Here’s the latest Housing Report from Steven Thomas, President of Altera Real Estate.

It is time for buyers to start focusing on historically low interest rates; they won’t last forever.

Interest Rates

Rates are at ridiculously low levels and seem to be taken for granted.

I have always been fascinated how almost nobody focuses on how rates affect purchasing power.   These low rates actually pencil out to be so much better than the $8,000 First Time Home Buyer Tax Credit; yet, the lower rates just have not stimulated demand like the credit.  Consider a $500,000, 30 year mortgage at 4.375%.  The monthly payment would be $2,496 per month.  The same monthly payment at 5.375%, where rates were just one year ago, would be for a mortgage of $446,000.  That is a $54,000 difference, almost seven times the tax credit.  That’s one way to look at the incredible savings today’s low interest rates offer buyers.  Now, let’s take a look at the difference in payment for the same mortgage amount.  The payment on a $500,000, 30 year mortgage at 5.375% is $2,800 per month, or $304 per month more compared to the 4.375% rate.  In just five years, the savings would be a very impressive $18,240.  Over the life of the loan, 30 years, the savings would be $109,440.  These numbers are mind boggling.  Yet, first time home buyers tripped over each other clamoring to purchase a home prior to the end of the tax credit on April 30th. But, now, in the face of the lowest interest rates in our lifetime, buyers just aren’t rushing to purchase.  As soon as the economy starts to improve, interest rates will increase by at least one percent.  As a buyer, today’s rates should be very motivating.  The best time to purchase is during a buyer’s market with rock bottom rates, not when the market is appreciating again. Unfortunately, low rates don’t seem to sell like an $8,000 credit.  So, let’s put phrase it in a way that will sell: “Give yourself an $18,240 tax credit by purchasing now before rates rise just one percent.” For further perspective, rates were at 8% at the beginning of 2000.  For a $500,000 mortgage, the monthly payment would be $3,669, an additional $1,173 per month.  In 1990, rates were at 10%, which would be $4,388, an additional $1,892 per month.  Buyers cannot afford to ignore today’s rates.  They should not be taken for granted.  As soon as the economy improves, rates will increase and buyer’s purchasing power will begin to erode.

Demand

With the begging of the Autumn market, demand drops 7%.

In looking at demand, the First Time Home Buyer Tax Credit pulled demand forward.  To take advantage of the credit, a buyer had to be under contract on or before April 30th.  Since reaching the height in demand at the end of April, demand has dropped 32%.  Demand, the number of new pending sales over the prior month, dropped by 203 over the past two weeks and now totals 2,690 pending sales, a 7% drop.  The incredible rates should spur demand.  It will be interesting to see where demand goes over the coming weeks now that the kids have settled in at school.

Active Listing Inventory

It appears as if the listing inventory is climbing towards a peak of 12,000 homes.

The active listing inventory gained 175 homes in the past two weeks and now totals 11,892.  The inventory has actually grown unabated since the beginning of the year.  If demand was just slightly hotter, the inventory would actually drop.  It started the year at 7,165 homes and has increased since by 4,727, a 66% increase.  This year marked the exit of the discretionary seller.  Instead, the market has been plagued by homeowners who have been sitting on the sidelines anticipating a turnaround in the housing market.  With demand artificially stimulated at the beginning of the year by the tax credit, sellers were fooled into thinking that the market had indeed turned around.  They took reports of year over year increases in the median sales prices and stories of heated demand and multiple offers as the perfect time to dive into the market.  Unfortunately, seller after seller entered the market and anticipated appreciation like just a few years ago and priced their homes at unrealistic levels, thousands of dollars above the last comparable or pending sale.  The end result is a ton of homes have been sitting on the market overpriced and the active inventory has increased unabated.    A SPECIAL NOTE FOR SELLERS:  reduce your home to market value or pull your home off the market immediately and wait for the overall economy to dramatically improve.

Expected Market Time

The lower ranges have slowed but not nearly like the stalled upper end.

