Mortgage markets worsened last week on better than expected economic data, causing mortgage rates to rise.
Last week was the third consecutive week that mortgage rates moved higher and, since touching a multi-month low in early-October, conforming mortgage rates are up by about a half-percent.
It's likely rates will continue to rise, too. That's because the same force that held rates down for so long is now the force pulling them up -- expectations for the U.S. economy.
Over the last 6 months, it wasn't clear in what direction the country was headed. The housing sector has been gaining in strength, but the rest of the economy has been a question mark.
Last week put an end to some of those questions:
Expectations for the U.S. economy are changing on the fly. As a result, stock markets gained last week and mortgage markets lost.
This week, rates could move higher still. There are an unusually large number of key economic reports including on housing and inflation, plus a handful of speeches from key Federal Reserve members.
With each positive announcement, mortgage rates should rise.
Here is the latest Orange County, California Housing Report from my friend Steven Thomas, the President of Altera Real Estate. Steven's report is the most comprehensive study of our local real estate market, and is an extremely up to date depiction of the market as it is today. Enjoy.
Orange County Housing Report: Two Polar Opposite Markets
With Halloween fast approaching, the differences between the lower end and higher end Orange County housing market are SPOOKY. It is extremely ironic that the general public expects a really soft real estate market with a lot of inventory and that buyers get to call all of the shots. That is entirely not true for homes priced below $1 million with an expected market time of only 1.88 months. That translates to an incredibly HOT seller's market. That range represents 71% of the current active listing inventory.
The upper range, homes priced above $1 million, represents 29% of the active listing inventory, but has an expected market time of 10.37 months. Anything over 10 months is basically an almost frozen market, a deep buyer's market. So, today's Orange County buyers need to know that the lower the range, the hotter the market. From $750,000 to $1 million, the expected market time is 3.76 months, not incredibly hot, but not incredibly slow either. The word on the street is that there is not that much new, fresh inventory hitting the market, so if a great property comes on the market that is priced right, don't expect it to last very long.
Below $750,000 is crazy, and below $500,000 is just NUTS. That's right, N-U-T-S!!! Tremendous competition, multiple offers, and selling prices close to or above the asking prices are the norm. This is where many who have not experienced the Orange County housing market by sitting in a car and touring the few homes on the market within their areas of interest simply will not believe me. So, if you are in doubt, take a look around for homes in the lower ranges. The hot market is a reality. The homes that do not sell are overpriced, in poor condition or are in a poor location.
It is not just distressed homes that are selling. 50% of demand, the number of new pending sales during the past month, is sellers with equity in their homes. Homes that are priced right are selling and selling fast. The sales to list price ratio for homes priced below $1 million is 99%. That means that on average, homes are discounted by only 1% off of their asking prices. For homes priced below $500,000, the sales to list price ratio is 100%, meaning that, on average, they are selling for their full asking price. That should be the headline in local newspapers and the topic for the nightly news: "Most homes in Orange County are selling for their asking prices and they are selling fast!"
Let me clarify one important point though, the lower ranges are experiencing a seller's market, but are not experiencing appreciation. Prices have stabilized because there is just too much demand. But, with so many distressed properties still in the mix and many appraisal issues, prices are not going up. With the government's changes to the appraisal process, known as "The Home Valuation Code of Conduct," more and more homes are not appraising for the agreed upon purchase prices. The government had the right intention, but I can write a book as to how the code of conduct has made the housing recovery process much more challenging. When an appraisal comes in too low, the buyer, the seller, or a combination of the two, makes up the difference, OR the pending sale falls apart and the home is placed back on the market.
Now, let's take a closer look at the upper ranges. Homes above $1 million may represent 29% of the active listing inventory, but they only represent 7% of demand. As is customary, the higher the range, the slower the market. In this downturn it is even more pronounced. The sales to list price ratio in the upper range is 92%. That takes into account the LAST list price after many price reductions. The sales to ORIGINAL list price ratio is 85%.
This vast discrepancy is due to unrealistic expectations on the part of sellers within the higher ranges and illustrates the need to carefully price a home based upon recent sales activity, 90 days or sooner is preferable, and all pending activity. Sellers in the upper ranges should not fall into the trap of giving too much weight to active listings. In this market, a buyer is not going to take into consideration another active listing that has sat on the market for months in coming up with an offering price. Appraisers are not going to give active listings much credence either. The market is so slow in the upper ranges that a great price, super condition and a great location still may equate to a long market time. Demand is just too low, so sellers need to pack their patience and enjoy the ride; this may take a while.
So, how do the rest of the numbers look? So, how do the rest of the numbers look? The active listing inventory increased by just six homes within the past couple of weeks, remaining under the 8,000 mark and totaling 7,923. That's 4,799 fewer than last year and 9,836 fewer than two years ago. Ask any agent and their number one complaint is a lack of inventory in the lower ranges.
Demand, the number of new pending sales within the past month, dropped by 73 in the past couple of weeks to 3,197. Last year's demand was 524 fewer and two years ago was 2,022 fewer. The expected market time for all of Orange County increased slightly in the past couple of weeks from 2.42 to 2.48 months. The expected market time last year was at 4.77 months and two years ago it was at 14.73 months.
The number of distress properties on the market increased for the first time since November of 2008. Within the past couple of weeks the number of foreclosures and short sales increased by 79, now totaling 2,398, returning to early September 2009 numbers. 30.3% of the active inventory is distressed compared to 42.9% last year. There are currently only 322 foreclosures in all of Orange County, an increase of two in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.67 months.
