04.27.12
Recent sales trends are stronger than usual
With consumer confidence at the highest level in over a year, the outlook for late spring home buyers is growing increasingly positive.
“Recent sales trends are stronger than usual with sales in major metropolitan areas such as Los Angeles, Orange County and San Diego all logging double-digit gains from the previous year,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “Recent encouraging signs in the GDP, employment picture, and consumer confidence suggest that a growing economy is in the making. All this, combined with continued-low mortgage rates, lays out a good foundation for the housing market to continue to grow as we enter the spring home buying season.”
According to the Thomson Reuters/University of Michigan’s latest reading, consumer confidence in March was well above economists’ forecasts, due to “favorable income and job trends” offsetting bubbling gas prices.
As a precursor to future consumer spending, confidence is a widely watched economic indicator. Consumer spending accounts for approximately 66% of gross domestic product.
More than one-third of families reported that they were in a better financial position than at any time in the previous four years, and over 38% said job conditions had improved.
Jobs are the most important variable in housing; while the number of new jobs added in March was fewer than in February, more jobs were added by private sector employers. At the end of March, unemployment shrank to 8.2%, said the Labor Department.
Housing is already benefiting. By early April, mortgage applications had risen for seven consecutive weeks. Applications for conventional loans were up over 10%.
The number of national foreclosures dropped in February from the previous month and the year before, says Corelogic.
“With the spring buying season upon us, the inventory may decline further as the pace of distressed-asset sales rises along with the rest of the housing market," said Mark Fleming, chief economist for CoreLogic. Distressed properties still make up more than half of homes sold in California.
According to Dataquick, the Southland housing market posted “the highest number of February home sales in five years.” Record levels of “investor and cash buyers” poured into homes priced under $300,000. Across six Southern California counties, the median price paid for homes edged up from January, but prices were held under the previous February by a high percentage of distressed homes in the mix.
Because of shortages in many areas, with as little as one to two months’ supply on hand, sales volume has risen six out of the last seven months in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.
The result is multiple offers and higher asking prices in homes under $300,000, as transactions rose nearly 10% compared to the year-ago period.
Sellers of entry-level and affordable properties are seeing prices rise, but generally, prices are rising for mid-priced or upscale homes, except in pockets of some communities. Median prices are up 1.8% from January 2012, but 3.7% below year-ago levels.
As long as distressed sales dominate the market, prices will stay in check, but what makes it a great time to buy a home is such low prices coupled with low interest rates, which have hovered at or below 4% for benchmark 30-year fixed rate loans for months.
Advice for buyers: Pre-approval for your home loan has never been more important! Nearly 33% of home buyers paid cash last month. To compete, buyers needing a mortgage must be prepared. Talk to one of our knowledgeable HomeServices mortgage (www.hslca.com) advisors for assistance to help yours be just like a cash offer.
Advice for sellers: Banks are committed to moving more distressed homes through the pipeline. That will cause prices to remain in check. Be prepared to be flexible with your price if comparables come in low. If you are a seller of a “short sale,” your position has improved. Banks are making it easier to sell short, but you must be prepared with comparable home sales. Ask your Prudential California Realty sales professional to help you negotiate a “short sale” price for your home, so you can market your home with more confidence, knowing the bank will approve.
04.01.12
Americans more optimistic about home ownership
Americans are much more optimistic about home ownership than they were a year ago, according to the second annual Prudential Real Estate Outlook Survey. Eight in 10 respondents said home ownership is very important to them.
The survey also found that despite the recession, home ownership is still central to the American dream:
- With interest rates at historically low levels, 96% agree or somewhat agree that now is a good time to buy.
- A full 70% of respondents have some degree of confidence that property values will improve over the next two years; there was an 8-point increase in those very confident or confident compared to last year.
- 63% believe that real estate is a good investment despite the recent market volatility; that’s up 11 points from last year.
One of the most heartening responses in the survey concerned the strong ties between home ownership and the community; 77% of respondents agree that home ownership strengthens a sense of community. Nearly half of Gen Y respondents said a sense of community makes home ownership more important. Gen Y’ers are particularly optimistic about the road ahead with 72% expressing favorable views about the residential real estate market.
Across all generations, 94% of respondents believe that finding the right home and community are crucial to helping their family be happy.
Concurrently, a recent survey by the National Association of Builders also found that most people want to be home owners. 78% of home buyers likely to vote in the presidential election said that “owning a home was one of the most important things in their lives.” And 74% said that owning a home was “worth it,” despite the volatility in housing over the last few years.
Nationwide, optimism is resulting in rising housing sales over three consecutive months, with inventories at a 6.1-month supply. According to the NAR, “normal” levels are between 5.2 months and 6 months’ supply on hand.
“Given more favorable housing market conditions,” said NAR chief economist Lawrence Yun in a statement, “the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”
Housing inventories are down even more in California, where the supply on hand was 5.5 months, up from 4.1 months in December 2011. The gain in January inventories is seasonal, notes C.A.R., well below the 6.8-month supply in January 2011.
The number of foreclosures and short sales in California still remains high, more than 50% of the market. Prices are still suppressed, which is attracting investors and entry-level buyers. Where prices are declining while sales volume is increasing, more buyers are pouring into investment-grade and entry-level price points. Statewide, prices are averaging 46.7% below the peak set in Q1 2006.
Lender Processing Services found that by the end of 2011, delinquency rates were down, and California is no longer among the states with the most mortgage delinquencies, despite having the second-highest unemployment rate.
While most of California began 2012 with lower sales volume and prices, Southern California sales volume rose a marginal 0.4% year-over-year, the fifth consecutive rise in five of the last six months, says DataQuick.
Affordability is fast approaching a record, with median home prices at about $260,000, down 3.7% from the previous year. The lowest median price for the Southland was $247,000 in April 2009, and well below the $505,000 median of June/July 2007.
Prices reflect not only a decline in home values in the last five years, but also buyers that are choosing less expensive homes to purchase, including gravitating toward “inland foreclosures” to obtain bargains.
Foreclosures, says DataQuick, made up 32.6% of resale purchases in January 2012, while short sales were 21.3% of resales – the highest level in recent history.
The silver lining there is that lenders are approving more short sales, which prevents many homes from going into foreclosure and neglect.
Non-occupying home buyers purchased a record 26.8% of homes for sale in Southern California, with a near-record 31.4% paying all cash and a median of $199,000. The 10-year monthly average for cash buyers is 15.1%. Low-down-payment FHA loans accounted for 31.2% of purchase loans in January 2012.
About 16% of homes sold in January were for $500,000 or more, above the cyclical low of 13.8% in January 2009, but well below the 10-year average of 27.2%.
Southern California home buyers committed to a typical mortgage payment of $983 – the lowest on record since May 1999. Adjusted for inflation, it’s the lowest payment on record since 1988.
Lower prices coupled with near-record interest rates means that housing affordability in Southern California is the best it’s been in decades.
Advice for buyers: Competition from cash-paying investors is stiff because they can close quickly. Buyers should be prequalified by a lender so they can offer more and shorten the loan approval process. For buyers of more expensive homes, negotiating skills are more important than ever. Buyers should work closely with their Prudential California Realty sales professional to utilize their market knowledge before they make offers.
Advice for sellers: Lenders carefully consider comparables as well as days on market in determining their risk. While sellers in certain price ranges may see their home values rising, they should not price their homes too far above the latest comparables. Sellers of higher-priced homes may find that long days on the market are hurting home values, because prices inevitably decline when supply exceeds demand. They should price below the market and work with their Prudential California Realty sales professional to utilize their market knowledge before they choose a list price for their home.
