Lacey Sollie

October 2008 Newsletter

THE BAILOUT HAS PASSED, NOW WHAT?... "Experts say the bailout plan has a fair chance of stabilizing the market." This is a headline from an Associated Press article from September 21^st. Since that article, the bailout was rejected twice before finally passing, and yes, it does have a good chance of stabilizing the economy. Obviously there are many factors at play in the bailout that are interacting with various parts of our somewhat sagging economy. What we are concerned with is how it will affect the housing market. First of all, it will circulate money back into banks for lending. However, the availability of the "free money" that characterized the first six years of this decade is over. Expect money standards to continue to tighten, but at least there will be some money. You can also expect interest rates to stay fairly even, with the government being the primary lender. According to that AP article, "experts say that the government's enormous plan to relieve Wall Street banks of their bad investments has a decent chance of stabilizing home prices, at least in theory."

But don't expect instant relief for areas that had year over year of double digit appreciation, i.e. California. We can expect another year of price decline, although experts agree that 2009 is likely to be the bottom. And relief will mean different things to people with different scenarios. One example is housing supply. If you look at inventory for prices under $600,000, there is only a six month supply. But if you increase that to homes listed around $1.2 million there is a twelve month supply. Increase it again to listings at $2.4 million and there is an eighteen month supply. It would appear that the upper price ranges may take more of a hit in 2009 than the lower ranges, which reflect a lot of bank owned properties. If you are in those upper price ranges and wanting or needing to sell in the next two years, you might want to do it now or risk chasing the market downward.

The other issue that may be affected by the bailout is interest rates. Perhaps this is a subject no one wants to think about, but we should. Certainly increases will not appear right away, in fact interest rates are still between 5 ½ % and 6 ½% (as of this writing) but it would seem difficult to infuse so much cash into our economy without some kind of safeguard to inflation and the chief response is to raise interest rates. So conversely, if you are thinking of buying, now may be the perfect time. Houses may drop a little further, but interest rates may be higher.

WHAT WERE THE ACTUAL NUMBERS... According to the Federal Housing Finance Agency, the drop in U.S. home prices in July was 5.3% compared with a year ago. However, according to the S&P Case Shiller Composite Index, Los Angeles and Orange County combined plunged 26.2% in July '08 compared with July '07. Of course the major reason for the drop in pricing is the prevalence of bank owned property sales. If you look at all of Southern California nearly half of all sales were foreclosures, reflecting a total price decline of 34% according to Dataquick. If you look at volume home sales jumped upward 57% in California for August. Orange County showed an improvement of 18.7% comparing August '08 to August '07. The total number of homes sold for August was 2,713, including single-family, condos, and new construction. There was an unprecedented 1,057 sales in the under $400,000 price range, a whopping 276% increase over that price range in 2007. This reflects the fact that the affordability index has risen from 11% at the market peak, to roughly 50% today. That does promote the makings of a healthy recovery as soon as we clear away the bank owned properties and remove the financing jitters. It will happen. According to Economist Esmael Adibi of Chapman University, it will be, "at least the middle of next year and more likely 2010 before the economy kicks into gear again." He cites job creation with being crucial to re-establishing the housing market and lending making a subtle comeback. We all know that money will never be available like it was, nor should it be. People should have to qualify for a loan and it should be a fully documented process.

WHAT TO EXPECT... No one can predict exactly what the future will bring. Notices of Default crept up 6.4% from July to August after being nearly flat from June to July. There were 2,469 NOD's for Orange County in August. Actual foreclosures numbered 1,427. So roughly one out of every two NOD's ends up in foreclosure. California has not taken as hard a hit as Arizona, Nevada, Florida and Texas. These states have had 3 consecutive months of increase signaling that they have hit their bottom. Can we be far behind?

What I can tell you is that real estate always comes back. It is an historical fact that from the 1970's forward, real estate has consistently doubled every 10 years. But houses were never meant to be day traded and that's where our last market took us, perhaps leaving a bitter taste that is not totally deserved. If you have questions, please give me a call and let's talk about your situation and what is best for you. You may be thinking of selling, or be thinking now is a great time to invest. (Donald Trump has gone on record that he would be buying everything he could in California.) Perhaps you just want to know what the market is in your neighborhood. I would love to hear from you. Have a great month!

