Market Updates | California Real Estate

12.23.10

Market Update: A 2010 Recap and Looking Ahead to 2011
Ron Peltier, Chairman and CEO of HomeServices of America

Increasing Stability without ‘Artificial’ Incentives Indicate that Housing Industry is Stabilizing

Our end-of-year analysis shows that the housing industry came very close to what we anticipated would occur in 2010 – a strong first half fueled by tax credits, and a subsequent slowdown as incentivized buyers were unable, or not confident enough, to delve into the market.

As a result, 2010 will end with slightly fewer total sales than in 2009, a year filled with major incentives. Because the second half of 2010 had none of the government subsidies, it became a litmus test to whether the market was ready to walk on its own. While wobbly, we are pleased that it did make progress. Were it not for the continued challenges impacting the national economy, we believe the second half would have had much more traction.

Positively Impacting Today’s Market

During 2010, the impact of mortgage rates falling to historic lows continued to drive refinance activity above typical levels. As of December 2010, we are seeing interest rates in the 4.5% range on a 30-year conventional loan, up from 4.2%. These generationally low rates provided critical traction to the housing market.

We view the ‘proof’ of traction in the pended sales numbers. In July, as government incentives came to a close, pended sales activity was tracking at 3.8 million total sales for the year -- the lowest pended sales numbers since 2000. The August numbers saw pended sales activity tracking at approximately 4.6 million total sales, an increase post-tax incentive – clearly positive news. HomeServices forecasts that the number of total sales for 2010 will be remain slightly under five million, but dramatically better than where things looked to be in July.

It is this post-incentive growth that demonstrates the beginning of a “normalized” flow from which we can build in 2011.

Distressed Properties

High affordability, in no small part, fueled by the approximately four million residences at some stage of the foreclosure process, has been a key driver in 2010, and might be even more of a factor in 2011.

Home foreclosure opportunities are not coming into the market at the same rate they were earlier in 2010. This has impacted sales, as numerous highly desirable homes with meaningful discounts have yet to reach the market.

We must deal with distressed properties as part of our inventory in order to sell them, even if at highly discounted prices. We encourage banks to work with homeowners on a settlement package because foreclosures in the pipeline must be resolved before we see appreciation in prices.

2011: A Period of Stabilization

Current trends show that the return to a more active sales environment will be gradual and that adjustments must be made before any real growth can be experienced. A recent survey noted that one in five consumers believe the recovery will take place in 2015. We are slightly more optimistic, but balanced. We believe that the existing home sales market will remain at or near the five million unit level – WITHOUT the artificial stimulation of government subsidies – equating to stability throughout 2011.

We also expect interest rates to stay in the 4%’s to mid 5%’s. Affordability will continue at all-time highs, but we need to sell off the remaining distressed inventory before we see any real growth in total sales. We expect slow incremental growth, but not until 2012.

Experts predict that in addition to foreclosures, unemployment remaining in the 9.5% range will significantly impact on our industry. People want to own a home, many have the means -- most do not have the confidence. That’s our challenge.

09.29.10

The Housing Market Is Better Than You Think

If you’re a bargain hunter, you naturally want housing prices to go lower. So it may seem like a good strategy to ride the housing recession all the way to the bottom before you jump in and buy.

The problem is … no one knows where the bottom is. Just when it seems prices won’t go any lower, buyers jump in, and interest rates rise. You may get the house for less, but you pay a little more in interest. Or sale volume improves and you end up competing with other buyers and paying a little more to get the house.

Consider what’s happening right now in one Southern California County: Orange. Housing sales were reported down 9% in August from a year ago, suggesting that buyers were waiting for prices to drop further. Instead, the opposite happened: prices rose 2.9% over the same period a year ago, according to the latest DataQuick report.

If you’re waiting for prices to go back down, you may be right. But then again, you may not.

It’s much smarter to weigh the advantages of a current market with generous inventory, low interest rates, and low prices. If you plan to stay in your home a long time, buy within your means, and buy the best house you can afford, you should make out very well.

If you think you’d still like to try your hand at timing the market, consider the following:

Economists like Robert Shiller have said a double-dip recession is possible … but the world’s most successful stock market investor, Warren Buffett, said on September 14, 2010, that the threat has passed and that his businesses are growing.
Gross Domestic Product grew 1.6% in the second quarter, down from 3.7% in the first quarter, but still moving forward. Retail sales rose two months in a row — in August by the largest amount in five months, according to the Commerce Department. That suggests economic growth is still underway.
Interest rates are hovering at all-time lows with nowhere to go but up. When good economic news is reported, rates respond instantly.
The stock market crossed into positive territory in mid-September 2010.
Pending home sales rose by over 5% in July, and mortgage applications to purchase homes rose 6.3%, reports the National Association of REALTORS®.

Many 2010 buyers were pulled forward into closing their purchases by May to take advantage of federal tax credits. The incentives caused a brutal backlash in plunging sales volume, which most economists agree is temporary.

July seemed to be the pivotal month. Home sales dropped 27.2% month-to-month, but pending home sales rose by over 5% the same month. Mortgage applications to purchase homes climbed 6.3% in July, suggesting the rebound is already underway.

Even while sales volume slacked off, prices rose 0.7% higher in July than the previous year.

Economists expect sales volume to continue to be soft, giving new buyers a chance to enter the marketplace to snap up affordable homes.

Lawrence Yun, chief economist for the National Association of REALTORS®, says 2010 should still end with enough sales to meet or exceed historical norms. “To place it in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years,” he said in NAR’s July monthly sales report.

Dr. Alex Villacorta, senior statistician for Clear Capital, says prices look poised to decelerate, and might drop into negative territory by the end of the year. “But keep in mind,” he notes, “the price gains we experienced over the past two years are providing a cushion against prices going into double dip territory, meaning it is unlikely we’ll see prices below their 2009 lows this year.”

Dr. Mark Dotzour, chief economist for the Real Estate Center of Texas A&M University, says that because of the effects of the tax credit, getting a “true reading of the housing market may not be possible until June or July 2011.”

California Outlook

July was also pivotal for California home buyers and sellers. The California Association of REALTORS® reported that, like the rest of the country, housing sales in the state declined, but remained well under the national average.

Sales volume decreased 20.8% year-over-year, but sales prices rose 10.4% for the same period.

California sales prices hit bottom in February 2009, at a median of $245,230. In July 2010, prices were 28.4% higher than the “trough,” at $314,850.

Home prices in Southern California are also higher than they were in 2009. San Diego and Los Angeles prices are 19.2% and 17% higher respectively than their March 2009 lows. Orange County home prices are 21.5% higher than in January 2009. And Riverside/San Bernardino prices are 21.7% higher than their April 2009 lows.

Advice for Buyers: Don’t try to time the market. It’s rare that high inventories, low interest rates and low prices align any better than they do right now. In August 2010, mortgage interest rates reached the lowest levels since the housing recession of the 1990s, hitting 4.43%. The previous year, interest rates averaged 5.19%, according to FreddieMac.com, so you’re still way ahead of the game.