03.01.12
March 2012 Prudential California Realty
Local Housing Supply Reveals Shortages in Some Price Ranges, Areas
One thing about the housing market is that it never stays the same. For the first time in months, or maybe years, the outlook for spring is overwhelmingly positive and bullish for housing.
A frequent featured guest on major networks, Ron Peltier is CEO of HomeServices of America, the second-largest real estate group in the nation. He commented that “The year 2012 will be a transformational year from correction and continued distress to stabilization and minimal recovery, and slow, steady growth going forward.”
He believes that the U.S. population is growing at approximately 3 million households a year, yet we are currently forming half that number. This means pent-up demand for home ownership as the costs to own drop below the cost to rent in many areas.
“Home prices have corrected to 2002 levels,” said Peltier. “Affordability for home buying is now at an all-time high. Today’s home values are realistic and when looking at the low interest rates and the overall economics of ownership, the monthly cost to own a home today is the same as it was in 1981.”
In addition to unprecedented affordability, other good news is making buying a home easier:
- FHA government-guaranteed loans were restored to higher temporary borrowing limits, already resulting in more sales volume in high-cost areas such as Southern California
- National unemployment rates dropped to 8.4%
- Banks approved more short sales and foreclosure write-offs, allowing stagnant inventory to move through the pipeline
- Mortgage interest rates reached new record lows
But wait – aren’t prices supposed to fall further? Don’t count on it in Southern California.
According to the California Association of REALTORS®, the median price of an existing, single-family detached home rose 1.8% to $285,920 in December 2011, up from $280,960 in November. Sales volume has risen for three months in a row to the highest level in a year. Year-over-year, sales are up for the sixth year in a row.
Dataquick found that housing sales surged in December in Southern California, with activity strongest in homes priced under $300,000 and sold to a record share of “absentee” buyers. Counting new and resale single-family and condo sales, volume was up 14.0% over November, slightly more than the historical 13.2% increase between November and December.
By price segment, luxury homes lost the spotlight to entry-level homes, which leapt 5.9% in transaction volume, bringing the median price down to $270,000 from $275,000 in November. Distressed homes accounted for 52.5% of Southland resales.
Non-occupying home buyers – investors and second-home buyers – purchased a record 26.4% of homes sold in December. Cash buyers purchased one-third of all homes, and paid a median price of $202,500.
Southland home buyers committed to the lowest monthly mortgage payment since January 1988, an affordable $1,026, down from $1,049 in November and $1,205 in December 2010. Adjusted for inflation, payments are 55.8% lower than they were in 1989 and 63.8% lower than they were at the most recent peak, July 2007.
Clearly, these data are offering buy-now signals, as well as sell-now signals, particularly for underwater home owners. But it’s not enough to know whether home prices are up and down, it’s also important to know why the data are changing, and whether that data is relevant to your situation and your goals.
That’s where the importance of local data from your Prudential California Realty real estate professionals comes in. You may be surprised to learn that prices aren’t falling in your neighborhood, or in your price range. It all depends on supply.
In California, and especially Southern California, there is such demand for affordable traditional homes that there are real shortages developing in many areas. Investors, cash buyers, and first-time home buyers are all seeking affordable traditional homes.
For example, detached homes under $300K are selling as fast as they can close.
Orange County – detached homes – 3.1-month supply
San Diego County – 2.4-month supply
San Fernando Valley – 2.2-month supply
San Gabriel Valley – 1.9-month supply
Santa Barbara County – 2.2-month supply
Santa Maria and the Santa Ynez Valley – 2.2-month supply
Southwest Riverside – 3.3-month supply
Ventura County – 2.2-month supply
Westside Los Angeles – 3.4-month supply
And there are shortages in other price ranges besides entry level. Due to the restoration of higher loan limits in high-priced areas, Westside Los Angeles has only a 2.8-month supply of homes priced $600K to $699,999. Santa Barbara has only a 2.1-month supply of homes priced $500K to $599,999. The San Gabriel Valley has only 2.8 months’ supply of homes between $700K and $799,999.
Attached homes are also selling rapidly. The San Fernando Valley has only a month’s supply of condos and townhomes priced $700K and above. Southwest Riverside has less than two months’ supply of condos and townhomes – at any price.
To obtain the most recent sales data for your area, contact your local Prudential California Realty sales professional.
Advice for buyers: If you’ve been on the fence, 2012 is the year to take action.
Advice for sellers: In most markets and price ranges you can put your home on the market with confidence.
02.19.12
February 2012 – Prudential California Realty Market Report
As housing conditions slowly improve, buyers and sellers could be surprised by a different market than in recent years.
Inventories are down, prices are lower, interest rates are at record lows, and the “shadow” inventory of distressed homes is receding.
In other words, housing is stabilizing, and that counts as a vast improvement compared to the last five years. Depending on your point of view, housing could be at the beginning of a market rally, or it could continue to bump along with only modest gains in sales volume and prices.
The California Association of REALTORS® reported that the increase in home sales for November 2011 was the fifth consecutive month of year-to-year sales increases across the state. Not only were housing sales higher than the previous month, they were higher than the previous year.
Yet housing sales and prices remain below normal levels, largely due to factors outside of buyer demand. The lowering of temporary federally insured loan limits on Fannie Mae and Freddie Mac-bound loans impacted the sale of higher-end homes, particularly in high-cost areas such as Ventura, Orange County, Santa Barbara and other areas.
Fortunately, the higher loan limits have since been restored to $729,500 in many areas, so sales figures going forward should illustrate why it’s a good time to buy a home in Southern California.
In addition, many banks are facing lawsuits and demands for restitution over fraudulent loans they sold to Fannie and Freddie. This explains the huge reluctance of banks to lend money to anyone except those with near or perfect credit and credit scores of 720 or above.
Despite such headwinds, pending sales climbed higher than a year ago, but the best news is that equity sales (homes not sold under distress of missed payments, foreclosures or short sales) rose to 55.1% of the market in November, up from 53.9% in October and 54.4% a year ago.
Another positive trend is that short sales were 21% of total sales, up from 19% a year ago. Banks are more willing to work with distressed sellers than take them through the foreclosure process.
According to Dataquick, Southern California home sales have increased for four consecutive months, less than the NAR’s statewide average. It was a tale of two markets. While transaction volume rose 6.1% in November 2011 for homes priced under $400,000, sales of $500,000 and above fell nearly 16% from a year ago. Sales of homes $800,000 and above fell 17.6%.
Investors – nearly 25% of Southland home buyers – and buyers are pouring into homes that can be purchased within conforming and conventional loan limits up to $417,000, which could create a seller’s market not so much by area, but by price range. The number of short sales that were purchased rose, while foreclosures declined, again a slight improvement toward shifting inventories away from the domination of distressed homes as opposed to equity homes – those sold with no financial encumbrances by the seller.
These are the kinds of reports that are improving inventory levels, which will eventually lead to more stable prices.
So what does 2012 hold in store for buyers and sellers? At Prudential California Realty, we believe that the trends mentioned in this report will develop further in the directions they are already going:
1) The number of home sales will continue to rise;
2) Inventories will increase, mostly due to a rise in foreclosures, but they will be absorbed quickly in the affordable price ranges;
3) Distressed properties will make up half of all sales as more sellers sell short;
4) An improved short sale process will emerge to help more home owners avoid foreclosure; and
5) Foreign and domestic investors will buy 25% of homes.
In these market conditions, look for buyers of affordable homes to see their equity building faster in 2012, while high-end home buyers may obtain some of the best bargains in recent years.