For homes priced below $1 million, the expected market time is 3.87 months.  This range represents 82% of the active inventory and 93% of demand.  For homes priced above $1 million, the expected market time is 12.02 months, the higher the range, the slower the expected market  time.  This range represents 18% of the active inventory, but only 7% of demand.  The slowest range, homes priced above $4 million, has an expected market time of 70 months.   The hottest market in Orange County is Foothill Ranch with an expected market time of only 2.38 months and an average list price of $467,000.  The slowest market in Orange County is Newport Coast with an expected market time of 12.08 months and an average list price of $4.4 million.  The expected market time for all of Orange County is 4.42 months.  Last year at this time the expected market time was 2.33 months.

Foreclosures and Short Sales

With demand slowing, the distressed inventory continues to grow.

The active distressed inventory grew by 110 homes over the past two weeks and now totals 4,026 total foreclosures and short sales, levels not seen since April of 2009.  The active distressed inventory started the year with 2,555 homes and has since grown by 58%.  The distressed inventory now represents 34% of the current active inventory.  Last year at this time, there were 2,384 distressed homes on the market, 1,642 fewer than today.  The number of foreclosures within the active listing inventory increased by 24 homes in the past two weeks from 684 to 708.  The expected market time for foreclosures is 1.84 months, still an exceptionally HOT seller’s market.   Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 86 homes over the past two weeks and now total 3,318.  The expected market time for short sales is 3.61 months, much slower than 1.53 months posted last April.

Orange County Housing Report: Interest Rates Trump Tax Credit is a post from: Orange County Real Estate-Orange County Homes For Sale

Finally, summer is here and so are home sellers’ wild expectations.

THE Best Time of Year to Sell

Here’s a hint: it is NOT Summer.

Every year the real estate industry deals with the same cyclical phenomena, homeowners who feel that summer is the best time of year to sell.  Unfortunately, buyers do not agree.  Buyer activity actually peaks during the spring.  Summer is the second best time of the year to sell.  Can somebody please communicate that to all of the Sellers who have been fooled and are placing their homes on the market in droves?  This year has been no different, and with the end of the Federal $8,000 Tax Credit on April 30th of this year, buyer demand has definitely already peaked.  Homeowners are fooled into thinking that the Orange County real estate market is the hottest during the summer because the county is a summertime vacation destination.  Since the process in finding a home and closing takes at least a few months, more buyers start looking during the spring.  In finding a home during the spring, buyers can close and move over the summer months.  So, buyer DEMAND is higher during the spring and CLOSINGS are then higher during the summer.  If buyers find something during the summer, they close during the fall.  NEWSFLASH: if they have kids, school has already started.  For parents, moving while the kids are in school is not typically easy.  Thus, parents prefer to close during the summer.  We are almost through July, the window of opportunity to close before school starts is fading fast.  What is reported by the media does not help either.  Newspapers and the nightly news report on SOLD data.  Rarely do they talk about current demand, homes placed into pending status.  As more and more homeowners hear about the incredible SOLD statistics, they get excited to hear about an increase in the median sales price and an increase in the number of closed sales.  The data is very accurate, BUT is a snapshot of activity 45 to 60 days back when the buyers first wrote the offer to purchase, springtime.  Homeowners are making decisions based upon what is happening in the rearview mirror. Homeowners need to be aware of current demand, a snapshot of the most recent pending activity.  In doing so, they will realize that demand is down 28% since peaking back on April 29th.

Active Listing Inventory

The inventory has grown unabated by 54% so far this year.

