Interesting conversation, but not particularly uplifting.  Simonsen indicates that it

“…could be a decade of recovery.  Banks have tons of homes on their books and they are reluctant to let them go at all because they have to then start doing things like ‘marking to market’ if they sell them at depressed prices.  So they dribble them out, and they may be dribbling them out for 10 years.”

For a long time I’ve felt as if we kicking the proverbial can down the road with band-aid loan modifications (that continue to have high default rates) and artificial stimulus like the Housing Tax Credit.  None of these things solve the larger issues of high unemployment, negative equity homeowners, the outstanding loans that are still resetting, and overall poor economic conditions.

When Sanders is asked what do we do to help the housing market, he mentions fixing unemployment, keeping the Bush tax cuts in effect, and

“Government’s got to pull back out of the housing market and let the private sector work.  They have done no good whatsoever.  Like the ‘Midas Touch’, it’s just the opposite.  They’ve got the ‘Medusa Touch’; they touch the housing market and it turns to stone.”

Here’s the full interview. Well done Mike – love the purple tie trio.

As I’ve said before, there are several things that have me concerned about the housing market in Orange County.

1. The large number of negative equity homeowners
2. The disproportionate number of homeowners that qualified for their loans with adherence to minimal guidelines
3. The number of homeowners that have negotiated short term solutions to long term loans problems
4. The lack of solid and accessible financing for current buyer demand
5. The long process for handling the abundance of short sale inventory

Some of those concerns, and others, are voiced by Stan Humphries, Zillow’s Chief Economist, in this recent article in the Orange County Register.  According to Humphries, we are looking at 3rd quarter for the ‘bottom’ of this year and a long, flat recovery that will take us into 2013.  His view was one of a national market, and given the magnitude of our housing crisis, I believe it may very well take at least that long.

If you are a seller: consider your options carefully.  Can you hold on for the next few years?  Can you lease the property?  And if you are hanging on to it, think seriously about that decision if you are holding out for growth – that won’t be happening any time soon.

If you are a buyer: Lending will be one of your primary concerns.  Investigate your options carefully and know what you can qualify for before you shop.  Opportunities will be out there, but don’t buy unless you plan on owning for at least 5 years right now.

There’s no question that we’ve taken a hard fall in our Orange County values – a very hard fall and we all long for the days that we could comfortably calculate our net worth, even if it was funny money and we weren’t planning on selling.  Others are hoping to just see values climb back into the vicinity of their purchase price.

There isn’t good news here.  It will be a while, likely a long while. But when I heard the question again this week, I had some better frame of reference to keep all of this last decade in perspective.

“Where would our homes’ value be if the bubble had never occurred at all?”

This may in fact be the better question.  If the unsustainable appreciation was never a factor and we experienced a normal rate of growth, what would that look like?

Recently Mike Simonsen, of Altos Research, turned me on to the company that’s examining and providing some of those answers in Macromarkets excellent web application Gap Gauge.

If you are curious about where we stand nationally, in various cities around the country, it’s a fascinating perspective and way to judge where we are in the ‘burst’ of this unfortunate bubble.  Although Orange County is not specifically charted, Los Angeles and San Diego are.   It’s interesting to note, we are still slightly higher (using Los Angeles numbers) than we would be had we just experienced ‘normal’ growth.

Sadly, I know many of us are looking for the day when homes will return to previous values (I know I do), however, it may be time to get comfortable again with a slow, more sustainable type of appreciation.

It’s sorta like the difference between the motorcycle and the minivan; it ain’t sexy, but it might just be a little safer.

This particular buyer is looking in Mission Viejo between $450,000 and $550,000.  He wants a single family residence.  With that criteria, I hit the MLS looking for a picture of where we really are. 

As many of you know, I’m the last person to jump on the ‘Hurry Buy Now’ band wagon.  However, if you are in this price range in South Orange County – this is speaking to you.  What did I find?

There are 40 Active single family residences currently listed in Mission Viejo between $450,000 and $550,000.  How do those breakdown?

• 19 are short sales (BTW – refer to my posts on shorts sales to understand the challenges with these sales)
• 4 Bank Owned
• 17 are supposedly equity sellers.  Upon further reading of the agent remarks in the listings 2 more of these are actually short sales and 1 is bank owned.

So, what does this leave us?  14 Traditional, Equity Sellers?  I should add 5 of these 14 are 55+ communities.  There are really only 9 equity sellers in my client’s search criteria out of 40.

It then becomes important to analyze the recent resale activity.  I pulled sales from the last 30 days with the same criteria - Mission Viejo, single family residences, $450 to $550.  Here are the stats:

• 21 Sales
• 6 Bank Owned
• 3 Short Sales
• 13 Traditional Sales (one 55+ community sale)

No rocket scientist needed here.  This is out of balance.

If you are not a numbers person, it’s okay, just try to stick with me here – 52.5% of the Active Inventory are short sales, but last month only 14.3% of the sales were short sales.

12.5% of the Active Inventory is bank owned, but last month 28.6% of the sales were bank owned.