Advice for buyers: Lenders are closely watching housing sales in every price range and may use appraisal algorithms that adjust for the rate of declining prices. Buyers should carefully consider recent comparables when making offers for homes. That means that the home as well as the buyer must qualify for the borrower’s loan. To learn more, contact your mortgage professional at HomeServices Lending.
Advice for sellers: For sellers of high-end homes, the number of people who would have purchased using a federally insured loan has dropped by about 14%. Cash buyers are kings, and may demand additional discounts. Carefully consider competing homes and prices when pricing your home for sale or negotiating terms with a buyer. To learn more, confer with your Prudential California Realty sales professional.
01.19.12
January 2012 Prudential California Realty Market Report
New Year Begins in Optimism
Rents have risen 4% while home prices have fallen by about the same amount in 2011, according to Zillow. New jobs and falling home prices are impacting rent prices. That means that in many areas, it is more affordable to buy a home than to rent. Adjusted for inflation, the amount home buyers in Southern California are paying for their mortgages is less than at any point in the last 15 years.
California recently reported the second-largest month-over-month increase in employment gains in the nation. Many counties reported unemployment rates below 10%, including Orange, Santa Barbara, San Diego and Ventura counties. In Orange County, employment gains were the highest since spring 2009. The best news comes from San Diego, where job growth is 3.0% compared to 2.2% statewide.
The job picture is improving, but previous job losses continue to be reflected in the high numbers of distressed homes for sale more than half of housing sales in October, says the California Association of REALTORS® (C.A.R.).
Ron Peltier, CEO of HomeServices of America, says there’s a “silver lining” banks are shifting their strategies from foreclosures to short sales and involving the home owner. “It’s less costly, more efficient and a better solution to a bad problem,” he told Fox News in December.
Foreclosures are about 34.1% of the market, down from 36.7% the previous year, and well below the all-time high of 58.5% in February 2009. Short sales are about 19.5% of resale homes, up from 18.2% a year earlier, but the good news is that more banks are selling their way out. The figures show that banks are more willing to work with sellers to sell their properties at a loss rather than risk new additions to foreclosure inventories.
Year-over-year, median prices for MLS-listed homes across the state fell 8.9%, from $305,150 to $278,060, making affordability the best in nearly three years. Couple that with record low interest rates and you have a tremendous buying or investment opportunity. Confirmation? Both existing home sales and pending home sales were recently up 8.5% while pending sales were up 10.7% from a year ago. Inventory has dropped as well; single-family detached home inventories were recently 5.3 months of supply, down from 6.2 months’ supply.
Higher conforming loan limits for FHA loans up to $729,750 have been extended through 2013. While less than one in five loans in California is FHA-guaranteed, look for that number, along with prices, to rise in 2012 if Fannie Mae and Freddie Mac don’t restore higher conforming loan limits.
Advice for buyers: In many price ranges — not all — inventories are being absorbed and prices are stable to slightly rising. Mortgage loan limits and restrictions are easing. Interest rates are still at near-record lows. These are ideal buying and investing conditions. Choose the home you buy wisely — one that is well within conforming loan requirements and has a location and features that will serve your household’s needs for years to come.
Advice for sellers: It’s even more challenging for home owners to compete in today’s market. The worst mistake a seller can make is to overprice a property. You’re better off pricing low — or using Prudential Value Range Marketing — to attract more interest. Let your real estate professional show you the most current “comparables,” based on the latest appraisal guidelines from lenders. It doesn’t matter what your neighbor’s home sold for four months ago if your buyer’s bank appraiser isn’t allowed to use it as a comparable.
Remember that your buyers and their agents will be using the same search parameters and comparables. They can instantly compare homes online and determine if your home is a good buy or overpriced compared to other similar homes.
Pricing your home is only half the battle. You also want to make sure the home closes. Don’t wait for the buyer’s home inspection get one of your own in advance so you can fix trouble spots and make your home more attractive by comparison to other homes. Proper disclosures generate more trust from buyers if they see your inspection report and the steps you took to fix problems so they won’t have to deal with them.
12.19.11
December 2011 Prudential California Realty Market Report
Opportunities for Home Buyers and Investors
The numbers tell the story. California and Southland housing market conditions are creating great opportunities for home buyers and investors.
Housing sales for 2011 are on track to parallel the volume achieved in 2010, when half the year’s sales were boosted by federal and state incentives. In fact, unsold inventories are at 5.1 months on hand, well below the 5.9 months on hand in September 2010.
The California Association of REALTORS® says that September 2011 home sales were higher for the third consecutive month and are at “stable levels.” Pending sales, or contracts yet to close, were up year-over-year for the fifth month in a row.
September 2011 housing sales volume was 6.7% higher than the previous year, according to DataQuick. The median-priced California home was $249,000, down from $265,000 a year ago.
That’s close to the April 2009 low of $221,000 but well off the early 2007 peak of $484,000.
Opportunities for first-time, move-up and investment buyers
Month-to-month sales prices were down statewide by 3.2% due largely to the high levels of distressed homes and the lowering of temporary conforming loan limits.
Foreclosures accounted for more than 34.2% of the market across the state, while short sales made up 17.8% of sales volume in September.
With 52% of the housing market in distress as of Q3 2011, prices are falling despite a 0.3% increase in demand, as distressed homes typically sell at a significant discount compared to other homes.
First-time home buyers and lower income borrowers are cashing in with conforming loans requiring relatively low down payments. FHA loans in the Southland were 32.5% of purchase mortgages in September 2011, up from 31.8% in August.
Lower conforming loan limits negatively impacted high-priced areas in California. Homes priced $500,000 and above were 19.8% of the market, down from 20.1% in August and 21.6% a year ago.
But the effect wasn’t nearly as devastating as expected. In September 2011, “jumbo loans” were 17.8% of the market, up from 17.2% in August and well over the 10% low set in early 2009. That’s positive for move-up buyers, who are looking to buy into a better cost-to-value home than they may currently own. Dataquick found that mid- to high-end homes are “normal, compared with recent history at 37.1% of the market, just over the 10-year average of 36.8%.”
Low prices are attracting investors in record numbers. Investors purchased 29.7% of foreclosed homes at auction, said DataQuick in a foreclosure report. But the door may be closing on that opportunity – notices of default in Southern California were 15.2% lower and homes lost to foreclosure were 15.7% lower in Q3 2011 than they were in Q3 2010.
Many investors are snapping up homes without paying for a mortgage – a whopping 59% of non-occupying home buyers paid cash for homes in September 2011.
Those buyers who did take out a mortgage found their payments lower – $1,084, down from $1,101 in August and $1,177 in September 2010.
By the first week of November 2011, mortgage interest rates dropped to 4%, and welcome news that the economy grew by a modest 2.5% in Q3 2011 has made home buying conditions even more attractive.
By any measure, it’s a great time to buy a home, especially in Southern California.
11.19.11
November 2011 Prudential California Realty Market Report
It’s All About YOU!
Like the rest of the nation, California housing sales are rising on unprecedented affordability. The combination is thrilling for home buyers and investors – prices are still well below peak levels and interest rates are at record lows.
Price gains are small, but steadily improving. August 2011 housing sales volume was 8.6% higher than July and 10.2% higher than a year ago, according to the California Association of REALTORS®.
Median prices were the highest since December 2010. At $297,060, that’s over 20% higher than the February 2009 trough of $245,230, but well enough below the 2007 peak of $594, 530 to keep buyers interested.
The news for Southern California was even better. Home sales were also 8.6% higher in August than July, and 6% higher than a year ago. Sales gains between July and August typically rise 3.4% because families want to move into their new homes before school begins, so an 8.6% increase is significant, according to Dataquick.
