Transitioning Into A Normal Market by Steven Thomas

In the August 2014 issue of OC Realtor, Mr. Thomas addresses the increasing inventory and the reliability of Fair Market Value as a basis for pricing properties.

Overpricing out of the starting gate is an intentional strategy that has captured the hearts of most sellers; but today's buyers want to pay the Fair Market Value of a home, and therein lies the disconnect.  Overpriced homes are priced much higher than their Fair Market Value.  Buyers see overpriced homes as an "unfair market value" and simply are unwilling to go there.  The problem is that home values have appreciated a tremendous amount in a very short period of time, that is, between the beginning of 2012 and the end of August 2013.  Since then, unstoppable appreciation has been replaced by sellers who completely ignore market fundamentals.  Overpricing means sellers are going to sit on the market without any offers and, after a while, very few showings. The accumulation of overpriced listings has resulted in the inventory's continuously growing without pause so far this year.

The phenomenon of sellers who overprice and buyers who desire to pay the Fair Market Value of a home exists throughout Southern California.  Buyers and sellers have dug in their heels, and the tug-of-war is on!  As a result, the inventory has grown across the board in every county.  From the lows established in March of last year, the Southern California active inventory has grown by 89%.  The biggest offender happens to be Orange County, where the inventory has grown by 137% since March of last year.  That's substantially more than double.  So far, to be successful, it has been sellers who have had to succumb to the realities of the market and reduce their asking prices.  For the most part, buyers have been unwilling to flinch.

Sellers who have priced their homes close to Fair Market Value have been able to achieve quick success and often with multiple offers.  Multiple-offer situations work to the benefit of sellers, because they are able to ask for more and can pit one offer against another, but this situation can be created only by carefully establishing the initial asking price of a home.

For the most part, the juice in the market in terms of appreciation is done.  Because the inventory is on the rise and buyers do not want to overpay, appreciation has come to a grinding halt.  Also, it is extremely important to note that the housing market would not have been able to sustain much more appreciation or we would be in exactly the same boat as we were in 2006 through 2008, stuck with values too high and very few buyers able to afford to purchase.  Currently, interest rates are cheap, making affordability better.  But the sharp rise in appreciation has already eaten into home affordability.  Interest rates are absolutely going to go up.  I give it a 100% chance.  What that happens, homes will become less affordable,  For buyers, cashing in now on incredible rates is a very smart move.  In a couple of years, they will look back and realize that purchasing while rates were low was a genius idea, as rates will undoubtedly be much higher than they are today.

With buyers desiring not to overpay, the inventory has swelled, giving buyers more choices and a lot more breathing room.  Sellers and Realtors have asked where we go from here, concerned that the real estate market may change course and start to depreciate.  That is unlikely to occur anytime soon.  The current expected market time is nearly three months.  Yes, that is far different from the market time of 1.4 months just one year ago, but it is still a seller's market - barely.  Anything less than five months is a seller's market.  The problem is that everyone has gotten used to being able to randomly overprice a home and then get the asking price - or more.  Also, they were used to selling n just a few short weeks.  They were used to sifting through twenty offers and picking the very best one.  That is not today's market reality.  It is a seller's market, but not one in which sellers can get away with overpricing their homes.  They can call the shots if and only if they price their home accurately.

Realtors are so frustrated with sellers today.  When I speak to rooms filled with exasperated real estate professionals, every hand goes up when I ask who is dealing with an unrealistic seller right now. These home owners sit across the table from experts in the field and choose to ignore the facts, accurate data, and credible advice.  As a matter of fact, many homeowners decide whom to hire to sell their home based on who suggests the highest value for their home.  Instead, they should be considering expertise, track record, and marketing knowledge in isolating the best candidate to represent their interests.

Overpriced properties may attract some showing activity, but they will just sit on the market without success.  And their sellers have nobody to blame but themselves.  No marketing genius can overcome the hurdle of unrealistic pricing.  Realtors can print out a single line MLS report of every active listing in the area and show a sea of red down arrows.  These red arrows indicate homes where the asking price has been reduced.

For now, buyers can expect more breathing room as the inventory continues to increase and sellers take a while to figure out that overpricing is no longer a winning strategy.

Real Estate Economic Update by Gary Watts, Real Estate Economist

The following was taken from OC Realtor, August 2014 which is a summary of his presentation at the OCAR Annual Membership Meeting.

When asked what makes a good sermon, a wise preacher replied, "Start off good, finish strong - and the two should be as close together as possible."  I am going to try to do exactly that.

This year, almost everyone is asking questions about the direction of real estate.  Sellers want to know where all the buyers are.  Buyers what to know if home prices have peaked.  Real estate professionals want to know what happened to inventory.  Lenders wonder when loan volume will return.  And, people everywhere ask me, "what the heck is going on with our market?"

Recessions aren't new.  During the 1970s, we had the oil crisis.  In the 1980s it was the savings and loan scandal.  And, more recently, we had the global financial crisis of 2007 - 2008.  Real estate responds to recession by going through cycles, and these cycles have distinct phases.  The first phase of a real estate cycle begins immediately after a recession, and this phase can last from 18 to 24 months.  During this phase, residential home sales boom.

