an area where a house would be unaffordable for them. Search properties at http://www.juliahuntsman.com.

Break for Borrowers

The Federal Reserve has once again left the rates alone, and "judges that some inflation risks remain." The prime lending rate remains at 8.25 percent, breaking the string of 17 rate hikes that has driven the funds rate to its highest level in more than five years. Mortgage rates have actually fallen this year from it's high of 6.8 percent on a 30-year fixed: so it's still a great time to refinance or purchase!

Change in Rates Not Expected

Investors do not expect the Federal Reserve to change rates this week, or before the end of the year. Rates could be cut eventually, but not as long as the economy shows no signs of deterioration. Still, a good time to buy. See www.juliahuntsman.com for properties on the market in the Long Beach area.

Federal Reserve May Leave Rates Alone This Week

Waning inflation may cause the Fed to leave rates alone, but investors do not expect a decrease unless the economy shows signs of deterioration.