By the first week of October, mortgage interest rates dropped below 4% – the lowest rate since Freddie Mac began keeping records in 1971.
That spells unprecedented opportunity for home buyers and sellers. Yet many buyers are waiting for prices or interest rates to go lower, and many sellers are wondering if now is the time to sell their home.
Yes, it’s a great time to buy and sell. For buyers, market conditions couldn’t be better – prices are relatively low and interest rates are at rock bottom, affording more home than ever.
Should you wait? There will always be those who try to “time the market,” but where is the bottom? You only know for certain when it has passed. For example, those who held their breath when interest rates were dipping below 4% the first week of October have already been disappointed that interest rates didn’t go down further. A report that showed more jobs added across the U.S. quickly sent mortgage interest rates above 4% again.
A quick visit to a mortgage calculator will show you this is true:
- For every $100,000 of mortgage with a 30-year, fixed-rate mortgage at 4¼%, your monthly payment will be $491.94 and you’ll pay $77,098.36 in interest over the life of the loan.
- The same $100,000 mortgage at 5% interest costs $536.82, a difference of $44.88 more per month and $93,255.79 in interest over the life of the loan. The difference in interest payments alone is $16,157.43 per $100,000 of mortgage.
Just for argument’s sake, let’s leave out down payments, taxes and insurance and look at a real world and recent example:
- Let’s say that you buy a home in San Diego County for the average sales price of $486,000. At 4.25%, your payment is $2,390.83, and your total interest paid over the life of the loan is $374,698.05.
- If you had purchased your $486,000 home at 4.03% interest, as you could have in the first week of October, your home would cost you $2,328.65 ($62.18 less than at 4.25%) and $352,314.66 over the life of the loan, a difference of $22,383.39.
The question is – did you?
You can do all the math, but the message is the same – it doesn’t pay to wait. No matter how hard you try to see the bottom, there are too many variables in market conditions that change daily.
That’s why we don’t buy homes only for financial reasons. We buy homes to raise our families, be close to friends and relatives, and to be free from a landlord where you get nothing back but cancelled checks at the end of the lease.
Unless you’ve refinanced your home recently, you can sell your current home and repurchase another at a lower overall cost of acquisition than what you presently have.
You come first
To help you have the best home-buying or -selling experience possible, Prudential California Realty equips its agents with the finest tools and closing services, so they can give you extraordinary service. From our affiliate mortgage lender HomeServices Lending powered by Wells Fargo, to our in-house relocation division, to our closing and title services, we provide you with one-touch access to a wealth of personalized services.
We take you through the buying and selling cycle seamlessly:
- Prepare you to buy with a comprehensive consultation on current market conditions, neighborhood and school reports.
- Assist in the load preapproval process so you can shop like a cash buyer. Knowing what you can comfortably afford – purchasing power – empowers you to buy right.
- Negotiate on your behalf and help you navigate through disclosures, inspections and all the other steps to a successful closing
- Help you prepare and market your home to sell
Our agents go above and beyond. Buyers are guided through the market with accurate and thorough personal tours and customized feature sheets for comparing homes. Not only do our agents provide access to industry-leading market trends and statistics, we support our sellers with monthly competitive analysis reports, a consumer video, and our expertise on proper pricing and staging.
The results speak for themselves. Check with your agent, as they most likely outperform the market in:
- Overall average sales price
- Percentage of listings taken versus listings sold
- Sales price to original list price
- Sales price to most recently available price
Last but not least, Prudential California Realty pioneered the Value Range Marketing concept which allows buyers to view a larger pool of homes for sale, and sellers to compete in a broader range of homes. This has changed how multiple listing services handle listings instead of boxing buyers and sellers into narrow price ranges.
No other real estate brokerage can say what we can – that we are the consistent leaders in every market we’re in. That’s how we put you first.
It’s all about you.
10.19.11
October 2011 Prudential California Realty Market Report
Don’t Let Mortgage Myths Scare You
The national average 30-year fixed-rate mortgage after Labor Day was reported as the lowest rate ever recorded in Freddie Mac’s weekly survey. Yet, purchase applications for the same week were the lowest on record since 1996.
What’s keeping home buyers from jumping on such affordable financing?
Fear. Home buyers are spooked by two pervasive mortgage myths – that you have to have 20% down to buy a home and that only buyers with perfect credit can get a loan.
“Neither one is true,” says HomeServices Lending (www.hslca.com) branch manager Michael B. Moses. “People are letting a small percentage of the market frighten them. Yes, we have unemployment, but more than 90% of people are working, and more than 90% of our portfolios are performing.”
Lending requirements aren’t as strict as people think – borrowers are getting loans at great rates, says Moses. Loans are available with as little as zero down through the Veterans Administration, for veterans and active-duty military. And FHA has programs as low as 3.5% down for qualifying borrowers who buy within maximum loan limits, up to $625,500.
It’s also not true that only borrowers with perfect credit can get loans, he says. “Credit scores are a strong indicator of risk for lenders to consider. It’s true that lower credit scores impact the rate a borrower receives,” explains Moses. “For example, a qualified b borrower can buy a home with 5% down (Conventional Conforming), but only with a higher credit score and a low debt to income ratio.”
The rule of thumb is simple – less money down requires a higher credit score and vice versa.
“The credit score will tell you how much money you have to put down and it’s a factor in your interest rate,” continues Moses. “If you put 20% down, you can get a loan even if you have a low credit score of 620. If you have a 740 or 760, the lender may be flexible with less money down.”
Other myths are also out there, such as that lenders are no longer doing stated income loans or jumbo loans. Also not true, says Moses. “We do loans that don’t require a verification of employment income if the customer has a large portfolio of liquid assets.”
The housing market is getting stronger. In fact, there’s rarely been a better time to buy a home. Seldom are prices and interest rates simultaneously at multi-year lows.
The California Association of REALTORS® Affordability Index found that 51% of buyers could afford the median-priced, single-family home in Q2 2011, fewer than the 53% who could afford the median in Q1 2011, but more than the 46% who could afford the median in Q2 2010.
Affordability will be even lower going forward, as FHA extended loan limits expire in October 2011. In Orange County, for example, the qualifying loan limit for Orange County was $729,750, but after October 1, the loan limit will be $625,500. In other words, borrowers who purchase homes outside of conforming loan limits will still be able to get loans, but they’ll pay more for them.
Waiting for interest rates to go lower won’t work, says Moses. “You may think you qualify for the lowest rate, but lenders look at approximately 15 to 20 pieces of criteria, including credit scores, down payments, liquid assets, current employment, debt to income ratios, property defects, and much more.”
You may qualify for a better rate on one criteria, but not qualify on another. That’s where a good lender can make a difference. “When you have a good lender, they will work with you,” says Moses. “If you want a lower interest rate, it may cost you, so don’t look just at the interest rate alone, look at the total costs of buying the home. We are here to consult with you and get you into the loan that’s best for you and your goals.”
The lesson for home buyers is: don’t try to time the market. “The best time to buy is right now no matter what time it is,” advises Moses. “If you find a house you love and you can afford it, buy it. Don’t get stuck on getting the best deal. The cheapest house you’ll ever have is the one you’re buying right now. Start building equity now.”
Advice for buyers: Get prequalified with a reputable lender like HomeServices Lending. A good lender will explain the true costs of borrowing so you can comfortably afford the home you want as well as the monthly payments.
Advice for sellers: Make sure your buyer is prequalified with a reputable lender. If your buyer is paying cash, as one-third of home buyers are doing, you have the right to verify the source of funds.