Advice For Sellers: Consult with your financial advisor and engage a Prudential California Realty real estate professional to help you determine the best pricing strategies for today’s market conditions. In many price ranges, there is more buyer demand than homes for sale, indicating a quick sale is possible. Consider moving up to the home you’ve always dreamed about.

In the higher end, your home is competing with many others that may be newer and in better condition. Rather than reducing your price, consider bringing your home up to date and then pricing it to sell.

07.28.10

August 2010 Prudential California Realty Market Report

The dramatic price declines of only a few years ago are quickly rebounding as more communities in California report rising sales volume and prices for both May and June.

Housing blooms

According to the California Association of Realtors® (CAR), as of May 2010 the median home price in California is $324,430. Home prices statewide have recovered 32% from the trough set in February 2009, when the median home price was $245,230. CAR also found that housing sales volume increased 1.2% in May 2010, while the median price of a home rose 23.2% compared with the same period a year ago. That’s the largest increase on record for May. Below is a sampling among Southern California communities:

Ventura: +22.5%, from April 2009 $156,840, to $194,960.

San Diego: +19.8%, from March 2009 $326,830, to $391,410

Orange County: +19.5%, from January 2009 $423,100, to $505,750

Los Angeles: +17.4%, from March 2009 $295,100, to $346,350

Home buyers haven’t missed their best chance to buy, however. Many communities are still under their peak prices compared to their May 2010 median home prices.

Southwest Riverside County: -53%, from January 2007, $415,160

Ventura: -38%, from August 2006, $710,910

San Diego: -37.1%, from May 2006, $622,380

Orange County: -32%, from April 2007, $747,260

Los Angeles: -42.8%, from August 2007 - $605,300

California has reported double-digit gains in the median price for five months in a row, putting supplies in high demand. The state has only 4.6 months of inventory on hand, despite more sellers putting their homes on the market to take advantage of frenzied buyer activity.

Sales in May 2010 increased 14.1% compared with April, as home buyers scooped up near record-low mortgage interest rates that averaged 4.79% for a benchmark 30-year, fixed-rate loan. A year earlier, the same loan was 5.29%.

Mortgage rates at historical lows

Mortgage rates fell even further in June, averaging 4.58%, which held steadily through mid-July. Low interest rates coupled with unprecedented affordability and the California home buyer tax credit is helping continue the momentum of sales.

But it’s not all about money. Southern California also offers terrific places to live and work with a high quality of life. For example, two Orange County communities made CNNMoney’s Top 100 Best Places to Live. Irvine came in ranked at #22, and equestrian and golf paradise Yorba Linda was chosen as #38.

MDA DataQuick says the median price for all new and resale single-family homes, condominiums and townhomes in the Southland was $300,000 in June 2010. With a 13.2% increase over the previous year, that’s the seventh consecutive month of year-over-year increases.

Statewide median home prices were down 2.9% to $270,000 in June, from May’s $278,000, and sales volume was up 7.3% for the same period.

One reason why home sellers may be getting better prices is attrition of foreclosed homes from inventories. DataQuick says of existing homes sold in June, 34.7% were distressed properties. That’s down from 35.4% in May and down 45.6% from June 2009. The numbers show a great improvement from February 2009, when distressed homes were 58.5% of homes sold.

But despite higher prices paid for homes, the typical mortgage payment is $1,125, 57.8% below the peak in June 2006.

Southern California’s housing sales volume is 13% higher than it was a year ago in June 2009, says DataQuick. A total of 23,871 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties, up 7.2% from 22,270 in May, and 2.6% higher than June 2009 when 23,262 homes were sold.

The mortgage picture

The mortgage market is changing, making things both easier and more difficult for home buyers. Since August 2007, adjustable rate (ARM) and jumbo mortgages have been more difficult to get, but new figures suggest that higher-end home buyers could see some relief.

DataQuick says 43.9% of all “Southland” purchase mortgages since 2000 have been ARMs, and jumbo loans were 40% of the market. In June, only 6.6% of loans were ARMs, but jumbo mortgages above $417,000 were 17.3% of June loans, up from 14.9% in June 2009, and up 17.2% in May 2010.

Fannie and Freddie are also auditing new loans being presented to them to make sure they are in compliance. And that’s why underwriting is getting more difficult. Lenders must be certain that the loan meets the standards required by the secondary market buyer, so we won’t have a repeat of the housing bubble and bust of the last decade.

Be prepared to share original W-2s from at least two years, as well as bank statements going back several months. The lender may also request to see the tax return for the previous two years, to make certain the W-2 matches the W-2 on the return. If you’re self-employed, you will be required to supply even more data, none of which were a requirement three years ago.

The new requirements may seem onerous, but it’s really a return to the cautious and conservative lending practices of previous generations. Ultimately, lenders want to know that not only can you pay for your home, but that you’ll continue to be able to afford it in tough times. The way to ensure that is to buy within conservative ratios, such as FHA government guaranteed loans that require the borrower to spend no more than 28% of gross income or 36% of gross income plus debt on housing.

What can you do? The simple answer is to buy within your means. If you want a conventional loan and plan to stay several years, consider a fixed-rate mortgage.

Advice for home buyers: Now is a great time to apply for a loan, but be prepared for closing to take longer than in the past. Banks are overwhelmed with last-minute tax credit borrowers that must close before the mandated deadline, as well as with complying with stricter underwriting standards. Save time by being prepared with all the paperwork your lender requires and promptly reply to any new or request for clarification on documents. Do not make major purchases or take any action that could cause your credit scores to change during the escrow period.

Advice for sellers: Before you price your home, consider the amount of inventory available in your price range. For example, homes priced $1 million and above have 10.1 months’ supply on hand, while homes under $300,000 have 3.1 months’ supply. If you can’t afford to wait a few months to sell your home, you may want to consider lowering your price to stimulate offers.

07.27.10

Regional Overview

Santa Maria and Santa Ynez Valley

A brisk seller’s market continues in Santa Maria and the Santa Ynez Valley in homes priced under $1 million with a seller’s market supply of 4.2 months’ inventory on hand. As prices go higher, inventories start to build, but they don’t reach stagnant levels until the ranges of $3 to $5 million. Interestingly, there is relatively little inventory in homes priced $6 million to $7 million, but homes priced $7 million and above are oversupplied.

Santa Barbara County

Home sales are healthy in homes priced under $1 million, but veering toward a buyer’s market with 7.2 months’ supply on hand. Upscale and unique homes aren’t expected to sell at the same pace as more affordable homes, but inventories that languish with more than a year’s worth supply are considered stagnant. In the upscale price ranges, inventories are stagnant in homes priced $2 million and above.

Ventura County

The market under $1 million is blistering hot in Ventura County, but homes priced any higher are stagnant. Upscale and unique homes aren’t expected to sell at the same pace as more affordable homes, but when inventories head toward a year’s supply or higher, the market is sluggish. Between $2 million and $7 million, there are several years’ supply.

San Fernando Valley

In homes under $1 million, the market is blistering in the San Fernando Valley. The market in homes less than $3 million is closer to normal, if a little on the oversupplied side, but when prices reach $4 million, the market stagnates. Curiously, there is only 15 months’ inventory of homes for sale between $6 million and $6,999,999.