And most telling, 22.5% of the Active Inventory are equity sellers (not to include senior communities), yet the sales from the last 30 days indicate that 51.1% were traditional sellers.

I’m actually not a numbers guru.  I love reading.  I love writing.  But, I also love logic and this should speak volumes to you.  The sellers that don’t have to sell have chosen not to; they’ve heard the message.  Buyers that have been fence sitting or have had affordability problems, have found that it is indeed their time.  Demand does exist.  The inventory may actually be lacking.  Do I hear – supply and demand?

Just to temper my enthusiasm, let’s look the sales prices.  No question – these are some other stats to consider from the last 30 days with that same criteria:

Short Sales – Sold at 98.29% of asking price with an average days on market of 143.  The average price per square foot was $253.09

Bank Owned - Sold at 101.55% of asking price with an average of 16 days on the market.  The average price per square foot was $263.06.

Traditional Sellers -Sold at 97.38% of asking price with an average of 34 days on the market.  The average price per square foot was $323.09.

I will suspect that the knee jerk response is that traditional sellers are overpriced on a per square foot basis – but look at the demand.   There’s a reason these are selling.  They are in superior condition (sometimes by a lot) and you can actually submit an offer to a live body, that has real emotion, and a desire to sell.  What’s the value in that?

So, if you think it’s a buyers’ market, think carefully and ask for the stats.  You need more than a cursory overview.  You need to drill down into the makeup of what it means to get a clear picture of the marketplace.

This is one picture of the OC marketplace, but from what I’m seeing, in certain pricepoints, it’s not isolated.  Thoughts?  I’m open to our interpretation of these numbers.

I remember in the early stages of the boom, there were whispers of a ‘bubble‘.  By 2005, it had turned into a dull roar.  In 2006, economists were shouting at us while many of us were turning a deaf ear, convinced that this market was an exception.  I know – not you - just the rest of us.

Today, I’m hearing whispers of a different sort.  There are signs (albeit very small ones) that there is a light at the end of the tunnel.   The Wall Street Journal reported today that a CNBC ‘talking head’ announced that “Real estate – it’s back.”  This remark came on the heels of the Dow Jones Equity All REIT Index‘s rally which ended up 12% today.

These are interesting indicators to be watching, but I’m not suggesting we throw a party by any stretch.  The REIT index is still down 42% for the year.  And as WSJ’s author Aton Troianovski points out, the commercial market is exceptionally slow.  Local Orange County is no exception and commercial brokers are checking their ring tones to make sure phones are still in good working order (I know – been there – 4th quarter ’07).

Today there are whispers of a bottom, small rays of sun poking through the dark clouds.  It will be interesting to see how long it will take for these whispers to result in a true shift.

For the rest of you that might be curious about what I have in mind, I’ll share with you some of what happened to me this week.  Brace yourself because I feel a rant coming on….

As I have said countless times on this blog, short sales are a HUGE factor that is driving our market prices and inventory in Orange County.  For example, 64% of the active homes on the market today in Rancho Santa Margarita, under $500,000, are short sales!  In Mission Viejo, 50% of homes active on the market today under $500,000 are short sales. 

These short sales have offers that have been submitted to banks and are just awaiting approval.  They may have multiple offers.  This is buyer demand that is waiting and the last thing we need in this market is pent up buyer demand waiting.

I’d like to share with you a story about one of my short sale listings.  Within 72 hoursof listing the home back in May, I had 4 offers for asking price, and over.  We submitted them to the bank, along with the package from my seller that clearly qualified for a hardship.  The following dialogue is from this week between my short sale coordinator and the the banking institution’s (a very common and well known lender) negotiator.

My Short Sale Coordinator:

“We now had 4 buyer’s who have cancelled, including the last offer we submitted due to the fact that this process has taken almost 6 months.  We just can’t keep buyers around that long and we can’t keep the value the same for that period of time.  Values are dropping.  We do have another offer, but it is lower than any offer we have received.

“At this point we, as long with the seller, are at a loss as to what to do.  Do you have any suggestions, or any time frame that we can tell buyers?”

The Bank Negotiator:

“I will have to cancel this file because the buyers are no longer interested.  I suggest faxing in the new offer.  Because it is a new offer it will be considered a new file.  Anytime you have a new buyer it starts all over.  A short sale can take 4 - 6 months.  When you send in a  new contract the time frame starts all over. ”

The negotiator goes on to say that they are trying to make time frames shorter and the last response time was 30 days.  But in my experience, that response is inconsistent at best and clearly, they aren’t willing to commit to anything better than 4 to 6 months.

So what’s my big idea?  Let’s save a big bailout expense.  Forget giving money to banks with no accountability for how they use it.  Instead, let’s create an efficient, streamlined method of handling the massive number of properties that are in foreclosure and that are short sales. 

In the case of my listing, it may take one year to get a buyer in that property and a closed sale.  In the meantime, values are detrimentally impacted,  inventory remains misleadingly high,  property condition deteriorates, and suffering sellers can’t restart their lives.  If you shorten this process to 90 days, can you imagine the positive impact on our market?  Just think, 6 months ago I had 4 buyers that wanted to pay full or over list price.  Today’s buyers are thinking about 20% less than that.  THAT is a huge reason prices continue to decline in Orange County and in many parts of the country.