Foreclosures are HOT and are, on average, selling for 4% above their asking prices. There are currently 2,076 short sales on the active market, an increase of 77 over the past two weeks. Short sales currently represent 26% of the active listing inventory, a major player in today's marketplace. The expected market time for short sales is currently at 1.82 month versus 6.08 months one year ago. Short sales are also a hot segment within the marketplace; however, buyers should not expect instantaneous results and quick closings. Short sales must wait for "lender approval," which can take anywhere from weeks to months. ( End of report.)
The Myth called "The Shadow Inventory" of foreclosed properties. ( aka, "The alleged forthcoming Tsunami of foreclosures". )
For the past year or longer, there has been a veritable Tsunami of articles, warning us of a gigantic wave of foreclosures heading our way - destined to give us yet a further "crash" of real estate prices, both locally, here in Orange County, and Nationally. The catalyst for this forthcoming wave is an alleged "Shadow Inventory" of properties, already foreclosed, but being warehoused by the lenders who took them back, in order to not flood the current real estate market with a doubling or tripling of properties, which would theoretically drive prices down even further than they've already gone.
These articles were almost all based upon charts and graphs that had been formulated by various financial institutions, and were designed to provide a peek at the potential future of many types of mortgages which had been originated 3, 5, or more years ago, giving financial "experts" facts to base their opinions of the market that would exist when the loans adjusted, at some future point.
It is easy to look at some of these charts from a year or two ago and conclude that there are a whole lot of troublesome mortgages that could be coming due at the worst possible time. Frankly, going back four or five years, and looking at similar charts then, one could easily foresee the financial woes that came upon us a couple of years ago, which have brought us to our present dismal condition - as a local economy, and as a Nation.
The problem, that people writing the warning articles mentioned above, is this. They are reading last year's charts the same way they read similar charts 4 or 5 years ago, and coming to the same conclusions, not considering that there have been a multitude of changes implemented over the past year and a half, that have wrought corresponding changes in the results forecasted. Many of the troubled homes forecasted a year ago to hit the market early this year never really did. Sure, there are a lot more foreclosures on the market than there were 3 years ago, but not nearly the huge wave that had been forecasted.
So then, this spring, the pundits who created the charts of a year or two ago, told us that they were revising their projections - pushing them off for 6 months or a year. They hadn't been wrong in their forecasts - the Government had merely intervened, postponing the inevitable. That wasn't an entirely correct assessment of the situation, as it was more complicated than just that simple conclusion.
Yes, there was a foreclosure moratorium or two, both National, and locally, but there were many additional factors, simultaneously affecting the future of the mortgages portrayed on the charts. Many of the troubled loans had already been refinanced into ones more friendly to the borrowers. Many of the properties involved had already been sold, eliminating their mortgages. Many of the properties were now becoming short sales. And still more loans were starting to be modified. These factors, acting in concert, have had a serious impact upon the properties and mortgages that had been forecasted years or even months earlier.
Changes have happened, and the data of even just a year ago is obsolete. That is why there wasn't a wave of foreclosures earlier this year that had been forecast, and why the coming wave being forecast for now or early 2010 is NOT going to materialize, in my humble opinion. I fully expect that 2010 will be a virtual duplicate of 2009 - with a lot of foreclosure properties coming onto the market in the spring, and just like this year, for them to be swallowed up quickly by a huge wave of pent-up buyers - eager to take advantage of low prices, and low interest rates - just like this year. And, just like this year, prices will continue to nudge upward - not "crash" further downward - at least here in Orange County, California. By the way, those buyers, from earlier this year, and those expected next year, are the REAL Tsunami in both our current, and our forthcoming, real estate markets.
A recent report from ForeclosureRadar.com: No Shadow Inventory of Bank Owned Homes
Mortgage rates are higher after the Federal Reserve released the internal notes of its September 22-23, 2009 meeting.
Known as the "Fed Minutes", the report details the conversation and cross-currents that led to the Federal Reserve's decision to vote "unchanged" on the Fed Funds Rate after its last meeting.
The Fed Minutes are the lengthy companion to the more famous, succinct post-meeting press release.
As a comparison:
The extra level of details is a big deal because Wall Street is perpetually in search of clues about what the Federal Reserve is going to do next.
In the past week, multiple Federal Reserve members hinted that the Fed Funds Rate may rise as early as April 2010. Fed Chairman Ben Bernanke even alluded to it, too.
The minutes revealed that the economy may improve even faster than was previously expected, too.
These acknowledgements are part of the reason why mortgage rates are up. Because the Fed Funds Rate rises to accommodate a growing economy, the prospect of economic recovery is drawing money into the stock market and away from mortgage-backed bonds.
Less demand for bonds means lower prices which, in turn, leads to higher rates.
When you own a home with a spouse or partner, the issue of what's mine, what's yours, and what's ours can be a divisive one.
Each household has its own money management methodology and, according to financial talk-show host Suze Orman, most leave significant room for improvement.
In this 4-minute piece aired on NBC's The Today Show, Orman talks about co-managing finances with topics including:
Being aware of money is the first step towards protecting it.
Serving So. Orange County, in Southern California, since 1976 - over 32 years! My office is just outside the gates of Coto de Caza. My California DRE # is 00581357
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