San Gabriel Valley

The San Gabriel Valley boasts one of the healthiest markets in all of Southern California. Homes priced under $3 million are in a heated seller’s market. Only homes priced $4 million to $5 million and $7 million or higher are stagnant, but the latter showed significant improvement in sales volume between May to June 2010.

Westside Los Angeles

Westside Los Angeles homes priced under $1 million continue to sell at a blistering pace. Sales are balanced in homes priced $1 million to $4 million. Unique and upscale homes aren’t expected to sell at the same volume as more affordable homes, but when home prices approach $6 million and above, inventories build rapidly.

Orange County

In homes priced under $2 million, Orange County boasts one of the healthiest seller’s markets in Southern California. Unique and upscale homes aren’t expected to sell at the same pace as more affordable homes, so a year or so of supply isn’t unusual. Homes priced $2 million to $4 million are sluggish, but when prices go higher, the market turns stagnant, affording good opportunities for home buyers.

San Diego County

A heated seller’s market is still evident in San Diego County homes priced under $1 million, but as prices approach $3 million, the market reverses to favor buyers. Upscale and unique homes aren’t expected to sell at the same pace as more affordable homes, so a year’s supply or more isn’t unusual in a multimillion-dollar price range. But supplies of several years’ worth are considered stagnant. Inventory levels are a fraction higher at every price point in June than they were in May.

Southwest Riverside

Southwest Riverside is among the most balanced markets in Southern California. Homes priced under $1 million are in a heated seller’s market. Upscale and unique homes aren’t expected to sell at the same pace as more affordable homes, so inventories of a year or more aren’t unusual. But, once supplies approach two years’ worth, the market is stagnant, as they are in the $5 million to $6 million range, and $7 million and above range.

02.01.10

Prudential California Realty Market Overview

2009 – The Year in Review

What a difference a year makes. As poor as the housing market was in January 2009, a year of aggressive subsidies and sluggish economic improvement has produced a tentative optimism in January 2010.

The first-time home buyer tax credit was extended and revised in 2009 to include some qualifying move-up buyers, and housing sales in the conforming loan range began to soar in most areas of the country by May 2009.

The job losses that had helped to swell distressed home inventories appeared to be easing by year’s end. In December, the Labor Department announced that initial job loss claims were the lowest since September 2008.

Instead of subprime-driven foreclosures, the growth of distressed home inventories during 2009 was fueled by job losses. According to Realty Trac, nearly 2.82 million homes, or one in 45, were in some stage of foreclosure last year.

Four states – California, Florida, Arizona and Illinois – accounted for more than 50% of those homes, with more than 1.4 million properties there receiving a foreclosure notification.

Despite escalating job losses, the number of home sales moved upward on improved affordability, concentrated in the conforming loan ranges. By the second half of the year, housing inventories were declining from a recessionary peak of over 11 months on hand to a 6.5-month supply. (Housing supplies are said to be balanced at six months of inventory on hand. Below that level constitutes a seller’s market, characterized by less inventory, more buyers, and firm-to-rising prices. A market with over six months of inventory is considered a buyer’s market, with high inventory, few buyers, and falling prices.)

First-time home buyers made up an astonishing 51% of the market. (A typical figure is 40%.) That’s good news, because first-time home buyers drive housing markets, allowing move-up buyers to act as well.

New Year, New Market

The only constant is change.

The November 2009 sales pace of 6.09 million units sold was 44.1% higher than the 4.54 million units sold in November 2008 – but that pace may not be sustainable without continued low mortgage interest rates.

While interest rates still remain well below 6%, the number of home sales is expected to continue rising. However, prices still face considerable headwinds. There will be a continued supply of inventory from distressed homes, and interest rates are expected to rise when the government stops subsidizing mortgage-backed securities in Q1.

With mortgage-backed securities purchases by the federal government ending in February 2010 and home buying tax credits ending in April 2010, mortgage interest rates are already beginning to rise above 5% for benchmark 30-year, fixed-rate conforming loans.

In view of those facts, First American CoreLogic’s LoanPerformance Home Price Index predicts that home prices in 45 of the largest metros will fall another 4.2% before showing a modest annual gain by October 2010. The index calculates that prices will bottom in March 2010.

The California Outlook

Unlike the rest of the nation, California has a large amount of pent-up demand from buyers who can now afford to buy a home. While California will benefit from the tax credit, housing sales here will also be supported by historically low affordability.

The California Association of REALTORS® First-time Buyer Housing Affordability Index measures the percentage of households that can afford an entry-level home in the state. As of Q3 2009, the index was 64, meaning 64% of households can afford to buy an entry-level home using a one-year, adjustable-rate mortgage as calculated by Freddie Mac. The figure is down from 67 in Q2 2009.

Over 536,720 homes were sold in November 2009 across the state, up from 512,840 in November 2008. The median price was $304,520 – up 5.8% from $287,880 a year ago, and happily well above the C.A.R.’s October forecast.

Besides historically low affordability, why did the number of home sales improve so much toward the end of the year? Other key factors included record low interest rates (4.88% according to Freddie Mac for benchmark fixed-rate 30-year loans); high volumes of distressed housing (one-third of inventory sold in November 2009), which impacted local prices; and inventories falling below distressed levels (4.5 months on hand) in the conforming loan ranges.

Prices appear to have bottomed in many areas and most price ranges below the conforming loan limit. Dataquick, which uses county records, reported that 102 of 362 California cities showed higher median prices than a year ago.

The major concern going forward is a possible increase in foreclosure and short sale activity. According to RealtyTrac, 632,573 California properties received a foreclosure filing in 2009, an increase of nearly 21% over totals for 2008. The state did experience a four-month respite – a decline that ended in December 2009 when foreclosure activity shot up nearly 9% over November. However, foreclosure activity in Q3 was down 17% from the previous quarter, suggesting that the upturn was a temporary spike.

That indicates that 2010 will not begin with a dip in foreclosures. Mortgage insurer PMI Group is braced for higher foreclosures, according to David Berson, chief economist. After falling 13% in 2009, he says home prices will fall nationally another 5% in 2010, but will flatten by year end.

Freddie Mac Chief Economist Frank Nothaft is slightly more optimistic, predicting that home prices will fall 3% in 2010. On a brighter note, he believes that mortgage interest rates on benchmark conforming loans (30-year, fixed-rate) will remain under 6%.

Advice for buyers: Buyers should be aware that as long as incentives are in place, home sales in the conforming loan ranges will be brisk. Get pre-qualified with a reputable lender like HomeServices Lending powered by Wells Fargo, www.hslca.com.

Keep mortgage interest rates in perspective with home prices. The historical median for mortgage interest rates is 9%, over three and a half points higher than it is today. Home prices are almost where they were ten years ago in some areas of Southern California. If you pay a higher interest rate now than last month, remember you’re way ahead on price.

Advice for sellers: Even though the market is much improved, now is not the time to slack off on presentation. The cleanest, most up-to-date homes in the best condition and repair will always sell for more money than comparable homes in less perfect shape.

In the conforming loan range, be prepared for multiple offers, but don’t try to anticipate the market by raising the asking price beyond what can be supported by local market comparable sales. Remember, lenders are cautious and may decline your buyer’s loan if they can’t justify your asking price. That will waste precious marketing time – and hurt your pricing if you end up having to put your home back on the market because your deal fell through.