September 2008 Newsletter

SALES SLUMP ENDS AFTER 33 MONTHS... It was hard to miss this August 19th headline in the Orange County Register. In fact, it was an end to the longest home buying slump on record. Never mind that the slump ending is directly attributable to still increasing foreclosures, and a still decreasing median home price. After all, the buyers had to live through the first half of the decade, so sellers will have to live through the second half of the decade. The real estate market is usually comprised of 3 types of markets; seller, buyer, and neutral. So what exactly has been happening to generate the positive press? First of all and possibly most important is affordability has made a comeback. At the end of the selling frenzy and sub-prime debacle, affordability was a scant 11%. No housing market will remain healthy when only 11 out of 100 people can afford to buy a home. We have now risen back above 50%. Secondly, there are screaming deals out there and even though there are a lot of them, there are not as many as there were. In other words, according to the Orange County Register (August 26^th 2008), Orange County home demand is up 103% versus a year ago. A report by Steve Thomas shows that, "fresh pending sales from the past month rose 51% in two weeks to 2,991. One year ago, demand was 1,475." But the really interesting part is that supply is at its lowest level in 16 months. (OC Register)

The Associated Press ran a similar headline, "Sales of Existing Homes in U.S. rose in July, Realtors Group Says." In fact, sales increasing are a national phenomenon of the moment. At the end of August, according to Jonathan Lansner' column, who was quoting Steve Thomas' Market Update, supply, or active listing inventory in SoCalMLS, fell 289 homes in two weeks to 14,059, the lowest level since April 5^th, 2007. Even though another wave of foreclosed properties is definitely on the way, for the first time in months the number of distressed properties to hit the market fell in July. Finally, First American CoreLogic reported that prices are not falling as fast as they once were. (Lansner: OC Register) This may suggest that although prices are likely to continue to drop into 2009, it probably won't be nearly as fast, as prices are leveling off.

DON'T WAIT TOO LONG; THE BOTTOM WILL HIT 3 MONTHS BEFORE YOU KNOW IT... So what does all this mean? Well, for one thing it does take 60 days to accumulate most data and another 30 to spread it around to the media and the public. This does make it difficult to ascertain the exact bottom of the market. So what a consumer really needs to do is prioritize your motivation. Meaning? Houses are not stocks, even though we may have confused that for a time. Houses are where you live, raise your family, and get shelter and all that good stuff. Everyone needs to have one. Therefore just make sure it's the right time for you. The market for sure has corrected in a big way. Expect much smaller adjustments from here out.

MORE IMPORTANTLY, understand that there are some very good reasons to get into the market now, if you have been waiting. Here they are: 1) Selection. You saw it said above, inventory is shrinking. 2) Increased competition. Right now, you have a good shot at getting the home you want, even though the average number of offers on bank owned properties is 10 to 20, yes you read correctly, 10 to 20. Most agents who work with bank owned properties will tell you that most of those offers are coming from people who plan to occupy the property, in other words, not investors. That will not last forever. Investors do try to time the market and I would plan on them coming back sometime in 2009. 3) Interest rates. Have you been reading the papers, listening to the news? Do I really need to harp on that fact that interest rates are still in the 6 to 6 ½ range and that this may not be the case for 2009? Also, there is that amazing FHA package with a $7500 tax credit. 4) Home Ownership. Can you say tax savings? Talk to your CPA about the advantages. It's just way cooler to own than rent.

WHAT WERE THE ACTUAL NUMBERS... The total number of sales for Orange County in July, (the last month available) is 2,799, a staggering 45% increase from June and up 17.1% over July a year ago. The overall median price is $461,000 and that is off 6.9% from June and down 28% from a year ago. The most amazing number is the number of sales under $400,000 which came in at 972. That is an increase in that price range of 275% from a year ago. Every price range increased in the number of sales by at least 20% and the $500,000 to $600,000 price ranged increased by 39%. This is important to note because it means that sales have increased in all price ranges not just the lower end. This gives credence to the sales slump being over. The number of properties entering into default increased slightly to 2,320, which is only a 1.7% increase. This would indicate that foreclosures may have peaked or are close to doing so in Orange County. All these factors are positive indicators of the beginning of recovery.

HOUSING RECOVERY LIKELY IN 2010, (BUT WAIT) EXPERT PREDICTS BEGINNINGS COULD START IN 2009... Real estate economist Richard K. Green, director of the USC Lusk Center for Real Estate, was interviewed by Jeff Collins of the OC Register. For a complete transcript of his interview, just give me a call and I will email to you. Essentially Green thinks 2010 is still about right for the recovery, but believes there is some chance for next year because prices have fallen sufficiently.

Green also was enthusiastic about the raising of the conforming loan limits and changes with FHA and the positive impact it would have on Southern California in particular.

