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.

What Do Economists Think ?

HOW DID WE GET HERE? WHAT DO ECONOMISTS THINK?... Well, we got here in a variety of ways. First and foremost the way was paved with cheap and available money. The blame for this goes all the way to Greenspan, Wall Street and the White House. Without getting into the fray, let it be known that the Associated Press reported on June 19th that more than 400 real estate industry players have been indicted since March, in a Justice Department sting dubbed, “Operation Malicious Mortgage.” It is believed that mortgage mishandling, at best, and fraud at worst, is responsible for most of the nation’s housing crisis.
Economists’ views seem to be two-fold. First off is the belief that housing prices had to fall because they ran up so much faster than income. Obviously incomes were left in the dust, particularly in Southern California. Economist Chris Thornberg has said, “Southern California home prices likely will continue falling until mid-to-late 2009… The reason prices are falling is because of gravity. The run-up in home prices over the past decade was ludicrous and wasn’t accompanied by a comparable increase in income.”
Thornberg’s estimate of a 50% decline was different than that of the Chapman economists who predict 16% in ’08 and then another 9% in ’09. Many industry insiders blame the stark decline in prices on foreclosures. Well yeah. But you cannot exclude them from the housing mix to create a different percentile. That would be voo doo math. Excluding the foreclosures from any statistic is like saying if you hadn’t gone swimming, you wouldn’t be wet.
Bottom Line: No one can predict the bottom of the market. But the edict BUY LOW would seem to be in operation here. Just make sure you consult your own advisors as to what is best for you.

Housing Market

HOUSING MARKET HAS ITS WOES, BUT HAS ITS OPPORTUNITIES AS WELL… Every cloud has a silver lining and the real estate market is no different. Sales volume took a jump in May (the latest full month available) over April, although sales were still off approximately 10% from May of ’07. However, most agents who are actively working the foreclosure market will tell you that 8 to 20 offers is not unusual for any house priced under $500,000. The papers will tell you the market is dead, the economists are predicting doom and gloom for another 18 months. I’m here to tell you, don’t believe everything you read. Having said that, yes this is a market to approach with caution. You should know exactly what you want, and what you can afford. But, there are definitely deals out there. You need a real estate professional to help you. There is definite navigation required and you will need negotiating power. I am here to help you. This is a radical market full of possibilities.

REO and FHA Loans

BUYING BANK OWNED, FHA LOANS AND THE WHOLE ENCHILADA… There is a lot of conflicting information out there. Have foreclosures peaked? Maybe not everywhere, but Orange County is getting close. The banks took possession of 698 properties in March, down 4% from February and down 13% from January. (Source:Dataquick) They could spike again, slightly, over the next few months but indications would be that the number is stabilizing. Some reasons are that more and more lenders are developing work out programs, loan modifications and loan relief. Short sales are still out there but frankly they are the riskiest bet for a buyer. You could be tied up for weeks waiting for a response from a lender, unlike a bank owned which is listed for a set price and is ready to go. Remember, however, that most bank owned properties are sold “as is” and “buyer beware.” They will need work and patience. Don’t expect to lowball these properties either as multiple offers are starting to make an appearance on these already price adjusted homes. We want to say a word about FHA loans. The loan limit on this product has risen to $729,000 in Orange County. It allows for a 3% down payment or 5% if it’s a “jumbo lite.” The money can be gifted and need not be seasoned. It is available for refinance up to 97% loan to value for rate and term. This is a viable option for refinances if some of your equity has been lost. Please call us for any questions on any real estate matter. We are your experts on “the whole enchilada!” See you next month!

P.S. For a look at how the county shapes up with foreclosures by city, give us a call and we will send you the map which appeared in the OC Register.