09.19.11
September 2011 Prudential California Realty Housing Market Report
Turning Myths Into Money: An Insider’s Guide to Winning the Real Estate Game
According to the California Association of REALTORS (C.A.R.), one-fifth of housing sales are short sales – sales in which the seller owes more than their home is valued on the open market.
In C.A.R.’s most recent lender satisfaction survey, 75% of Realtor respondents complained that lenders are making short sales “difficult” to “extremely difficult.”
To assist with short sales, Governor Jerry Brown signed SB 458 into law, a bill that extends the provisions of SB 931 (2010) that any lender that accepts a short sale agrees that the short sale payment pays in full all outstanding loan balances. The significance is that the lender cannot pursue sellers after the short sale closes to pay the difference owed on the original mortgage and the final short sale purchase price. The other aspect of SB 458 is it prevents the lender from requiring any financial contribution (cash, note or any other form of financial contribution) from the Seller/Borrower as a condition of the short sale.
Fortunately for the housing market, foreclosures are declining in California. DataQuick found that foreclosures in Q2 2011 are the lowest since 2007. Notices of default against California homes dropped nearly 20% below the number filed a year ago for a total of 56,633 homes.
The real estate data company also noted that home owners in “more affluent coastal counties” were less likely to default on their mortgages.
In June, pending home sales also rose for the second consecutive month, says C.A.R., making the outlook even more positive for the Southern California market.
The importance of having a good real estate agent in today’s market
It’s more important than ever that home buyers and sellers utilize the training and experience of a good real estate agent.
To help buyers and sellers successfully navigate the complex transaction process, Prudential California Realty agents are continuously trained on the latest laws, regulations and trends taking place every day in the industry. Their knowledge and expertise makes them respected professionals in their communities.
H. Richard Steinhoff, has recently authored a book for buyers and sellers titled Turning Myths Into Money: An Insider’s Guide to Winning the Real Estate Game. The book is already a bestseller, and filled with useful tips for buyers and sellers.
“A good competent Realtor can be invaluable to both buyers and sellers,” advises Steinhoff.
The best way to find a good agent is to get referrals from family and friends. “In addition to the commission, the agent’s incentive is to do well so he will receive more referrals from your friends – and maybe even from you!” Steinhoff says.
Other market myths
Steinhoff’s book offers plenty of market myths that buyers and sellers take as fact. These are just a few of his most surprising myth-busters.
Myth # 16: When shopping for a loan, always take the one with the best interest rate.
Fiction, says Steinhoff. The interest rate is not as important as the Annual Percentage Rate, which is the true cost of the loan and includes the points and fees paid to the lender to acquire the loan.
Myth #17: It’s always best to get a fixed rate loan.
Fiction, says Steinhoff. There are three types of loans, fixed rate and adjustable rate, or a hybrid that includes a fixed rate term that rolls over to an adjustable rate. Fixed rate mortgages are best for first-time buyers, people on a fixed income, or those who plan to stay in their homes a long time. Adjustable rates are best for people with upward mobility, people who plan to stay in their homes only a short time, and those who wish to obtain a larger mortgage.
Myth # 56: Always make a low-ball offer to get the best price
Fiction, says Steinhoff: Low-ball offers offend sellers and make them more difficult to negotiate with. Sometime they won’t even respond.
Myth #77: When selling your home, never take the first offer.
Fiction, says Steinhoff. First offers often turn out to be the best offers because the buyers really like the house and want to move on it right away.
Myth # 78: When listing your house you should always try to negotiate a lower commission.
Fiction, says Steinhoff. If your goal is to get the most money possible, why cut the income of the one person who can make it happen? In addition, the listing agent’s commission is split with the buyer’s agent. Which property is going to get more showings, yours or the property offering full service commissions to all agents?
Myth # 81: It’s hard to get started in investment real estate.
Fiction, says Steinhoff: Start small and work with a real estate agent experienced in investments.
The bottom line is that there are many myths circulating in the market that may be misleading buyers and sellers. Whether you want to buy or sell a home or an investment property, don’t let market myths take you in the wrong direction from your goals.
Pick up a copy of Turning Myths Into Money. Talk with your real estate professional and ask for his or her guidance so you can learn firsthand what’s happening in your local market and respond with the best strategy for you and your family.
Advice for home buyers: Mortgage interest rates are retesting previous lows, but that doesn’t mean they’ll stay there long. Buyers should put a pencil to today’s rates and home prices and they will see that affordability is historically high. Even if prices should drop further, the mortgage interest rate savings is a great reason not to wait. Sign up for interest rate alerts at www.hslca.com.
Advice for home sellers: Sellers may be competing with fewer foreclosures and other distressed homes in their markets, but it’s too early to try to test buyers or lenders with higher asking prices. Price to current market values with the help of your real estate professional, and your home will sell more quickly and for more money.
07.19.11
Prudential California Realty Names David M. Cabot President
Prudential California Realty is pleased to announce that David M. Cabot has been appointed to a new role as president, reporting directly to Jon Cook, the company’s CEO. Cabot is currently serving as Prudential’s executive vice president of operations, broker of record and regional manager for San Diego, and has been with the company for over 14 years.
“David is very qualified and I am excited about having him assist me in managing the day-to-day operations of our business,” noted Cook. “I will continue in my present role as CEO, and together both David and I will continue to focus on the key strategic and growth initiatives that we have planned for our company.”
Formerly one of Prudential’s most successful and profitable office managers, Cabot brings a wealth of real estate experience and industry relationships to his new position. With a background that includes a successful career in residential sales, he is known for his ability to attract seasoned professionals, capacity for identifying emerging leaders, and talent for helping new agents unlock their potential.
“It is a great honor for me to be named president of Prudential,” says Cabot, who serves as the board of directors’ representative to the California Association of Realtors, as well as the National Association of Realtors. “I am thrilled about the prospect of having a more active role in shaping the direction of our company, and I am extremely confident about our future, as we are constantly investing in new ways to both enhance the client experience and attract new consumers.”
Cook agreed, adding that, “Prudential is a strong and growing company. The versatility and market knowledge of our agents is second to none, and they have the highest production level and incomes of any brand. Our ongoing success and ability to grow despite the condition of the real estate market over the past few years makes me believe that we will continue to be Southern California’s leading brokerage.”
To find out more about career opportunities, or for qualified real estate assistance, please visit www.prudentialcal.com.
06.27.11
July 2011 - Prudential California Realty Market Report
This summer, qualified homebuyers - those with excellent credit and with funds available for downpayments – couldn’t be in a better position to buy a home.
According to experts, prices have overcorrected to their lowest since 2002, according to the Q-1 2011 S&P/Case-Shiller Index. Since 2006, prices have fallen 33%, greater than the 31% decline recorded during the Great Depression. Using historical wages to home prices, Capital Economics’ senior economist Paul Dales says that housing is currently 24% underpriced – the lowest in 35 years. That translates to the best affordability in decades, and an end in sight to the housing malaise, he says.
In the latest existing home price survey from the National Association of REALTORS, the national median existing-home price for all housing types was $163,700 in April 2011, 5.0 percent lower than in April 2010. Distressed homes, which sell at a discount of approximately 20%, were 37% of sales, up from 33% a year ago.
Foreclosures, which have pressured both prices and real estate appraisals for non-distressed homes, are still high but leveling off. RealtyTrac says that U.S. foreclosure filings were down 9% in April 2011 from March, and down 34% from a year ago.
It takes confidence to buy a home. On June 3, 2011, the government reported that the jobless rate rose from 9.0% to 9.1%, a reversal of three months of earlier gains, which is likely to continue to keep the distressed home pipeline full for months to come.
