The Housing Market Slump

Long and short term mortgage rates went down last week on average of .5 point. When buyers understand they're getting more breaks on their rates, they'll decide now is a good time to act. More housing inventory has taken pressure off, but at some point, in the not-too-distant future, buyers will suddenly come alive and if they do it all at once, they may be wondering what happened to a certain property. The answer will be, somebody already bought it. Don't get fooled by the slow times, they won't last forever in a strong economy.

"Big Decline" In Sales is How Big

Compare '70s to now and compare housing cycles.
The current drop in housing sales volume might look a little different when you put it in the perspective of previous real estate markets. Nationally, the 1970's-80's had a 48% decline in sales and a 2% decline in jobs, compared to today's 9% decline in housing sales and 1% gain in jobs. This information from David Lereah of the National Association of Realtors (now having its annual conference in New Orleans)takes a look at the national market, but download the entire Powerpoint presentation for the complete story.

Los Angeles and San Francisco: Bubbleproof?

CNN/Money rates these 2 California cities as good for investors. Take note of the average annual appreciation--3.7% annually for Los Angeles since 1949. High end development is the draw now, while current homeowners are still seeing plenty of equity in their properties.

Mortgage Rates Move Up

Employment figures, or news about it, usually are a confidence measure that has immediate impact on interest rates. While the construction industry has had problems selling its houses and has lost some jobs, other job figures for the last 3 months went upward. In the meantime, California shoppers report that in spite of high gas prices and a drop in house prices, they're going Christmas shopping anyway. With the basic "upbeatness" of the economy, National Association of Realtors' economist David Lereah today predicted 2007 homes sales will continue at about the same rate as 2006, but homes prices may have a "modest gain" on the national level. Low mortgage rates allowed a huge wave of first time buyers into the market, which took up the slack in the last 2-3 years. The rate of sales is now at a more "normal" level, while mortgage rates are still low overall.

Three Reasons to Buy

Six blocks to ocean for $649,000
Interest rates have fallen seven months in a row and are near 40-year lows, inventories of existing homes are higher than they have been in decades, and prices have stabilized. Search Long Beach area properties at
www.juliahuntsman.com.

Conditions Optimal for Buyers Now

The National Association of Realtors says, "Home sales will remain stable in the months ahead, according to NAR's most recent Pending Home Sales Index (PHSI). In September, the PHSI stood at 109.1, down 1.1 percent from the previous month and down 13.6 percent from September 2005. The index gauges home sales activity for upcoming months based on the number of transactions that have signed contracts but are not yet closed. A PHSI of 100 or more generally indicates a high level of homes sales activity. ... In the West, the index fell 15.2 percent to 112.5."

"The present level of home sales is relatively high in historic terms, and we can
expect generally minor movements around this level. We don't expect to see any changes of note until early next year when we're likely to see a modest lift to home sales," said NAR Chief Economist David Lereah. "The market currently is a little lower than expected as buyers try to time their entry. In the meantime, there's some buildup in demand that will move when consumers realize that conditions are optimal for them."

Calif. median home price - September 06: $553,050 (Source: C.A.R.)
Calif. highest median home price by C.A.R. region September 06:
Santa Barbara So. Coast $1,025,000 (Source: C.A.R.)

Calif. lowest median home price by C.A.R. region September 06:
High Desert $329,040 (Source: C.A.R.)

Calif. First-time Buyer Affordability Index - Second Quarter 06:
23 percent (Source: C.A.R.)

Mortgage rates - week ending 10/26:
30-yr. fixed: 6.4%; Fees/points: 0.4%
15-yr. fixed: 6.1%; Fees/points: 0.4%
1-yr. adjustable: 5.6%; Fees/points: 0.7%
(Source: Freddie Mac)

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This is a two bedroom plus den single family in a Long Beach historic district within walking distance of the ocean. This 1920's home features recent upgrades in the kitchen and bathroom, new landscaping with auto sprinkler, refinished hardwood floors, completely enclosed rear yard. This area is zoned for 2 units, a great plus! Please contact me for more info on this well-priced home. NOTE: SOLD JAN, 2007

Housing Perspective: No High Unemployment, No High Interest Rates

Although the media has focused on the downside of the changing real estate market, there are also compelling messages about real estate that consumers need to remember:

Ø Prices are still going up. In September, the median home in Orange County home increased 2.6% and 3% in Los Angeles County, as compared to September of 2005. This is a healthy adjustment considering housing prices increased 80% over the last five years.

Ø Interest rates are low. Rates for 30-year fixed mortgages have dropped as low as 5.8%. That’s a great rate!

Ø There is a healthy supply of inventory, not necessarily an oversupply. The unusually quick sales cycle of recent years has created unrealistic expectations. California Association of Realtor's 25-year historical data reports that in California the average Unsold Inventory Index is 7.7 months. According to data from Southern California MLS, the current Unsold Inventory index is 6.2 month’s supply.

Ø Homes are selling. We live in a highly desirable part of the country. In September, 2,664 homes closed in Orange County and 7,917 closed in Los Angeles. Currently, there are 2,787 pending sales in Orange County.

Ø Today’s UCLA economic forecast reports that home sales should increase next year as the current stalemate between buyers and sellers pushes some pent-up demand into 2007.

Ø Dataquick reports that NONE of the flags of market distress have begun to appear. The distress flags were cited as high foreclosure rates, over-borrowing or high amounts of speculative buying.

Ø It’s critical to infuse some historical perspective in the current marketplace. Prior housing downturns were precipitated by high unemployment and interest rates. Conversely, today’s interest rates are low and we have a dramatically expanding job market.

No Change in Rates

The Federal Reserve maintained its hold on rates today, noting the cooling housing market, but still "feels the economy will expand." Because of this cooling market, some lenders are softening requirements for certain loans, which is the best opportunity for buyers with uncertain FICO scores in the low 600s. If qualified at a higher rate a while back due to that problem, take another look now, you may be qualified for a lower rate.

2007 Housing Market Forecast by California Association of Realtors

The California Association of Realtors Expo tradeshow, the largest in the nation, was hosted at the Long Beach Convention Center this week, and an exciting show it has been. The annual California Housing Market Forecast by the Associations' Chief Economist outlined predictions for the housing market for 2007. Not surprisingly, a modest decline in the statewide median price (2 percent overall) is predicted with fewer sales overall. Some areas, such as San Bernardino and San Diego as well as second-home markets, may experience greater sales volume decline than others during the coming year, which is not expected to bear as a great a sales decline as 2006. The market momentum of the past several years has slowed, but keep in mind that California real estate has always been a good investment: since 1968, long-term price appreciation has averaged 9.1 percent.