Maybe this is too simplistic.  Maybe this addresses only part of the problem.  But, if we are looking at some of the real, on the ground solutions for the much touted ‘Main Street,’ this seems like a great place to start.  Like I said, to those influential individuals and government institutions dying to hear my Bailout alternative, I’ll be standing by waiting for your call.

There is still tremendous volatility in the banking industry and financial markets but there are some bright spots.  We have already begun to see a slowing of the pricing free fall.  Distressed properties, bank owned inventory, and entry level price points are frequently seeing multiple offers all over Orange County.

Steven Thomas of Alterra Real Estate has released his housing report noting that inventory has dropped to its lowest point in 18 months.  Last year at this time, inventory was 27% higher and two years ago it was 16% higher.   Clearly, the message has been heard by would-be sellers and those that don’t have to sell are opting to stay put.

Thomas says, “This is simple Economics 101, as prices fall demand rises and the number of sales increases as a result.  As the United States government fixes the financial system and money starts to flow again, we can expect rates to drop considerably, including in the Jumbo loan arena, homes about $700,000.  Falling rates lowers monthly payments, which is similar to falling prices.  We can expect demand to increase and the number of sales to increase as well.  This may be six months from today, so right now is probably the most opportunistic time to be a buyer.”

Jonathon Lansner quoted the consultants at Real Estate Economics of Irvine as predicting housing rebounding within 18 months.  REE writes, “Though the index has been trending in positive market territory (an over-correction), the severity of the short term impact of price-slashed distressed properties, tightened credit and extremely low market psychology will continue to hinder market conditions for the balance of 2008.  The over correction will eventually serve to restore buyer confidence.”

William Shopoff, CEO of the land-investment firm the Shopoff Group was recent interviewed by Jeff Collins at the Orange County Register.  Shopoff’s prediction, “I would expect a market bottom to occur in the later half of 2009, possibly extending into 2010 for the Inland Empire.  I think the recovery will take some time once we reach bottom.  I would expect the $700 Billion Government package…will provide the needed liquidity to the markets to provide support but the bigger problem is supply/demand imbalance at present.”

What’s the my prediction?  The Planeta Prediction for the last couple years has been Spring ’09.  I knew that ’08 would be a tough year because generally speaking, election years tend to slower.  That in addition to the already poor housing conditions heading into ’08, I was prepared to buckle my seat belt for a long ride.  I didn’t foresee the financial crisis and that may very well push out my prediction.  We will continue to be plagued with distress sales until we absorb foreclosures that continue to hit the market.  But, I do think that we’ll see a much stronger Spring than we have seen the last couple of years.

I find Shopoff’s comment interesting about inventory imbalances in light of the low inventory reported by Steven Thomas.  That is a big factor and I see it playing out in some of the areas that I most frequently work.  Las Flores and Wagon Wheel markets, in Rancho Santa Margarita and Trabuco Canyon respectively, have the lowest inventory that I can recall seeing in years.

So, if you are watching for recovery, or even stabilization, we may be seeing the first glimpses on the horizon.  Don’t get me wrong, clearly we aren’t there yet, but if you are targeting the bottom, keep your eyes peeled.

1. The coming election will likely slow buying activity. Based on past real estate years it’s likely to be a bit slow with buyers taking a ‘wait and see’ approach.  We also are moving into the seasonally slow period of the market.
2. Consumer confidence is still a big issue.
3. With prices having gone down for so many months in a row, there is little urgency to buy right now.   In past years, buyers felt a rush to buy before prices climbed higher.  Now, the opposite is true.
4. With foreclosures still coming onto the market, there is still inventory that must be absorbed before a recovery can begin.
5. Economic uncertainties that can directly or indirectly impact buyers’ ability to buy or secure financing.
6. Limited financing options and stringent qualifying requirements limit the buyer pool.

That being said, there are things that seem promising:

1. I don’t see prices making a dramatic drop from here.  In the last year the median sales price for an Orange County home has fallen 28% in a year.  There may not be much more room to fall.
2. Investors and buyers that have been waiting for the right time to enter the market are beginning to jump off the fence.  The recent buying spurt of activity shows that the demand is there when the price is right.
3. Interest rates have stayed relatively low and those interested in taking advantage of those rates are making the leap.

Time will tell.  Stay tuned.

I got an email from a client and friend this morning.  He and I have had some wonderful conversations about the market over the last couple years.  As I was putting together an email for him – I thought this is a great topic for ‘The Voice’.

 

The good news in Orange County…Steven Thomas, Re/Max Real Estate Services’ President, wrote in his May 29th Market Time Report, “Current Orange County houseing demand not only obliterats 2007 levels, but it now has surpassed 2006 levels as well.  Demand has reached a mark not seen in 24 months.” 

 

So what is holding back a real estate recovery in Orange County?

 

?  Short sale inventory- I’ve said it before but it’s worth repeating…this is dramatically impacting the market.  Banking institutions could easily improve this by changing their approach and preapproving a hardship and determining a short sale price before properties hit the market.