The news has sent mortgage interest rates plummeting. After a seven-week slide, the Freddie Mac survey announced on June 3, 2011 that the benchmark 30-year fixed-rate mortgage averaged 4.55%, down from 4.60% the prior week and 4.79% a year ago.
California
Like the rest of the nation, California home sales also declined in April 2011 from the previous month, but were up 5% over a year ago. And, unlike the national trend, home prices actually increased.
The statewide median price of an existing, single-family detached home sold in California rose 2.5 percent in April to $293,570, up from a revised $286,510 in March, says the California Association of REALTORS (C.A.R.).
The combination of an average 4.8% fixed-rate plus prices well below the peak of 2006, point to improved housing affordability. The percentage of buyers who could afford to buy the median-priced, single-family home rose to 53% in Q1-2011, up from 50% in Q4 2010, according to C.A.R.’s Traditional Housing Affordability Index (HAI).
Yet, despite improving conditions, the Southern California housing market is trending softer, with sales volume the lowest April sales recorded in three years, according to DataQuick. In Los Angeles, San Diego, Ventura and Orange counties, sales volume drifted 5.5% lower than March, and 9.2% lower than the previous year, keeping in mind that sales in April 2010 were being heavily stimulated by federal and state tax incentives.
Median sales prices are holding their own at $280,000, down only 0.2% from March and 1.8% from April 2010, despite significant headwinds caused by tight credit, a saturation of distressed homes pulling down non-distressed home prices and an uptick in sales of lower-cost homes inland.
Prices are still extremely favorable, compared to the median price peak of $505,000 in mid-2007 and the trough of $247,000 in April 2009 before the onset of government stimulus.
The Southland market is extremely attractive to investors – one in four home purchases in April was made by an absentee buyer. Foreclosures were 33.9% of all sales, and short sales accounted for 17.8% of resales. With over half the market selling at a discount, 31.2% of buyers paid cash for their purchases, paying a median of $215,000.
The typical mortgage commitment, says Dataquick, tells a startling story of affordability. A typical monthly Southland payment was $1,189 in April 2011, up from $1,185 in March and $1,238 in April 2010. Adjusted for inflation, homeowners are paying 48.3% below the typical payments in spring 1989 (the previous housing peak) and 57.7% below the peak of July 2007.
Advice for buyers: The biggest hurdle for buyers today is credit worthiness. To compete against cash buyers and to take advantage of unprecedented affordability, buyers should get their finances in order quickly. Contact HomeServices Lending for preapprovals now, so that glitches in credit reports that impact credit scores can quickly be resolved.
Advice for sellers: With continued competition from distressed homes, it’s more challenging for sellers to get top dollar for their homes. Sellers should carefully analyze their equity positions before they price their homes for sale. Lenders will work with sellers who are “short” or owe more than their homes will sell for in the current market, but the process may be lengthy. Ask your Prudential California Realty agent for a comparable sales analysis before pricing your home for sale.
05.02.11
Housing Emerges as Most Attractive Asset Class
Since the real estate downturn began in July 2006, investors have been discouraged from putting their money into housing. But all bear markets end. Thanks to low prices, fewer homes in distress, rising rents and more, housing is starting to make a comeback as an asset class.
A recent article in Fortune/CNN Money published in March declared, “Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.”
Explains journalist Shawn Tully, two factors are “laying the foundation for a dramatic recovery in residential real estate” – the historic drop in new construction and rolled-back home prices, certain to turn renters into home buyers.
But there are other reasons home buying is looking more attractive. Rents are rising, prices are dropping even further, the jobs situation is improving, and mortgage interest rates have nowhere to go but up.
Home buyers are already circling the waters. Home search traffic is up dramatically, say home search sites such as Trulia. Realtor.com agrees – their traffic is up 9.9% and 8.5% year-over-year in January and February 2011 respectively.
Here are a few reasons why housing is shaping up to be the best asset class of 2011.
Home prices rolled back to 2002
Prices have dropped 30% since 2006, and as much as 55% in certain markets, says Tully. According to NAR, sales of existing homes were down 2.8% in February 2011 over the previous year, while home prices fell to a national median of $156,100, or 5.2% lower than a year ago. That puts median prices back where they were in 2002 – four years before the housing boom began its decline in July 2006.
Thwarted buyers increase demand
Conforming loan standards have become so conservatively strict that every housing organization from the Center for Responsible Lending to the National Association of REALTORS® is lobbying Congress for relief for home buyers. The squeeze has allowed all-cash buyers to step up and grab traditional and distressed homes from grateful sellers at huge discounts. All-cash sales hit a record 33% in February, up from 27% the previous year.
New construction at record lows
While foreclosures rose across the country, new homes with much higher price tags simply couldn’t compete. By February, new home sales sank 28% from the previous year to an all-time record low – a seasonally adjusted rate of only 250,000 homes, according to the Commerce Department. That’s one-fifth the production necessary to meet household formation demand and replace obsolete housing supply, says the National Association of Home Builders. Further, current housing starts are well below the levels of closings, says Tully, and certain to lead to higher prices.
Jobs are opening
While there’s debate about the quality of jobs returning to the marketplace, the unemployment rate fell to 8.8% in March 2011, down from 9.8% in November 2010, the highest rate since 1982, and the second highest since the Great Depression.
Job postings for hire have grown to such a degree that there are currently 4.4 unemployed job seekers for every opening. This is nearly a 20% improvement from January 2011, and a vast improvement over the ratio set in July 2009 – 6.9 jobless applicants for every opening.
Rents are rising
Rent prices have increased for the past five quarters to a median $991 per month, while vacancy levels have improved to mid-2008 levels, says Reis Inc., a real estate tracking firm. With concessions and giveaways coming to an end, analysts predict fewer vacancies and rising rents through 2013.
Distressed homes lower prices
Distressed homes, those in some stage of foreclosure, impact housing prices as much or more than any other factor. Bringing down neighboring values as much as 15% or more, distressed homes accounted for 39% of homes sold in February, says the NAR.
Opportunity for the portfolio investor
Nearly 1 million homes were bought as investment properties in 2010, according to the National Association of Realtors.
It’s about positioning. Investors know they can’t ride the coming swell in home prices unless they’re invested, and there’s no better time to go “all in” than now.
According to Pew Research Center’s Social and Demographic Trends report released in April 2011, four out of five adults believe “buying a home is the best long-term investment a person can make.”
California
California, along with Florida, Nevada, Arizona, and other speculation-driven markets, was hit the hardest during the downturn. Prices dropped as much as 70% in some areas before rebounding as much as 20%, and deep discounts due to high foreclosure numbers continue to deflate prices. About 56% of all homes sold in the state were distressed homes, says the California Association of REALTORS® (CAR).
Yet California foreclosure supplies are being depleted quickly. A new study by the NAR suggests that California has one of the smallest foreclosure inventories in the nation, and that it will take only 11 months to clear out the state’s “shadow inventory,” or foreclosed homes not yet on the market, compared to a painful 49 months for the rest of the nation.
High-end homes in California are at about a 10- to 12-month supply, but affordable homes are down to about six months on hand, suggesting the worst of the downturn may be behind us.
In March, the CAR reported that sales in March 2011 rose 3.1% over February, and 1.5% over the previous year. The median home price increased 5.4% from February to $286,010 but remains below the March 2010 median of $300,900. Housing supply is better than normal at 5.3 months on hand.
“While March’s median home price declined year-over-year, the decline can be attributed partly to an increase in distressed sales in recent months, and to last year’s federal home buyer tax credit, which pushed both sales and home prices higher,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “As for market activity, the pace of sales for the first three months of this year is in line with our expectations for all of 2011.”
