July 2008 newsletter – individual

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.

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 19^th 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.

WHAT WERE THE ACTUAL NUMBERS, INCLUDING FORECLOSURES… A total of 33,024 new and resale houses and condos were sold statewide in May.  That was up 6% from April and down 10% from May of last year.  Southern California sales volume from Ventura County to San Diego County was 16,917 as compared with 19,874 a year ago.  Orange County’s total number was 2,266 which was a 15% downturn from May ’07.  The median price went from $635,000 to $485,000.  Yes there was another jump in California foreclosure activity.  Southern California had a total of 65,309 Notices of Default issued the first quarter of 2008.  Orange County had 7,082 which when compared with Los Angeles County at 20,339 and Inland Empire at 26,171, doesn’t seem so bad.  All of these numbers for Southern California, broken down by county are available to you.  Simply call me and I will get them to you. (Source:Dataquck)

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.  See you soon!