Overview by market

Santa Maria and Santa Ynez Valley
Santa Maria and Santa Ynez housing is in a heated *seller’s market, with as little as 4.7 months of inventory on hand in homes priced under $1 million. In homes priced above $1 million, the situation changes dramatically. While unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes, housing inventories that languish two years or longer afford great opportunities for buyers.

Santa Barbara County
Santa Barbara housing is in a brisk seller’s market*, with as little as 6.1 months of inventory on hand in homes priced under $1 million. In homes priced above $1 million, there is much more inventory. Although unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes, it could easily be said that the upscale market is in a buyer’s market.

Ventura County
Ventura County housing is in a heated seller’s market*, with as little as 1.7 months of inventory on hand in homes priced under $1 million. That’s as much time as it takes to make an offer and close on a purchase. In homes priced above $1 million, selection is larger, but unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes.

San Fernando Valley
San Fernando Valley housing is in a heated seller’s market*, with as little as 2.3 months of inventory on hand in homes priced under $1 million. In homes priced above $1 million, selection is larger, but unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes. Only homes priced above $6 million could be said to be in a serious buyer’s market.

San Gabriel Valley
San Gabriel Valley housing is in a heated seller’s market*, with as little as 2.4 months of inventory on hand in homes priced under $1 million. In homes priced $1 million to $4 million, the pace of sales is still well under 6 months of inventory on hand. Although unique and luxury properties aren’t expected to sell as quickly, the upscale market is in a buyer’s market, albeit the lowest-inventory buyer’s market in Southern California.

Westside Los Angeles
Westside Los Angeles housing is in a heated seller’s market*, with as little as 4.1 months of inventory on hand in homes priced under $1 million. In homes priced above $1 million, selection is larger, but unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes. Only homes priced above $4 million could be said to be in a buyer’s market. Even so, the upscale and luxury markets in Westside Los Angeles are among the healthiest in Southern California.

Orange County
Orange County housing is in a heated seller’s market*, with as little as 2.4 months of inventory on hand in homes priced under $1 million. In homes priced above $1 million, selection is larger, but unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes. Between $2 million and $6 million, homes are averaging 17.6 months of inventory, which isn’t out of the ordinary in high-end homes. Homes priced above $6 million could be said to be in a serious buyer’s market.

Southwest Riverside
Southwest Riverside housing is in a heated seller’s market*, with as little as 2.2 months of inventory on hand in homes priced under $1 million. In homes priced above $1 million, selection is larger, but unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes. Only homes priced above $7 million could be said to be in a buyer’s market. Even so, the upscale and luxury markets in Southwest Riverside are among the healthiest in Southern California.

San Diego County
San Diego housing is in a heated seller’s market*, with as little as 1.9 months of inventory on hand in homes priced under $1 million. In homes priced above $1 million, selection is larger, but unique, upscale and luxury properties aren’t expected to sell as quickly as more traditional homes. Between $3 million and $5 million, inventories are high, averaging 22.2 months on hand, which isn’t out of the ordinary in high-end homes. Homes priced above $5 million could be said to be in a serious buyer’s market.

*A balanced market is widely accepted as having six months of inventory on hand with market conditions favorable to both buyers and sellers. A buyer’s market is characterized by conditions such as high inventories, falling prices, concessions by sellers, and incentives among other indicators. A seller’s market has low inventories of homes for sale, escalating prices, and keen competition between buyers, including multiple offers.

Detached homes stand alone and share no common walls with any other neighboring home. Attached homes share at least one common wall with another home. The type of home ownership is determined by whether or not it is a condominium, townhome, duplex, co-operative or other.

12.08.09

Prudential California Realty Market Conditions Overview

Homebuyer Tax Credit Extended And Expanded

Providing the shot in the arm needed by the economy, congress has extended and expanded tax credits for homebuyers.

To qualify, first-time homebuyers cannot have owned a home within the last three years. Current homeowners who have lived in their homes five out of the past eight years are eligible for up to $6,500 tax credit on a new or existing home purchased between November 7, 2009 and April 30, 2010.

The tax credits come with a few caveats:

1. Homebuyers must occupy the home as their primary residence for at least three years, or forfeit the tax credit.
2. Only single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 are eligible.
3. FHA, Fannie Mae and Freddie Mac conforming loan standards apply. The tax credit does not substitute for a down payment, but it can be used to supplement a down payment or pay down closing costs.
4. Only U.S. Citizens who file taxes are eligible.

If a homebuyer is in a written binding contract initiated before April 30, 2010, and unable to close before the deadline, the Extended Home Buyer Tax Credit allows until July 1, 2010 to close. Consult your tax advisor for your specific situation and learn more, at: www.federalhousingtaxcredit.com.

The National Association of REALTORS® believes that housing is on the road to recovery. Lawrence Yun, NAR’s chief economist, expects that 2.3 to 2.4 million first-time buyers will take advantage of the credit by year’s end.

Adds NAR spokesperson Walt Molony, “At the end of September 2009. we were showing 3,630,000 homes on the market, down 7.5% from Aug. and 15.0% below a year earlier. That works out to a 7.8-month supply.” New home inventories are also going down, according to the Commerce Department, to a 7.5-month supply. A balanced market is widely considered to be six-months of inventory on hand in both new and existing homes.:

By October 2009, housing volume was up 10.1% over the previous month, and 23.5% above October 2008, while inventories sank to 7-months on hand, down from 8-months on hand in September. The median home price was $173,100, down 7.1% from October 2008.

Yun says the tax credit is a significant factor. “It’s given buyers the confidence they needed to get off the fence and take advantage of extremely affordable housing conditions. The buying conditions this year are the most favorable on record dating back to 1970, but the tax credit is allowing buyers to set aside any reservations about waiting for a better deal.”

Pricing pressure continues

The national median existing single-family price was 11.2 percent below the third quarter of 2008. And NAR’s latest quarterly report shows that during the third quarter 2009, 123 out of 153 metropolitan statistical areas reported lower median existing single-family home prices in comparison with the third quarter of 2008.

The reason prices are under pressure is distressed homes are impacting inventory levels. Distressed sales – foreclosures and short sales – were 30 percent of transactions in the third quarter says NAR, which puts pressure on median home prices.

NAR believes we are getting closer to price stabilization in many areas and most prices ranges. Foreclosures will continue to come on the market, but rising sales from the expanded tax credit should stabilize home prices in many price ranges by next spring and will help stem the flow of new foreclosures.”

Shadow inventories - aid or threat to housing recovery?

According to the Mortgage Bankers Association, the percentage of loans in the foreclosure process in Q-3 2009 was 4.47 percent. Adding loans that are at least one payment overdue and the combined percentage of loans in foreclosure becomes 14.41 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.

The report has a number of experts wondering how this shadow inventory – homes that are about to enter the market – will impact average sales prices. Explains Rick Sharga, Senior Vice President of RealtyTrac Inc., “Essentially, the 7 million ‘shadow inventory’ number consists of all the properties currently in foreclosure (about 1.2 million), all the loans that are delinquent (about 5.5 million), and some of the REOs (about 900,000 in our database).” The 7 million housing unit tsunami assumes that 100% of everything that's delinquent or in default will ultimately go back to the banks as REOs. That's never happened, and is unlikely to happen this time.”