As California tears through its foreclosure inventory, expect prices to rise. In other words, says Tully, beat the crowd.
Advice for Buyers: Check fundamentals for your favorite neighborhood such as supplies, days on market, rents vs. buying costs and historical prices with your real estate professional. You’ll quickly get an idea of what a good buy housing is today. But remember – you’re competing against all-cash buyers. Choose a home within your means and make your first offer your best offer, so both the seller and your bank will make the home of your dreams come true for you.
Advice for Sellers: Expect buyers to offer you less for your home than you may feel it’s worth. Weigh the lower price against the costs of keeping the home and you may surprise yourself by saying yes, especially to an all-cash buyer. You can quickly convert paper losses to paper gains when you buy your next home.
04.11.11
Meeting of Prudential’s Charitable Foundation Delivers a Win for Local Nonprofits
A recent meeting of the Orange County chapter of Prudential California Realty’s The Charitable Foundation created an excellent opportunity for the charity to provide donations for local nonprofits, plan upcoming fundraisers and discuss future strategies for serving the community. During the meeting, a donation of $2000 was presented to the Laguna Beach Boys and Girls Club and donations of $1000 each were given to the Glennwood Housing Foundation and the Inside the Outdoors Foundation.
“All of these charities share a common vision, to enrich the quality of life for children in our community,” said Natalie Hill, director of The Charitable Foundation. “It’s very gratifying to think that our efforts will make a positive impact on the current health and future well-being of so many deserving local children.”
Serving children in Laguna Beach, Aliso Viejo, and the surrounding communities for 58 years, the Laguna Beach Boys and Girls Club works to promote youth development by utilizing a philosophy based on positive reinforcement. The Glennwood Housing Foundation was established with a mission to provide safe and affordable housing for young adults with special needs in southern Orange County.
By partnering with the Orange County Department of Education, the Inside the Outdoors Foundation nurtures the natural curiosity of children and deepens their connection to the natural world, bringing life to concepts within the environmental and social sciences.
“Having opportunities to better the lives of children in our communities has made our ongoing work with The Charitable Foundation extremely fulfilling,” said Jon Cook, president and CEO of Prudential. “We are very excited about the programs and events we have planned for the short term and look forward to many more years of supporting charitable organizations.”
The goal of Prudential’s The Charitable Foundation/Agent Community Outreach organization, which has provided over 1000 grants in excess of $4 million, is to make a beneficial and constructive impact on the community. Backed by the dedicated agents at Prudential, the foundation supports local organizations that promote health, education, community, and the environment.
For more information about the charities and causes supported by Prudential California Realty, or to find out how to get involved, please visit www.TheCharitableFoundation.net.
Established in 1985, Prudential California Realty is one of the top five brokerages in the nation, with 3,400 agents in 59 offices across Southern California. Prudential California Realty is proud to be a member of HomeServices of America Inc., a Berkshire Hathaway affiliate.
04.04.11
Prudential California Realty, Southern California and Trendgraphix announce agreement
Prudential California Realty, Southern California and Trendgraphix, Inc., one of the nation’s leading providers of MLS-based real estate reports, recently announced an agreement to provide a online reporting system to all of Prudential’s 3,400 agents and 58 offices across Southern California beginning May 1st, 2011.
Jon Cook, CEO of Prudential California Realty, said, “understanding the local market is critical to our agents' success. Trendgraphix reports will provide our team with timely in-depth data that can help us better guide our clients in what is still a confusing real estate environment."
Mark Johnson, VP Marketing and Sales Technology stated, "we also understand that our agents, and their clients, expect up to date information on what is happening in the local market and the larger real estate industry, Trendgraphix offers a platform that complements this environment through their real time reports.”
Prudential is one of the top five brokerages in the nation with more than $10 billion in annual sales. The company is a proud member of Home Services of America, a Berkshire Hathaway affiliate, with 22 of the nation’s leading brokerages under its corporate umbrella, seven of which are currently serviced by Trendgraphix. For more information visit the www.prudentialcal.com.
Trendgraphix has been helping real estate brokers and agents interpret market trends for more than 15 years with simple-to-use and easy-to-understand market statistical programs. Trendgraphix currently works with more than 150 brokerages in 20 U.S. states. For more information visit www.trendgraphix.com.
04.01.11
April 2011 Prudential California Realty Market Report
Spring Home Buying edition
The Time to Buy Is Now
Just as the housing boom came to an end, the downturn will reverse itself one day, too. While economists and consumers may be uncertain when the bottom will come, there are growing signs that it’s already here or extremely close. The best time to buy a home is now — and here’s why.
It’s hard to tell a market has reached bottom until prices and sales volume start to rise again. So the best time to buy is when market conditions are indicating the approach of a bottom.
To take advantage of near-record low mortgage interest rates and home prices as low as they were a decade ago, home buyers may have to take some risks, such as riding out another short-term dip in property values.
But the rewards may be well worth it. A number of factors point to a small window of opportunity to buy “at the bottom” before the market turns more favorable.
Here are the six greatest reasons to buy a home right now:
The economy is growing
In the first week of March 2011, the Federal Reserve released the Beige Book, a compilation of economic trends across the country, with the comment that the economy is expanding at a “modest to moderate pace.” Goldman Sachs economists are predicting a 4% growth in Gross Domestic Product between now and mid-2012.
More jobs are available
A growing economy means more jobs. The Labor Department announced in mid-March that applications for unemployment insurance fell for the third week, to the lowest level since July 2008. At 386,250, the number is well below the 425,000 threshold that signals modest job growth. For the first time in months, the unemployment rate dropped below 9% to 8.9%, well below the 9.7% rate of a year ago. What’s more, employers recently added approximately 192,000 jobs.
More jobs mean higher consumer confidence, and that translates into more spending, more household formation, and more home buyers able to qualify to buy a home.
Houses are a hedge against inflation
The Consumer Price Index rose 0.5% between January 2011 and February 2011, excluding volatile food and fuel. For the year, gas is up 19.2%, fuel oil is up 27.1%, and food is higher by 2.8%.
Inflation rates are based on consumer prices. The urban index is up 2.1% for the year, which means inflation is currently at 2.1%.
Why is that good for home owners? When prices rise, a major asset such as a home, purchased at a fixed cost, becomes more valuable. In an inflationary environment, housing prices typically rise.
Mortgage interest rates are near record lows
Between October 2010 and March 15, 2011, benchmark 30-year, fixed-rate mortgage interest rates rose from a historical bottom of 4.32% to 4.77%.
If you purchased a home with a mortgage of $300,000 when rates were 4.32%, your payment would be $1488.14 a month. Over the term of the loan, you’d pay a total of $535,730.17, with $235,730 in interest.
The same home purchased in March 2011 would cost you $1,568.56 per month, for a total of $564,681.72, and $264,681.72 in interest. That’s an increase of $80.41 per month, and an extra $28,951.71 in mortgage interest over the term of the loan.
That’s why prices can’t compete with interest rates. To beat the low interest rates of 2010, your home’s value would have to decline nearly 10%. At the current rate, that would take approximately a year and a half. That’s a lifetime in economics. Economists are already predicting higher mortgage interest rates — so the chances that market conditions will be better in the future are poor.
Pent-up demand is ready to release
According to the National Association of Home Builders (NAHB) and the Census Bureau, household formation — a key ingredient for regulating housing supply — has declined significantly since the beginning of the Great Recession. Like many economic indicators, it, too, has overcorrected to approximately 1.0% annually. But considering that the largest generation ever — 81 million Echo Boomers — is well into renting and home buying age, the numbers should be closer to the 2.3% annual growth of the 1970s, when 78 million Baby Boomers reached adulthood. Based on that and other calculations, about 2.1 million would-be households have delayed formation due to the recession, creating pent-up demand for housing.
