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 Since then, unstoppable appreciation has been replaced by sellers who completely ignore market fundamentals.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.
Wednesday, September 10, 2014
Wednesday, September 3, 2014
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.
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.
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.
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