NAR expects approximately 3 million foreclosures nationwide in 2010, about the same number as 2009.

While there is a fear that a wave of foreclosures could threaten homeowners, some arguments exist for the opposite to happen. As long as the government is offering tax credits, greater inventories of distressed homes can be absorbed by the market, ultimately leading to a more stable marketplace. The exception could be in the luxury market where a significant amount of inventory exists and qualifying the properties and buyers is more difficult.

California outlook

RealtyTrac’s latest housing report says that California has the nation’s second-highest foreclosure rate – one out of every 156 housing units or 85,420 properties, has received a foreclosure filing in October.

The good news is that the foreclosure rate is starting to slow. While it’s twice as high as October 2008, it’s one percent lower than September.

A release of more inventory – in the conforming loan range - by lenders would actually be a boon to California housing sales.

The foreclosure pipeline will continue to be slow, says Sharga, banks can’t process more foreclosures than their capacity. They want to give borrowers the option of curing the loan before taking the property back, and it’s not in their interests or the publics to flood the market with distressed homes.

Explains Molony, “Our members in California with very tight supplies of homes priced under $730,000 were calling for lenders to release any foreclosure inventory they were holding back because they now are having multiple bids in lower price ranges. However, there was no notable additional release and supplies in those areas remain very tight.”

The California Association of REALTORS® (C.A.R.) reports that in California this year, nearly one out of five homes was purchased completely with cash, (19.7 percent). What makes the figure significant is that half the sales were to first-time home buyers, says Steve Cook, journalist and analyst for REECON Advisors. He writes, “Buyers of all types are complaining about the difficulties they face getting financing from lenders with standards that change, documentation requirements that seem excessive, problems with appraisals in the wake of the new Home Valuation Code of Conduct, slow response and rates that change between those quoted when they quality and when they close. Of the sales that fell through last year in California, the buyer’s failure to get financing was the leading cause, responsible for 40.5 percent of failed closings.”

That said, the outlook for California housing – in many price ranges - is good. C.A.R. found that first-time homebuyer affordability was at 64% in Q-3, 2009, compared to 55% in Q-3, 2008. That means the percentage of home buyers who can afford the median priced entry-level home at $247,150 is 64%. With an estimated monthly payment including taxes and insurance at $1,450, the minimum household income needed to purchase an entry-level home is now $43,500.

Advice for Buyers: Buyers who are considering selling near the top of the conforming range are in an ideal position to trade up. Since inventory below the conforming range is selling quickly and homes outside conforming price ranges have languished, sellers may be in a position to aggressively negotiate.

If you’re buying, the key word is preparation. Be ready with your financing paperwork and get pre-qualified for your loan and show your have adequate cash reserves. In multiple offer situations, lenders and sellers respond best to buyers who have financing in place and ready to go. See www.hslca.com for more details and financing options.

Advice for Sellers: Homes in the conforming ranges are selling faster than they can be replaced in inventory. If you’ve been holding your home off the market for better terms, now’s the time to take advantage of a wider pool of qualified buyers.

For sellers with homes above conforming price ranges, price your home to sell. The larger the inventory, the less chance your home has to find the right buyer unless you price your home attractively.

12.01.09

Prudential California Realty Market Summary

San Diego County is enjoying a heated seller’s market* in homes priced in the conforming loan ranges. There are 2.1 months of inventory on hand for homes priced below $1 million, while homes priced above $1 million are in a buyer’s market beginning at 13.3-months of inventory on hand.

Orange County is enjoying a heated seller’s market* in homes priced in the conforming loan ranges. There are 2.0 months of inventory on hand for homes priced below $1 million, while homes priced above $2 million are in a buyer’s market beginning at 17.0-months of inventory on hand.

Westside L.A. is enjoying a heated seller’s market* in homes priced in the conforming loan ranges. There are 4.2 months of inventory on hand for homes priced below $1 million, while homes priced above $2 million are in a buyer’s market beginning at 13.2-months of inventory on hand.

San Gabriel Valley is enjoying a heated seller’s market* in homes priced in the conforming loan ranges. There are 2.8 months of inventory on hand for homes priced below $1 million, while homes priced above $3 million are in a buyer’s market beginning at 9.2-months of inventory on hand.

The San Fernando Valley is enjoying a heated seller’s market* in homes priced in the conforming loan ranges. There is less than two months of inventory on hand for homes priced below $1 million, while homes priced above $1 million are in a buyer’s market beginning at 9.6-months of inventory on hand.

Ventura County is enjoying a heated seller’s market* in homes priced in the conforming loan ranges. There are 1.7 months of inventory on hand for homes priced below $1 million, while homes priced above $1 million are in a buyer’s market beginning at 10.6-months of inventory on hand.

Santa Barbara County is enjoying a heated seller’s market* in homes priced in the conforming loan ranges, but homes priced above $1 million are still in serious oversupply. There are 5.2 months of inventory on hand for homes priced below $1 million, while homes priced above $1 million are in a buyer’s market beginning at 17.9-months of inventory on hand.

Santa Maria and the Santa Ynez Valley are enjoying a heated seller’s market* in homes priced in the conforming loan ranges. There are 4.2 months of inventory on hand for homes priced below $1 million, while homes priced above $2 million are in a buyer’s market beginning at 13.2-months of inventory on hand.

*A balanced market is widely accepted as having six month’s of inventory on hand with market conditions that are favorable to both buyers and sellers. A buyer’s market is characterized by conditions such as high inventories, falling prices, concessions by sellers, among other indicators. A seller’s market favors sellers with conditions including low inventories for buyers to choose from, rising prices, and multiple offers from buyers.

10.08.09

Southern California Market Snapshot

Santa Barbara Real Estate

As of September 2009, Santa Barbara is in a blistering seller’s market in all price ranges, with between 1.0 and 1.6 months of inventory on hand in all homes priced $899K or below. Only 3.8 months of inventory remain for homes priced $900K or above. That’s the least inventory available for sale in any market in Southern California. The number of homes for sale has more than doubled from 98 in July to 244 in August 2009, as sellers take advantage of the market. Even with more listings, there were 431 closings. Homes are being absorbed faster than they enter the market.

Ventura Real Estate

Ventura County is in a blistering seller’s market in homes priced at $899K or below, with between 0.9 and 5.7 months of inventory on hand as of September 2009. Since January 2009, more homes have entered the Ventura market than have been sold, but the sales pace is close, except for luxury homes in the highest price ranges.

San Fernando Valley Real Estate

The San Fernando Valley is one of the healthiest seller’s markets in Southern California with 1.8 to 5.1 months of inventory on hand in homes priced at or under $899K. And homes priced $900K or above are in a buyer’s market, but well below other regions with 10.3 months of supply on hand. For the first time in over a year, more homes were sold (3,992) than listed for sale (3,719) in August 2009.