Buy-versus-rent ratios favor home ownership
As the economy improves, households increase. Mark Zandi, chief economist for Moody’s, said he expects buying to beat renting in most markets by mid-year. The NAHB’s Multifamily Market Index shows that rental vacancies have been falling steadily since Q2 2009. When more people are renting, higher rents can be charged. Right on cue, rents increased a modest 3% in 2010. Higher maintenance and building costs could mean rents will go even higher in 2011.
Michael Corbett, host of the “Mansions & Millionaires” segment on the syndicated TV show Extra, recently noted, “I’m pretty comfortable saying that five years from now, people are going to be saying, ‘Damn, if I had just bought in 2011.’” The oracle of Omaha, Warren Buffett, recently said, “Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates.”
The California Market
After three months of higher transaction volume, sales softened 9% in February 2011 over January, and were 4% below the pace set in February 2010. Unsold inventory rose from 6.7 months to 7.3 months on hand, tipping the state back into a buyer’s market. Statewide median prices fell 2.8% to $271,320 from $279,140 in January. The median price is 2.5% below the level of February 2010 and the lowest since May 2009, when it was $263,440.
The California Association of REALTORS® chalks the reversal up to several factors. Sales volume may be down due to the elimination of federal and state tax incentives, continuing consumer uncertainty. There are also fewer foreclosures on the market to lower median prices.
Advice for buyers: A housing recovery doesn’t proceed in a straight line. The question is, how deep are the dips? Buyers could wait for even better conditions, but the current alignment of falling mortgage interest rates, lower home prices, and wider selection is unlikely to happen again. Prices may go lower, but mortgage interest rates may go higher. If this isn’t the bottom, it’s very close. Act now.
Advice for sellers: Suddenly, buyers are back in control, and they’re demanding perfection. Your home’s price, presentation and condition are crucial to selling quickly. Now is not the time to test the market’s tolerance for higher prices or skip necessary repairs and updates.
03.15.11
Americans confident in recovery of real estate market
Irvine, CA — New national survey shows belief in real estate as a good investment is unshaken.
The majority of America’s potential homebuyers and sellers -- 68 percent -- believe that the real estate market and property values will recover in the next year or two, according to a survey released today by Prudential Real Estate and Relocation Services, Inc., a Prudential Financial, Inc. [NYSE:PRU] company. This exceeds the 47 percent of Americans who expected house prices would rise in a similar survey conducted in April 2010, underscoring a more bullish outlook for the real estate market today. In addition, 86 percent of Americans believe real estate is a good investment despite the market volatility of the past few years. The Prudential Real Estate Outlook Survey of 1,253 Americans between the ages of 25-64 in the market for buying a home was conducted Jan. 20-27, 2011.
The survey reveals that six in 10 respondents are more interested in buying real estate (58%) and are optimistic about buying given the momentum of the economic recovery (59%). It also shows that although the price of many Americans’ homes declined during the recession, 89 percent recognize they can also buy a new house at a lower price.
“This survey clearly demonstrates that Americans continue to be optimistic about the real estate market and believe that home prices will rise,” said James Mallozzi, chief executive officer of Prudential Real Estate and Relocation Services, Inc. “A key take away from the survey is although consumers recognize that it is a good time to buy, they are concerned about their ability to sell their homes. This is one of the reasons the market is still struggling to recover.”
For those on the fence about buying, uncertainty about selling an existing home (77 percent), concern about getting a fair price for the home (67 percent) and emotions (58 percent) are holding them back. For those who have sold homes in the past year, despite the down market 78 percent report that they were satisfied with the sale. Of these, 32 percent were very satisfied with the final price of their home and 46 percent were grateful they were able to sell given market conditions. A relatively small number, 22 percent, indicated that they were disappointed or resentful about the price they received for their home.
The survey highlighted Americans’ interest in trading up their homes. Of the 45 percent looking to trade up, 64 percent wanted more space or property, 49 percent a nicer house and 41 percent a better neighborhood. Only 21 percent surveyed said they were looking to scale down, and 34 percent said that they wanted a similar home.
The survey highlighted the importance of getting the right price in today’s market —74 percent of buyers believe that many homes could meet their needs and that price is a significant differentiator, while 26 percent stated that they were willing to pay top of market for a home that specifically suits their needs. In setting the right price, however, sellers were split—with 53 percent wanting to price right at or slightly below market to attract more bids and 47 percent wanting to price slightly higher than market and hoping to find a buyer willing to pay more.
The majority of respondents highlighted the importance of real estate agents in the process of buying or selling their home. Seventy-five percent of those surveyed said that an agent is very important or essential to this process, with only 24 percent saying agents are helpful but not imperative.
“Americans continue to see real estate agents as having a very important role in helping them price, buy and sell their homes,” added Mallozzi. “Although the data underscores the value real estate agents provide, it also shows that the industry needs to continue to work hard to meet clients’ unique needs.”
The Prudential Real Estate Outlook Survey was conducted online. The margin of error is +/- 3 percent. A more detailed breakdown of the data is available, as well as supporting charts and visuals, at www.news.prudential.com.
Prudential Real Estate and Relocation Services, Inc. is Prudential’s integrated real estate brokerage franchise and relocation services business. Prudential Real Estate franchises are independently owned and operated. Companies are selected based upon outstanding performance records, high levels of customer service and shared business values with those of Prudential. Prudential Real Estate is one of the largest real estate brokerage franchise networks in North America, with more than 1,600 franchise offices and 54,100 sales professionals in the franchise Network as of Dec. 31, 2010.
01.28.11
Increase in Consumer Confidence Points to Stronger Real Estate Market in 2011
The gradual recovery of the real estate market has only been held in check by consumer confidence, a category that has recently made substantial gains, according to Prudential California Realty’s February 2011 real estate report. The report, which includes an analysis of data created by the Wells Fargo Economics Group, showed that consumer confidence jumped 7.3 points in January to a total of 60.6.
All of the key components increased solidly during the month, making this the best report for consumer confidence since the onset of the financial crisis. In Southern California, investors have returned, indicating an increase in confidence among people that understand the dynamics of real estate.
With inventory levels in the below $1 million range at a level that should keep prices stable throughout the year, 2011 could represent a prime opportunity for buyers to begin searching for a home with an experienced Realtor. For sellers, this year presents a time when the advice of a qualified real estate professional is more critical than ever before to set realistic prices and receive a favorable outcome on the sale of a home.
Data compiled by the National Association of Realtors® (NAR) were also positive for both buyers and sellers of real estate, indicating that it only currently requires 13.6 % of median family income to buy a home. The unprecedented affordability found in today’s real estate market has made first time and traditional price range buyers quickly return to the market in 2011—a trend that is further evidenced by the fact that there is less than four months of inventory available in many price ranges below $1 million.
“One of the only major risks for buyers today could be increasing mortgage rates,” said Mark Johnson, vice president of marketing for Prudential. “It’s unlikely that mortgage rates will remain at the historic lows we have experienced over the past few years.”
Prudential’s monthly report features in-depth analyses and editorials about housing market data compiled by the California Association of Realtors, DataQuick and the multiple listing service. The report, which was developed to ensure consumers have the resources and information they need to make informed decisions, can be obtained by contacting a local Prudential agent. www.prudentialcal.com
Prudential California Realty delivers proven results and offers personal representation across Southern California and the Central Coast. A Berkshire Hathaway affiliate, Prudential California Realty is one of the top five brokerages in the nation.