In the later part of 2011, home price declines began to level off, and the word on the street was that real estate prices had finally "hit bottom."  After nearly five years of stock market declines, large and small investors began pulling massive amounts of money out of the market and investing in residential real estate, something Warren Buffet had advised them to do.  And long-term fence-sitters finally got back into the housing market by deciding to sell and then buy to move up or down or sideways.

Phase I lasted 23 months, from early Fall 2011 to the summer of 2013.  During that time, Orange County home prices rose more than 40 percent, and investors were responsible for one-third of the sales.  For comparison, in 2011, Orange County home sales totaled 29,425.  In 2012, sales reached 34,380; and in 2013, home sales rose to 37,574.

In the fourth quarter of 2013, Phase I came to an end.  After seven consecutive months of gains, home sales began to decline.  In fact, they declined 13 percent from the summer quarter and 4 percent from the fourth quarter of 2012.  Also, the MLS numbers showed a decline in sales of 3.4 percent from 2012, and Orange County's listing inventory had only 5,000 homes on the market by year's end.

During this period, the only positive news in the housing resale market came from properties valued at $1 million and above: 14 percent of all sales in the fourth quarter were million-dollar homes.  But even though home sales declined, home prices continued to rise.  Single-family resale home prices were up 21.2 percent, while resale condo prices were up 22 percent from a year earlier.

Now that Phase I has officially ended, the big questions are what comes next, how long will it last, and why is it happening like this.

One explanation for what is happening is first-time buyers.  First-time buyers are what make the real estate market go, and we are not getting enough of them.  As of June 1, resale homes were down 21 percent from the first six months of last year and resale condos were down 22.4 percent.

A second explanation is movement - or the lack of it.  The homes from Irvine south are more than forty years old, and there is less mobility in this area.  folks in these homes bought them a long time ago, paid off their mortgages, and are staying put to enjoy what they worked so long and hard to own.

A third explanation is that the focus has shifted to new homes.  Historically, they have not been a big competitor of ours, but they are up 88 percent from where they were in 2012 and are up 18.1 percent this year from the first six months of last year.  There are fifty new developments from Irvine south.  New home sales represented 14 percent of all home sales in the fourth quarter of 2013 and have definitely affected the single-family resale market.

Forecast
My forecast is that Phase 2, which usually lasts about a year, will persist through 2014.  Listing inventory will start dissipating in August.  Sales are going to decline at least 10 percent this year.  Interest rates are going to rise, probably by a quarter to a half of a percent.  Home prices will appreciate about 7 percent.  Lending will put a buffer on our sales, and new home sales will continue to increase.

The Good News
And now for that strong finish.  The good news is that Orange County ranks second in the nation in the speed and degree of its real estate recovery.  Orange County had the fastest decline in listing inventory in the United States.  Only 4.4 percent of homeowners are under water.  Orange County home prices are only 6 percent below their 2007 peak.

REMINDER: SEPTEMBER 15TH IS THE LAST DAY TO FILE AN ASSESSMENT APPEAL

Property Value notices for the 2014-15 fiscal year were mailed out by the Office of the Assessor in early July.  Please make sure you review the notice carefully and if you disagree with the value listed, you can file an application for a changed assessment or an assessment appeal with the Clerk of the Board of Supervisors between July 2 and September 15th. For more information call the Clerk of the Board at 714-834-2331 X 3 or go to:  https://assessmentappeals.ocgov.com/aa/ to complete the form and print it for mailing.

Remember you are still responsible for paying the entire property taxes on time.  If you are granted an appeal, you will receive a refund on the overpayment.

SMWD Implements Mandatory Water Conservation Measures - New Pools Cannot Be Filled

The Santa Margarita Water District (SMWD) announced mandatory water conservation measures which includes residential lawn watering is limited to three days per week and new swimming pools cannot be filled. Existing swimming pools can be filled up to a foot for maintenance.  Car washing must be by bucket or use the local car wash that has already implemented recycling measures.

Under this measure they do have some bite...first offensive is a citation.  Second offense a fine of $100, third offense a fine of $250, fourth offense a fine of $500 and they can restrict your flow of water.  Let's all be water-wise and make sure we are not watering our sidewalks.  Repair broken or leaking pipes and hoses

85% Loan to Value to $1,000,000 and No Mortgage Insurance

I wanted to re-post this email I just got from a lender to pass along this valuable information for those of you shopping for a new home and not sure what options you had for loans.  This is not an endorsement of this loan program, just another resource provided to consumers.

 

PrimeLending is pleased to announce we are offering Jumbo financing with a 15% down payment and there is no mortgage insurance!

The typical down payment on Jumbo loans is 20%. With less equity coming from the sale of homes buyers are finding it harder to come up with the required minimum down payment requirements when financing properties in the higher sales prices.

We are offer both Fixed Rate and Adjustable Rate loans with our new Expanded Opportunity Loan. There is not a second loan or Home Equity Line associated with this program, just one first loan.