IMPORTANT! I ALSO HAVE A GREAT ARTICLE ON HOW NOT TO GET SCAMMED IF YOU ARE FACING FORECLOSURE! THIS IS A MUST READ IF YOU ARE IN A DISTRESS SITUATION. Give my office a call and I will email it over to you. Have a great month and give me a call with any real estate related questions. It's my pleasure to serve you and your referrals.

March 2008 Newsletter

FINALLY SOME REALISTIC (AND YES POSITIVE) HEADLINES ABOUT SO CAL REAL ESTATE... The news varied from a positive "negative headline" such as "O.C. homebuilder's woes may reach bottom in ‘08" (OC Register, Lansner), to a downright positive headline such as "Ignore the Headlines! Except this one. Sure housing's in a hole. But there's a potent case for buying now, whether it's real estate or stocks." (Time Magazine, Keadlec). What is the reason for the sudden optimism within the broader pessimism? The answer to that question is a multitude of factors that this newsletter has been drumming into you for the past few months; factors such as low interest rates, selection, seller concessions, lack of competition and ultimately, more bang for your buck. Both of the articles mentioned above really hinge on mortgage rates as key. Jeff Meyers, the founder of the Meyers Builder Advisors consultancy in Corona Del Mar notes the loan limit changes as bringing liquidity to the market. He states, "...2008 will be the bottom year for builders in Orange County." The time magazine article says if you are, "emotionally ready to be a homeowner, you have good credit, plan to stay put for five years and have been waiting for the perfect entry point... It's time to get serious--- before an inevitable rise in interest rates wipes out your advantage." There may be some plausible arguments to waiting for prices to finish falling in other parts of the country where appreciation isn't the foregone conclusion to this story. But it's tough to sit out in California. Housing prices have not fallen as fast as the doomsayers predicted. It has been a correction, just as this newsletter stated over a year ago. Will prices continue to come down? Yes, there is probably some air left in the balloon. But if you're not careful rising interest rates will be buoying up that balloon that you want to see fall. Prices aren't everything. Leverage is. (For copies of these articles, give me a call)

WHAT'S UP WITH THE NEW CONFORMING LOAN LIMITS... There are more questions than there are answers at this point. We, the industry, know they are coming. We know the limits will be 125% of the median price home, so the limits will vary from county to county. We know FICO score requirements have already ticked up for FNMA. What we don't know is exactly when the new limits will begin and how tight requirements may go. We don't know if it is purchase only or if it will include rate and term refinances. Cash out refinances are probably off the table. Stay tuned to this newsletter for more information as it becomes available.

PRICE, PRICE, PRICE! GET IT RIGHT OR WAIT... Some sellers desire to test the market. Perhaps their motivation for selling is not the greatest or they simply have some time before their drop dead move date. At any rate, price is generating a lot of buzz. The Wall Street Journal had a great article, "PRICE FIXING: IN THIS MARKET, SELLING A HOME REQUIRES SAVVY." The article points out three distinct philosophies of price. "Round numbers signal prestige, while precise numbers suggest a bargain. Buyers anchor off the first digit, so $3,999 seems cheaper than $4,000." Finally, "if you cut your asking price, make it easy to calculate the discount."

HOME AFFORDABILITY NUDGES UP IN ORANGE COUNTY... This was the OC Register headline on February 24^th. Hopefully by the time you read this it will have nudged up even more. What makes for a real estate market recovery is pent up demand, and that is reliant on several factors aligning; incomes rising (3.5% the last 2 years and projected about the same for this year), prices coming down (check), and interest rates (stimulus package anyone?) The California Association of Realtors reported that 28% of Orange County residents can afford a started home as of fourth quarter 2007. That's up from the all time low of 13% we saw in 2006.

WHAT ARE THE ACTUAL NUMBERS... The total number of sales for January (the latest month available) is 1,286 and that is a 46% decline over January 2007. There were 806 resale houses, 327 condos sold and 153 new homes. Orange County had 4,276 Notices of Default (not foreclosures) for the fourth quarter of 2007, compared with 1,983 for the same time period 2006. That is a 115.6% upswing. Actual foreclosures have been running about 1 in 4 of total defaults. Inland Empire and Los Angeles fared far worse with Defaults over 17,000 for each county respectively.