San Gabriel Valley Real Estate

The San Gabriel Valley is one of the hottest seller’s markets in Southern California, with between one and five months’ inventory in every price range. Homes priced above $900K are selling nearly as quickly as homes priced $700K and lower. This means the number of listings sold is outpacing the number of listings on the market. In August 2009, 1,705 homes were sold in the San Gabriel Valley, while only 638 listings remained on hand.

LA Westside Real Estate

The Westside is currently enjoying one of the healthiest housing markets in years. Homes in affordable conforming loan ranges are in a seller’s market with six months’ supply on hand or less. A balanced market is usually considered to be about six months’ of inventory. The market has absorbed the excess inventories of homes from January through August, at a healthy rate. Currently, 1,861 listings are in inventory against sales of 1,533 units as of August 2009.

Orange County Real Estate

Orange County is one of the fastest-moving markets in Southern California, with a hot seller’s market in homes priced at or under $899K, and only 11 months of inventory on hand in homes priced above $900K. Not since December 2008 have listings been absorbed faster than they enter the market. The number of listings on the market was down to 3,290 in August 2009 from 3,453 in July. Listings sold were up to 3,568 units in August from 3,126 sold in July.

San Diego Real Estate

In August 2009, housing prices were down 23.2% year-over-year, spurring sales 11.9% higher than the previous year. The number of listings available for sale fell from 3,884 in July to 3,312 in August. However the number of listings absorbed fell by more than half, from 3,368 in July to 1,597 in August. Under $600K, San Diego County is in a feverish seller’s market with as little as 1.7 months of inventory on hand for homes priced under $300K. At the opposite end of the spectrum, homes priced above $900K have 22 months of inventory available.

Santa Maria and Santa Ynev Valley Real Estate

Affordable homes are in a seller’s market with less than 3.4 months of inventory in homes priced $399K or under. Above conforming loan ranges in homes priced between $700K and $899K, there is over a year’s supply, and nearly a three-year supply of homes priced above $900K. Homes are being sold faster than new listings hit the market, however. In July, there were 738 listings and 854 were sold. The trend continued in August, with a much lower inventory of 606 homes with nearly one-third more sold - 933 units.

For more details in your area contact your local Prudential California Realty agent. Find an Agent >>

10.01.09

Heated First Time Buyer Market Changes Strategies for Buyers and Sellers

US home prices are up two months in a row, says the Federal Housing Finance Agency, overseer of Fannie Mae and Freddie Mac. The Commerce Department reported that August new home starts (a documentation of construction beginnings) rose 1.5% to an annual rate of 598,000. Building permits rose 2.7% to 579,000. Both figures were the highest since November 2008.

The National Association of REALTORS® (NAR) reports that in July, the number of pending sales contracts signed increased for the sixth month in a row, largely due to affordability and federal and state incentives.

Existing home sales inventories fell 10.8% in August to an 8.5-month supply, the lowest level of inventory since April 2007. However, sales closings slowed 2.7% after four months of rising sales volume.

NAR Chief Economist Lawrence Yun noted that nationwide, the typical mortgage payment for a median priced home now represents less than 25 % of a family’s monthly income. He added that 2009 payment percentages have been the lowest on record since 1978.

California

Home sales volume increased 12% in July compared with the same period a year ago, according to the California Association of REALTORS®. Record affordability and tax incentives were the primary drivers.

July 2009 sales prices in the state declined by 19.6 % to a median of $285,480, compared to $355,000 in July 2008.

As the tax credit draws to an end, sales are rising. Month-to-month sales in July 2009 increased 8.1 % over June, and median prices rose 3.9 % to $285,480 compared to the June median of $274,740.

“July marked the fifth consecutive month of month-to-month increases in the median price,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “This was the largest increase on record for the month of July, based on statistics dating back to 1979. The yearly decline in July also was the smallest in the past 19 months.”

Foreclosures pressure prices

Data Quick Information Systems reports that notices of default in Southern California were up 3.8% year over year in the second quarter of 2009. According to Credit Suisse, 40% of Alt-A loans are due to reset in the next 24 months. Another wave is due to reset in mid-to-late 2010. The majority of those loans are Option adjustable rate mortgages.

First-time home buyers lead the way

About 67% of first-time home buyers can now afford to buy a home in California, compared to 76% of first-timers nationally. Homes priced under $500,000 accounted for 74% of the California market in July — a testament to the strength of the first-time home buyer. As of June 2009, California topped all states with a 10% market share of all FHA lending in the U.S.

Historical comparisons favor today’s housing recession

Surprisingly, California’s current housing correction isn’t as severe as the one the state experienced during the recession of the early 1980s, when housing sales plummeted 61% peak-to-trough between 1978 and 1982. In comparison, housing sales volume sank 44% between mid-2003 and 2007, and has steadily risen since that time.

With improved affordability comes demand. In July 2009, there was at a 3.9-month supply of unsold inventory across the state — down dramatically from a 16-month supply in January 2008.

Advice for buyers:

Cash buyers are making it difficult for other buyers to compete in certain price ranges. Make it easy for the listing agent and the seller by offering a complete package so they don’t have to wonder who you are and whether you can afford the home. In addition to a well-written and complete purchase offer, include the following to show the seller your offer is as good as cash:

A personal letter indicating why you would be a good fit for this home
Pre-approval from a major lender, like HomeServices Lending powered by Wells Fargo. Pre-approval is better than pre-qualification, since it requires verification of your employment, income, credit and other factors.
An earnest money deposit as close to 3% as possible
Proof of funds for the down payment and closing costs
You may also want to consider removing contingencies earlier than called for in the contract.

Advice for sellers: Homes in many price ranges below $750,000 are attracting the most qualified buyers the market has seen in years. However, it’s still a tale of two markets. Homes priced below 750,000 are selling quickly; for those priced above $900,000, the buyer has the advantage. If your property is in this higher price range, it’s critical to set realistic expectations based on market conditions. An experienced agent will help you price your home properly, market it aggressively, and make it easy for buyers to see it.

Introducing Real-Time Real Estate Data.

See your local Prudential California Realty agent for trends in your zip code. In the example below for Irvine California, we can see that new listings coming on the market and new listings sold are nearly equal, indicating a balanced market. Unlike April of 2009 where we can see more listings coming on the market than those sold, indicating a strong buyers market.

Real Estate Market Chart by Altos Research www.altosresearch.com

09.02.09

Prudential California Realty Report Indicates Housing Sales Up for the Fourth Consecutive Month

September 2009 (Irvine, California.) The latest Prudential California Realty report indicates housing sales up for the fourth consecutive month. The month of August began cautiously with mixed economic news, but by the end of the month, the outlook for September housing was greatly improved. The Bureau of Labor Statistics reported that job losses were continuing, but at a slower pace.

Housing continued to improve, largely driven by the first-time home buyer tax credit. The National Association of REALTORS reported that July existing home sales jumped 7.2 % — the largest monthly sales gain since 1999 and the fourth consecutive month of growth. If the current rate of improvement in existing homes remains at a steady pace, from 9.8 months on hand in June to 9.4 months on hand in July, the existing housing market could be balanced (on a national basis) in approximately eight months.

