Recession Notes

FINAL NOTES FOR THIS MONTH ON RECESSION, PRICING AND THE FUTURE… There was an Associated Press article whose headline read, “US Housing Slump a Prelude to Recession.” It was a brief article and had 3 main points: 1) if history is any guide, a recession is most likely around the corner because a recession followed 6 of the last 7 housing downturns. 2) Housing stats are at all-time lows since after WWII 3) after the recession ended, housing starts typically rebounded strongly after inventory fell and home sales picked up.
What I would add to this equation for Southern California in general and Orange County specifically should inspire hope. I’m not trying to be naïve. I know we are months from a full recovery. Obviously we have economic woes beyond housing, i.e. food and gas, to name just two. However, let me add that the Associated Press also noted that immigration growth would be a key factor in rejuvenating the market. We also have tremendous economic diversity that is currently being overshadowed by the mortgage meltdown but won’t be forever. Prices falling every month mean more buyers that can enter the market each month. All these first time buyers are planting the seeds for the first true move up market in almost a generation. We need these buyers to start the cycle in a recovering housing market. Finally, generation “Y” is the first generation to be as big as the boomers. Expect them to fuel a housing market as they turn 25 to 35 in the coming years. With mortgage practices returning to normal, money should be available to those who qualify and expect a return to normal appreciation. With as much trepidation as the next year may bring, it will also bring the same level of opportunity for many. I am always here to answer any questions you may have.

Surge in Foreclosures

WHAT’S CAUSING THE SURGE AND WHAT ABOUT ALL THOSE FORECLOSURES?... The surge is caused plain and simple by buyer demand. Right now, if a home is properly priced for its condition, it will sell. Because of incredibly bad publicity, buyers have sat and sat and sat on the sidelines. Many of them can wait no longer to buy. AND THEY SHOULDN’T WAIT ANY LONGER. RIGHT NOW IS A GREAT TIME TO BUY PROPERTY! That’s not to say it couldn’t get even better in terms of prices declining, but the unknown quotient there is interest rates. Right now, we know that interest rates are great. We know the Fed has been very proactive in trying to guard the market from a true crash and all indications are it will continue to do so.

Right now is the best inventory. As this buyer cycle peaks, less desirable property will be available and in less quantity. According to Dataquick Information Services we so far have seen a 12.9% median price drop in LA county, 16.1% drop in Orange county (bringing it back to 2004 levels), and 21% down in the Inland Empire. Some buyers are targeting foreclosures, looking for that great deal. There are some deals out there, but you may also find yourself in a multiple offer situation because if it’s a deal, others will sniff it out as well. The big difference to this market, compared to the blow out of the 90’s is that this time around, people have jobs. We lost almost 1,000,000 jobs in the 90’s. This market is nothing like that. This time we have people waiting for the affordability index to rise so they can buy a home. BIG DIFFERENCE! When the housing market peaked, the affordability index was 11%. Today it is 32%. BIG DIFFERENCE!