PLEASE RELY ON ME TO HELP YOU NAVIGATE IN TODAY'S MARKET... I always have lots of information for you that I can't get in this newsletter. For example, there are 6 major lenders that are all offering breaks to borrowers through either a loan modification or payment plans for distressed borrowers. The banks are; B of A, Citigroup, JPMorgan Chase & Co, Wells Fargo, Washington Mutual and Countrywide. Also, there was an excellent article in the Wall Street Journal about the pitfalls of buying a home at a foreclosure auction. It is not my intent to steer anyone in any given direction about how or when to buy property. Ultimately, that's a personal decision. However, there are problems with foreclosures. You must make sure that all the liens have been wiped out, and that none were missed by the trustee or title companies, which are "senior" to the foreclosing lender. Also, many investors who know far more about the property and the area may be there to take over a sale. Other bidders can bid up a property to beyond its bargain value and you may not know that price threshold. Many of these properties are sold "as is" and people think they can fix them up and don't realize how deteriorated they can be. If you are looking to buy or sell, please call me first. Let's tailor a plan just for you that meets your objectives and keeps you safe. I always love your referrals as well. Have a great month!

January 2008 Newsletter

HAPPY NEW YEAR! DESPITE SLOWDOWN THINGS COULD BE LOOKING UP IN '08... Let's face it. 2007 was a terrible year for real estate. Never mind that we had 10 years of growth beyond prosperity and that we homeowners had achieved more equity than was due us. Still, 2007 rocked the real estate world from seasoned investor, to casual home "flipper," to longtime homeowner and first time buyer. What happened? What didn't happen to the market? Homeowners lost $160 billion in net equity, foreclosures on single-family hit 1.69% by the third quarter of '07, the worst in decades and 5.6% of all home mortgages in the country were delinquent by 30 days or more. (Obviously due to sub-prime mortgages.) Sales tanked in almost every market that had seen hyperinflation in home prices from 2001 to 2005. The national inventory of unsold houses jumped to 10.8%. Finally, job losses in housing and lending related industries have been staggering and extend to the highest executive ranks of Wall Street and banking's most prominent firms. (Source: LA Times)

ENOUGH!! CAN 2008 BE BETTER? A RESOUNDING YES!... According to Kenneth Harney from the Washington Post Writers Group, there are a number of positive underlying economic factors propping up real estate. Harney reasons that if these forces continue, they should, "help cut the time needed for the correction cycle to bottom out and the historically inevitable recovery cycle to begin." I agree with Harney. During this past year in real estate, there has been cataclysmic press coverage by the media bordering on the irresponsible. The press has the power to start a panic and very nearly succeeded this past year. But the facts are finally floating to the surface of the buyer's consciousness and that will spice things up for 2008. What are those facts? Number one is great interest rates. Secondly is the steady, moderate growth of jobs followed by economic expansion and low inflation. All these factors add up to coming pent up demand. These things add up to potential buyers realizing that not just price should determine their purchase. Interest rates, for example, will have a much more long term impact on their decision than initial price.

WHAT WERE THE ACTUAL NUMBERS... Before I get into the local numbers for November, (the latest month available), let me give you another number that may surprise you. Although prices softened, as expected, sales of existing and new homes in 2007 totaled an estimated 6.5 million, which would make it the fifth-largest sales year in U.S. real estate history. The press would have you believe that the market was a nightmare. Yes, the sub-prime meltdown is a major event. Yes, prices declined. But many people realized that right now is a buyer's market and took action. The total number of sales for November was 1,567. That number includes single-family, condos and new home sales. Collectively that number was 7% lower than October and 45% lower than November '06. The median price for all was $582,750 which is a -6.5% adjustment over the previous year. The greatest number of sales occurred in the over $700,000 price range with 518. The total number of defaults was 933, a 40% increase over '06 and foreclosures numbered 364 and that is a 256% increase over the same month in '06. (Source: Dataquick)

DON'T MISS YOUR GOLDEN OPPORTUNITY... If you need to sell right now, you may not think it the most opportune time. Perhaps it isn't when compared to 2005. However, the equity adjustment you will make is still proportionately less than the appreciation you received during the last 10 years. But if you are thinking of buying, what are you waiting for? This is the buyer's part of the cycle. People are not properly defining this part of the real estate cycle. It's called the "down" cycle, or the "bust" cycle, and people get scared and stay away. The proper definition of this cycle is "buyer cycle." When else should you buy? When housing prices are going up? True, that's when most people buy, but most people buy in a seller's market because they perceive that the market is good. Right now is the buyer's time. This is their part of the cycle when prices are adjusting. Of course, everyone wants to time the bottom perfectly. Even Donald Trump has said it is impossible to do so. Take your best guess, but also take advantage of ample inventory, low interest rates, and motivated sellers. Buyers beware; it won't be your time forever. In fact, in California, your time is limited. I can help you find that property. If you need to sell, I can make sure we market your property in the best possible way. If you have real estate questions, I've got answers.