On August 20, the Mortgage Bankers Association announced that mortgage applications were also up, as interest rates crept down to a five-week low, with purchase applications up for the third consecutive week. Among the reasons cited were the success of the first-time home buyer tax credit and price-to-income ratios falling below historical trends.

Momentum in housing sales should continue, spurred by the end of first-time home buyer tax credits on November 30, 2009. With new banking and appraisal rules adding time to the typical closing process, first-time home buyers should open escrow by the end of September if they hope to close on time and qualify for these credits.

Other information cited in the report:

The economy is improving

The worst recession since the Great Depression may be winding down, said The Conference Board on August 20, 2009. The analysts found that leading economic indicators rose 0.6% in July, following a 0.8% rise in June. That’s two consecutive months of improvement halting eight months of declines.

While the indicators can certainly slide backward on new data, serious home buyers should realize the days of wholesale bargains may be numbered. This could explain why California entry-level prices are rising, and luxury home owners are starting to stick to their prices.

Inventory is being absorbed

We appeared to hit bottom during the second quarter of 2009. Since then we have seen a steady rise in closed sales. Existing, or pre-owned, home inventories are being absorbed and are close to a balanced market at 9.4 months of supply. At their highest during the recession, new and existing home inventories hovered at 11 months on hand. A balanced market is approximately six months of inventory on hand.

Average sales prices are starting to rise

Lawrence Yun, chief economist for the NAR, says that improved affordability has driven sales, with first-time home buyers taking advantage of the tax credit. “The demand for foreclosed and lower-priced homes has spiked, and lack of inventory is becoming a common complaint,” he notes. In many Southern California communities, homes priced at or below conforming loan levels have little inventory on hand, allowing sellers to raise prices and entertain multiple offers.

Advice for home buyers:

Since May 2009, Federal Housing Finance Agency appraisal regulations have slowed home sales transactions. The National Association of REALTORS® has found that 76% of its members reported delays in closing.

As the first-time home buyer tax credit comes to a close, banks will be inundated with loan applications for an already narrow production pipeline. Home buyers should allow at least 60 days closing, which puts some first-time home buyer loans at risk of not meeting the November 30, 2009, deadline if they are not in escrow by the end of September 2009.

Advice for sellers:

Price your home for today’s market, not what you think it will do in two or three months. Lenders are very cautious about appraisals.

While demand is picking up, the percentage of foreclosures in the second quarter 2009 was the highest ever recorded by the Mortgage Bankers Association. The trade organization says foreclosures will continue to grow, peaking at the end of 2010 — placing continued pressure on pricing.

To avoid delays in closing, make sure your home is in top repair and you have all your property disclosures ready for the buyer’s inspection. You may see some buyers still waiting for signs of a bottom, but motivated buyers will respond immediately to a well-priced home in great condition.

See your local Prudential California Realty Real Estate Professional for additional trends in your area. Find an Agent >>

09.01.09

Southern California Market Update from Prudential California Realty

Santa Maria and Santa Ynez Valley Overview

Santa Maria and Santa Ynez Valley areas are in a heated seller’s market in homes priced under $599K, while luxury homes priced above $900K remain in a buyer’s market with 24 months of inventory on hand.

Santa Barbara Overview

Santa Barbara is showing improved sales in many price ranges, while inventories of luxury homes priced above $999K are among the largest in Southern California.

Ventura County Overview

Ventura County is in a seller’s market in homes priced under $899K. Homes under $500K have less than three months of inventory on hand, and homes under $300,000 have one month of inventory.

San Fernando Valley Overview

The San Fernando Valley is in a seller’s market, with as little as 2 months of inventory on hand in some price ranges. Only homes priced above $900K are selling more slowly at nearly 11 months of inventory on hand.

San Gabriel Valley Overview

The San Gabriel Valley is in a heated seller’s market in all price ranges, including luxury homes priced above $900K, where there is only a 6.8 months of supply, among the slimmest inventories in Southern California.

Westside LA Overview

The Westside LA housing market is heating up in nearly all price ranges, including luxury homes priced above $900K, where supplies have steadily diminished in the first two quarters of 2009.

Orange County Overview

Orange County is enjoying a seller’s market in affordable homes priced below $899K. Only homes priced above $900K are selling more slowly at nearly 13 months of inventory on hand, but that is far from the highest inventory in luxury homes in Southern California.

San Diego County Overview

San Diego County is enjoying a seller’s market in affordable homes priced below $799K. Only homes priced above $900K are selling more slowly at 17 months of inventory on hand.

See your local Prudential California Realty Real Estate Professional for additional trends in your area.

08.07.09

Latest Prudential California Realty report reflects cautious optimism on economic recovery

August 7, 2009 (Irvine, CA) - The latest Market Conditions Report from Prudential California Realty suggests an economic recovery - albeit a very gradual one - may be on the horizon. The report cites recent national and state data that suggest a glacially paced slowing of the recession. With the national unemployment rate at 9.5% and over 1.5 million properties in some stage of foreclosure as of July 1, 2009 (Realty Trac), consumer confidence in a housing recovery is hesitant, and people are hungry for good news. One positive sign: existing and new home sales are up.

Other information cited in the report:

Existing homes
The National Association of REALTORS® reported a third consecutive rise in monthly existing home sales in June 2009. Affordability and incentives are driving the climb. The median national home price is $181,800 - 15% lower than a year ago. Home inventories are now at 9.4 months on hand; according to Lawrence Yun, chief economist for NAR, price stabilization occurs at about 7 months on hand.

New homes
The Commerce Department reported new home construction was up 3.6% in May after a disappointing low in April. At an annual pace of about 582,000 housing units, building is still well below the rate needed to serve new household formations and replace dilapidated structures (about 750,000 to 1.2 million units annually). Builder confidence is also up, as firms sell off the overstock of homes built during the housing boom.

The best news is that demand for housing is increasing. While most of the action is in the affordable ranges, spurred by the first-time home buyer tax credit, luxury homes are also selling faster.

California
In California, one out of every 34 homes is in the foreclosure process. This is keeping the pressure on housing prices; they're the closest to the national median they've been since 2002, before the housing boom. In many communities, home prices have reset back to the halcyon days of 2000.

Renewed affordability and the opportunity to buy a better home for less have galvanized home buyers. In May, the California building industry reported the year's fourth month of improved sales volume. Existing home sales have improved month-over-month for a year, says DataQuick. June 2009 home sales showed a 25% improvement over June 2008.

Many Southern California markets are reporting new life in sales of luxury homes priced above $900,000, and as few as two months' inventory on hand of homes priced below $300,000. From May to June 2009, the median home price lifted 7%, from $230,000 to $246,000.

Nonetheless, the housing recovery is unlikely to overheat. The lending industry, reluctant to avoid the excesses that precipitated the housing boom and bust, has adopted stricter regulations for approving mortgage loans.

HVCC: Effective May 1, 2009, Home Valuation Code of Conduct rules limit the influence banks can have on appraisers. This new oversight ensures more accurate and fraud-resistant appraisals, making loans purchased by Fannie Mae and Freddie Mac less likely to default.
HERA: Effective July 30, 2009, the Truth in Lending Act was amended by the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA). These amendments include the Mortgage Disclosure Improvement Act, which regulates disclosures and the timing of fees to home buyers.