We are seeking ways to better assist your clients with their financing needs to help structure your next transaction. Please let me know any questions you may have.

 

		28202 Cabot Road #135 Laguna Niguel, CA 92677
	Kevin Budde Branch Manager Office: 949.325.1254 Cell: 949.422.2075 Fax: 866.908.3894 kbudde@primelending.com http://www.loanapprovalsfast.com/ NMLS: 325450

 

New Listing...San Clemente, CA

Great new listing in the community of Talega in San Clemente.  This beautiful home has it all, great floor plan, end of cul-de-sac location, privacy, recently upgraded kitchen and baths, saltwater pool/spa, plus a wrap around tranquil side garden teeming with hummingbirds and custom copper arbors that lead to a grassy yard that includes a vegetable/herb garden.  Six bedrooms, five and a half baths with two bedrooms downstairs both with private baths.  The possibilities are endless...
MLS #OC14065377  Priced to sell at $1,329,000

MYTHS OF V.A. FINANCING

With so many realtors unaccustomed to VA financing or many who just haven’t had a transaction that involved VA financing for a long time, I decided to discuss some of the objections lenders and agents hear all of the time.

Myth #1     “The seller has to pay points based on the loan amount”

Back in the 70’s and 80’s a seller had to pay anywhere from 1-6 points or more (a point is 1% of the loan amount) depending on interest rate markets. The Veterans Administration determined the rate so points were charged if Conventional rates were higher, also known as discount points. Now the VA rate fluctuates daily like all loans and the seller no longer has the cost of points.

Myth #2     “The seller has to pay additional fees”

In the past lenders would charge the veteran a 1% loan origination fee. When the veteran was charged this, the veteran was not allowed to pay the escrow fee, some county and miscellaneous fees and a limited amount of lender fees. Therefore, these fees would be charged to the seller. Most lenders no longer charge the 1% loan origination fee therefore the veteran pays his own customary fees and the seller pays his own fees.

 Myth #3     “VA appraisals have too many work requirements”

There was a time when VA appraisers would require painting of window sills, repairs to cracked faceplates, replacement of missing cabinet handles and many other minor repairs. Now the focus is on health and safety issues of the property which are deficiencies that could cause harm to the occupant.

VA financing offers no money down financing with no mortgage insurance and very competitive interest rates. The no down loan amounts vary by county. 2014 limits are:

Los Angeles County  

$687,500

Orange County        

$687,500
 
San Diego County     
$527,500

Riverside County       

$417,000

When the sales price exceeds these loan amounts the veteran is required to pay 25% of the difference between the sales price and the no down county limit as a down payment to a maximum loan of $1,000,000 and higher in many areas.

As an example, with a sales price of $800,000 in Orange County the down payment can be as low as $28,125.

The Veterans Administration charges the veteran a VA Funding Fee which will vary depending on whether the veteran has used his eligibility previously or not and the percentage of the down payment. The VA Funding Fee can be financed into the loan. For first time users the fee, which is based as a percentage of the loan amount, is as follows:

No Down Payment                          

2.15%

5.0% to 9.99% Down Payment     
1.50%

10.0% or more Down Payment   

1.25%

The True Impact of Mortgage Defaults on FICO Scores

There is an interesting article in the February 2014 issue of OC Realtor that I wanted to share.  The article was written by Nabil Captan, founder and president of Captan & Company.  The article is written in a question and answer format, which I will summarize.

1) How long will a short sale, deed in lieu, foreclosure, or bankruptcy remain in my credit file?
  
The answer is seven (7) years.  A loan modification with rate and term alteration and no principal reduction is simply a re-finance transaction, and will not impact credit scores.  Chapter 13 bankruptcy remains on your credit file for seven years, whereas a Chapter 7 bankruptcy remains for 10 years.

2) How many points will I lose if I choose a specific type of default?

It depends. The number of points lost depends on your starting credit score at the time of the default.  The higher your credit score, the higher the negative impact on that score.  A short sale with deficiency balance continues to present a higher risk, similar to a foreclosure.

CONSUMER                            A                         B                         C
starting FICO score                  680                      720                      780

30 days mortgage late               600-620               630-650               670-690
90 days mortgage late               600-620               610-630               650-670
                                                   9 months              2.5 years              3 years

short sale no def balance           610-630               605-625               655-675
                                                    9 months             3 years                  7 years

short sale with def balance        575-595               570-590               620-640
                                                    3 years                 7 years                 7 years

Foreclosure                                575-595               570-590               620-640
                                                    3 years                  7 years                 7 years

Bankruptcy                                530-550                525-545              540-560
                                                    5 years                  7-10 years             7-10 years

3) How much time will it take to recoup points lost because of a mortgage default or bankruptcy?

The higher the score, the longer it takes to recover to the starting score before the occurrence of any type of mortgage default or bankruptcy.

Everyone is entitled to receive one free credit report a year and they are available from www.annualcreditreport.com.  You can also pay $20 if you wish to obtain a genuine FICO score from www.myfico.com

Educate yourself by visiting only these websites:  www.ftc.gov, www.cfpb.gov, and www.myfico.com for free and truthful information.