Monday, July 18, 2016
This is the $64,000 question for which everyone would like an answer. The short answer is, it probably won't affect it long term. Why? First of all, 4 million citizens of the UK have already signed a petition for a revote. So who knows whether Brexit will actually occur and if it does experts predict about 28-36 months for it to happen. Secondly, the true impact has already been felt as investors panic and seek solace in Treasuries. As the Washington Post reported, "Brexit has spawned the recent bout of volatility in global financial markets. That has anxious investors scurrying for safety--and few assets are safer than US Treasury bonds. High demand for government debt pulls down interest rates." Having reported this, however, it is unlikely they will stay down permanently because of Brexit. In fact, we are seeing the markets settle already. Much larger issues loom for Southern Californians than Brexit; namely affordability, scarcity of inventory in general, and affordable housing in particular. The rental market has also never been tighter than it is right now, as the median price hits its 2007 boom price point; more on that later. What Brexit does do, is keep the lid on interest rates, and focus on real estate as a safer bet than financial markets, particularly the world financials since most investments are heavily blended at this point. Many investors will like the closeness of the real estate investment and the solid nature of a fixed commodity with ability to leverage the investment dollar. These attractive attributes are always present in real estate, and exist for the common homeowner, with a tax deduction for interest, as well as the seasoned investor. Long term impact will no doubt play out, and frankly, we have other mitigating factors affecting the market as well, chiefly the presidential contest. National elections always spur some waffling over the unknown but the 2016 campaign may cause more worry than most. What does bode well is the general health of the So Cal economy and the jobs being added. Workers are working longer and maybe pay raises are long in coming (this being the weakness economically, is wages pacing appreciation), but overall read on to find out why there is reason for optimism...
This was the headline in the Sunday OC Register on a recent Sunday morning, written by Jonathan Lansner. He reports that the OC is in the midst of the sixth year of a recovery, and reminds us that we are recovering from an event no less catastrophic than the great depression. Although the article reported that 3 separate reports detailed issues ranging from: 1) Elite workers make too much 2)Many workers aren't paid enough 3) We don't have enough elite jobs-- we still need to have some gratitude for where we are today. Southern California is a unique blend of industries. Perhaps in some ways this has slowed our recovery because we don't have a "boom" industry. We have tourism, manufacturing, service labor (malls and entertainment), Hollywood, technology, marketing, etc. One drags, and there is a drag on the local economy. However, given where we started, and considering all homeowners have been fully qualified and vetted for their home loans, expect a price adjustment next year...maybe. There is no bubble. There is only a reason to be optimistic about where OC and So Cal are headed.
Home prices nationally, according to the National Association of Realtors (NAR) and Freddie Mac, rose to $239,700. Sales also rose 1.8% month over month, and 4.5% year over year for May, the last complete month. There is a 4.7 month supply and that is down 5.7% year over year. Sales for existing homes have hit their highest in 9 years with 5.29 million (May 2015 -May 2016). Here in the OC home prices hit pre-crash highs as was reported last month. But Southern California isn't alone in this as 4 different markets established the same trend: 1) San Jose 2) Denver 3)Dallas 4) Portland. The median home price for May, 2016 is $651,500 (CoreLogic). As of June 7th, inventory for OC was 6,868, and that number is actually climbing. If inventory continues to rise, this will give buyers more choices and sellers more competition, which could create that price adjustment mentioned in the previous section of this newsletter. Median price per square foot actually went down to $374.47, but reflects that larger homes are selling. Distressed sales have been hovering between 130 and 140 per month and comprise a small percentage of the total sales for the month.