The Orange County housing inventory grew by the largest amount so far this year, adding an additional 418 homes in the past two weeks and now totals 11,235.  The market has not breached the 11,000 mark since the beginning of April 2009.  Last year at this time the inventory was at 8,895 homes, 2,340 fewer than today.  The inventory has not stopped growing at all this year as more and more pent up homeowners have opted to place their homes on the market at unrealistic levels.  The same media reports of median home price increases and year over year increases in the number of closed sales have fooled these pent up sellers into believing that the market has recovered and that it is a great time to take advantage of the market.  It is true that agents have tons of buyers in the market that have written many unsuccessful offers thus far and homes that are priced well are receiving multiple offers.  The market disconnect lies in the fact that inventory has been increasing on the backs of unrealistic homeowners who have placed their homes on the market at overpriced levels.  Today’s “spreadsheet buyers” are not willing to pay much of a premium for a home just to end their unsuccessful string of offers.  They will maybe pay an extra few thousand dollars, but not the 5 to 10% premium many sellers are vying for.  As more overpriced homes are placed on the market, it is just a matter of time before buyers start getting discouraged and slow their effort in finding a home.

Housing Demand

Not much of a change in demand

It is important to reiterate that demand has already dropped 28% since peaking in the Spring.  The drop has been more profound this year due to the end of the Federal First Time Home Buyer Tax Credit at the end of April.  Demand, the number of new pending sales over the prior month, increased by 10 in the past two weeks and now totals 2,870.  From here, demand typically rises slightly and peaks at the end of August before slowly deteriorating for the remainder of the year.   Last year at this time demand was at 3,306 pending sales, 436 more than today.

Expected Market Time

After bottoming in April, the expected market time for OC homes has increased by 66%

With an increase in the active listing inventory and almost no change in demand, the expected market time increased from 3.78 months two weeks ago to 3.91 months today.  The overall market is still a “seller’s market,” but it is moving in the wrong direction.  Remember, this seller’s market is different.  There may be a lot of buyers and a lot of competition, but spreadsheet buyers are unwilling to pay much of a premium over the last comparable sale.  At the end of April, the expected market time was at 2.35 months.  Last year at this time the expected market time was at 2.69 months.  For homes priced above $1 million, the expected market time is 10.68 months.  Contrast that with homes priced below $1 million where the expected market time is 3.37 months.

Foreclosures and Short Sales

Over the past two weeks the active distressed inventory has grown the most this year.

The active distressed inventory grew by 150 homes over the past two weeks and now totals 3,457 total foreclosures and short sales, levels not seen since May of 2009.  The active distressed inventory started the year with 2,555 homes and has since grown by 35%.  The distressed inventory now represents 31% of the current active inventory.  Last year at this time, there were 2,616 distressed homes on the market, 841 fewer than today.  The number of foreclosures within the active listing inventory increased by 35 homes in the past two weeks from 578 to 613.  The expected market time for foreclosures is 1.79 months, an exceptionally HOT seller’s market.   Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 115 homes over the past two weeks and now total 2,844.  The expected market time for short sales is 2.71 months, still a HOT seller’s market, but slower than the 1.53 month market back in April.

Orange County Housing Report: Best Time of Year to Sell is a post from: Orange County Real Estate-Orange County Homes For Sale

The National Association of Realtors issued a press release today detailing efforts they are taking to help make the purchase of Short Sales less frustrating and problematic.

HAFA – Home Affordable Foreclosure Alternatives

HAFA is a Federal program with takes effect in April that is designed to help homeowners complete a Short Sale of their home when a loan modification is unsuccessful.  The program aims to streamline the Short Sale process, and provides incentives to both the homeowner and the loan servicer.  NAR has released a brochure about the HAFA program, and a HAFA Resources page on their website.

Short Sales Continue to Dominate Orange County Real Estate

Out of the over 8,100 homes for sale in Orange County, listed as “active” in the MLS, almost 2,300 are Short Sales.  In addition, over 4,150 of the more than 6,700 homes in escrow are Short Sales – about two-thirds of all pending sales.  In this market it is critical for buyers to work with a Realtor who is experienced in handling Short Sale transactions and can help ensure that a difficult process doesn’t end in the frustration of a foreclosure and lost deal.

New Programs Aim to Streamline Short Sales is a post from: Orange County Real Estate-Orange County Homes For Sale