While the impact of these regulations is intended to be positive, real estate professionals are reporting that the detailed rules are causing delays and costing consumers more money. In addition, many lenders are applying the new rules to FHA government-insured loans, even though the HVCC rules apply only to loans intended for resale to Fannie Mae and Freddie Mac.
Among the changes home buyers can expect, according to the Prudential California Realty report:

The earliest any home transaction can close is seven business days after the lender issues initial mortgage disclosures to the buyer. (Saturday counts as a business day for disclosures only.)
The lender may not collect any upfront fees except those required to generate a credit report until the buyer has been issued the initial mortgage disclosure.
The home buyer must receive a copy of the bank appraisal at least three business days prior to closing.
Home buyers must be notified at least three business days before closing if the Annual Percentage Rate (APR) increases by more than .125% over the initial Truth In Lending disclosure. The APR is the true cost of the loan to the consumer.

The report added that according to HomeServices of America, there are a number of reasons the APR may differ from the original TIL disclosure, which can cause delays in closing.

Unlocked rate
Change in loan amount
Product change
Rate relock due to market improvement
Change in closing date
Changes in fees, including settlement agent fees

Advice to home buyers:
Lock in your interest rate and fees before you start shopping for a home. Extend your lock from 30 to 45 days. Allow ample time for the lending process when you choose a closing date.

Advice to sellers:
Be patient with your buyer's lending process, and prepare to be flexible with the closing date.

About Prudential California Realty
With over 3,400 sales associates in 58 offices across Southern California and the Central Coast, Prudential California Realty is the name to trust when buying or selling a home. In 2008, our agents closed more than $12 billion in sales volume and well over 16,000 transactions. As one of the top five brokerages in the nation and the largest company in the Prudential Real Estate international network, we have the resources and connections to protect your interests and make sure your experience is a successful one.
Prudential California Realty is proud to be a member of HomeServices of America Inc., a Berkshire Hathaway affiliate. For more information, visit www.prudentialcal.com

07.03.09

Prudential California Realty Market Report – July 2009

With affordability reaching unprecedented levels nationwide, including Southern California, housing sales are climbing.

The National Association of REALTORS® (NAR) reported the largest jump in pending sales in nearly eight years, largely due to the $8,000 tax credit stimulus for first-time home buyers. (www.prudentialcal.com > Buyers > $8000 Tax Credit) Existing home sales increased 2.9%, reversing a downward trend in March.

The median home price dropped 15.4% from a year ago to $170,200 – the second-largest yearly price decline on record.

The cause for the dramatic plunge is the rise of foreclosures and short sales, which impacted as many as 45% of homes sold. Distressed homes swelled inventories, driving them to 10.2 months on hand, up from 9.6 months on hand in March.

Mortgage interest rates have hovered near or below 5% for benchmark fixed-rate loans for as long as five months, as home buyers took advantage of a trifecta of opportunities: low interest rates, high inventories, and low prices.

First-time home buyers now make up nearly 50% of the market, up from an average of 30%.

Southern California housing outlook improves
Southern California first-time home buyers were joined by investors buying bargain-priced properties, and the sales pace increased for the tenth consecutive month, according to MDA DataQuick.

The percentage of absentee owners in the market, which has stood at 15% since 2000, suddenly jumped to 18.6% in April 2009.

For the seventh month in a row, Southern California foreclosures accounted for more than 50% of sales, bringing the median sales price down from the first quarter of 2009. Foreclosure sales were notably higher inland than along the coast, and builders added little inventory due to heavy competition from distressed homes.

Another weight putting downward pressure on the median sales price is low sales volume in the luxury ranges. Inventories of homes priced above $900,000 — out of conforming loan range — are at an 18-month high, while many communities have less than two months’ inventory of homes priced under $300,000.

“Jumbo” mortgages – those above $417,000 — are harder to get. Although conforming loans can be obtained up to $730,000, the relatively high cost of living in Southern California meant that only 10.9% of homes sold in April were purchased with jumbo loans. Before August 2007, when the credit malaise began, nearly 40% of Southland sales were in the jumbo range.

Nonetheless, overall home prices across California increased 1.4%. The median price rose to $256,700. Home buyers should be delighted that despite rising prices, homes are still priced 36% below 2008 levels, according to the California Association of REALTORS®. Prices are rising on volume of sales, which is up almost 50% for the same period.

The takeaway: buyers may find declining prices in some price ranges and accelerating prices in others.

Tax credit update
With five months left on the federal tax credit for first-time home buyers, the credit is expected to continue fueling entry-level home sales.

Mortgage interest rates still a bargain
Ideal home buying conditions don’t last for long. Currently, home buyers enjoy tax benefits, low prices, generous selections and low mortgage interest rates — but it’s inevitable that one or more of these conditions will change.

Mortgage interest rates are already beginning to climb, reaching 5.6% for the week ending June 11, 2009. That’s still well below a year ago, when they averaged 6.32% — so current rates should be more than attractive to home buyers, particularly in view of lower home prices and greater selection.

Home buyers who are concerned about rate increases would do well to look at Freddie Mac’s historical table on benchmark mortgage interest rates.

Between 1972 and 2008, mortgage interest rates have seen an annual high of 16.63 with 2.2 points and an annual low of 5.83 with 0.6 points. (Discount points are the percentage of the loan the lender charges to provide a given rate.) From a historical perspective, there has not been a single year since 1972 when interest rates have been lower than they are right now.

And a rise in interest rates can be negated by lower home prices. Here’s why.

If interest rates rise 1/8th of a point, that translates to about $25 or less a month in monthly payments on a conforming loan, and $9,000 over the full term of a 30-year loan. But if a home buyer pays $9,000 less for a home, these higher interest costs are negated.

For example, if home prices have sunk by 15% over the past year, home buyers are paying $15,000 less, or $85,000, for a $100,000 home. They’re paying $60,000 less, or $340,000, for a $400,000 home. That 1/8th point rise in interest rates is negligible compared to the opportunity to buy a home at a 15% discount.

This explains why mortgage interest rates and home prices don’t always rise or fall in tandem — and if they do, it’s not for long. As home buyers rush to take advantage of mortgage interest rates and other stimuli, lenders reach their capacity to provide loans, and interest rates inevitably rise.

Advice to home buyers: Be ready to make your move by prequalifying with your lender. If interest rates move up before you’ve locked in your rate, make sure you still qualify for the home by requalifying. To lock in your rate, you must be preapproved, which means you’ve shared your financial information with your lender.

Advice to home sellers: Price it right the first time. With first-time home buyers dominating the market, a home in move-in condition will always sell faster than one that needs updating. If you have a higher-priced home, your home has to be in better condition and better priced than your competition.

Santa Maria
The Santa Maria housing market is a tale of extremes. Homes in the conforming loan price ranges (up to $417,000) are in a seller’s market with as little as 2.6 months of inventory on hand for homes priced under $300,000. Mid-priced homes (up to $730,000 for jumbo conforming loans) are in a buyer’s market. Luxury homes priced above $900,000 are in a buyer’s market, at 26 months of inventory on hand as of June 3, 2009.