This is another recent headline whose article makes a valid point. Southern California and in particular Orange County, must stop thinking of itself as a suburb of Los Angeles and start thinking of itself as the metropolis it is. Wonderfully situated between 4 counties, this helps supplement and diversify where people may be working. But in order for people to continue to live in Orange County, high density housing, just as you see in every major city and metropolis, will no doubt have to occur. In fact, Governor Brown has presented a plan to fast-track construction of apartments and condos if the developments will also include affordable and mixed housing. Between the need for housing and what is most likely a permanent drought for the foreseeable future, Southern Californians will have to bid adieu to the sprawling ranch style homes and the green lawns that accompanied them. If you are lucky enough to live in one of those, hopefully you will embrace native plant landscaping and for millenials and boomers alike, there is a new home prototype...efficient housing.
Tuesday, May 31, 2016
HOUSING PRICES NEAR ALL TIME HIGH-- OC CITIES AMONG FASTEST GROWING IN THE STATE--THERE IS NO BUBBLE
When many people see the way prices have climbed the past 3 years, it's easy for the untrained analyst to think there is a bubble. But the truth is there is not a bubble. Prices have not been propped up by straw buyers, stated income loans, or under qualified borrowers. Today's borrowers have been vetted and re-vetted to ensure that they qualify for their loan. These underwriters of loans are checking employment, source of funds, how seasoned the funds are and confirming that the income the borrower is showing on everything from paystubs to W2's, is real income and that that income is going to continue past the year of the application. And today's buyers have a down payment. Yes there is some 3% and 5% down products out there, but by and large we are looking at 10%, 20% or more as a down payment. Prices have climbed because of the cheap money, something this column has mentioned on several occasions. In fact, the opposite of a bubble should occur on this economic watch as people's loans are frozen at three and a half percent interest rates, guaranteeing them low housing costs for as long as they reside in that property. Orange County continues its strong growth, with Lake Forest and Irvine coming in as 2 of the top 10 fastest growing cities. If you have noticed the development in Brea and new businesses in Fullerton, north Orange County is also anchored in solid growth. Just in the last 30 days has inventory started to climb a little bit, giving buyers more choices. More sellers have joined the spring marketing season, creating competition and perhaps giving buyers a respite from upwardly spiraling prices. It would still be wise to contemplate buying a property now, as interest rates can't stay this low forever. The Fed has tried on several occasions to raise short term rates, and has been forced back after a week or two. This has made the cry to buy a home while rates are low, sound a little like the boy who called wolf, but rates will go up. An election is looming, so who knows? If you can, you should.
The numbers for March, the last complete month, are available. The median price in OC was $625,000, third highest since the recession. The all time high was $645,000 in June of 2007. If appreciation goes up 4% through June, we could see a median price of $653,640. The total number of sales for March was 3,181, the highest number of sales in the last 6 months and the best March since 2006. Orange County saw 430 new homes close escrow and that was up 26.5% from March of 2015. Single-family and condo resale numbers hit 2,751. Days needed on the market to sell if you were listed at $750,000 or less was just 37 days. Monthly mortgage payment averages hit $2,962. As of mid-April, apartment rents hit an average of $1,753; obviously single-family homes and condos traditionally rent much above that number depending on bedrooms and lot sizes etc.
There are many factors to consider when pricing a home. If a homeowner over values the improvements, or puts more value on a view or location, they can easily overprice the home and thus discourage not only offers, but even showings of the property by agents representing their buyer clients. If a seller is too anxious to move or doesn't understand the value of a new kitchen or bathroom, two very in demand improvements, they could undersell their property and leave thousands of dollars on the table. This is why a real estate expert is so important. Not only are they impartial about value, but they see things the owner cannot. Of course recent sales must also be accounted for and considered. But it is very important to understand that comparable sale and why it might have been higher or lower than your subject property so it can be properly explained to an appraiser when the time comes. The first 30 days a property hits the market is its best time to generate excitement, showings, and previews. Making sure your property is correctly perceived is more crucial than ever. Professional photography, including drone coverage when applicable on a larger, more exclusive property, will show off your home to all those internet shoppers mentioned in an earlier paragraph. We are a global housing market and a house has to dress the part.