A Sellers’ Market!?!
Posted in For Buyers, Market Trends and Projections | By Blair Newman and Dave Emerson | Tags: 2008 Southern California Real Estate Projections, Market Trends, Real Estate Bottom
“ECONOMY HAS HEADS SPINNING” my morning paper screams at me before I’ve even picked it up off the driveway. Stocks tanking, huge firms failing or being bailed out, DataQuick medians show yet another home price drop.
And we decide today’s the day to tell you it’s a sellers’ market?
Well, yes and no.
Actually I decided last night it was time to write a post that it’s become a sellers’ market at the low ends for detached single family homes in most neighborhoods in the Coastal Plane of Los Angeles and Orange Counties.
What’s going on now:
You see, what we try to do here, as our masthead says, is give you “real estate news and perspectives from the front lines.” What we and our colleagues see going on right now at open houses and with buyers and sellers in Southern California.
So we’re 3 months ahead of DataQuick, whose monthly median closing price stats just reported August closings on sales that were negotiated mostly in June. We’re 5 - 6 months ahead of Case-Schiller, who averages 3 months of closings using their unique “matched pairs” approach and then delays a month to release.
So let me tell you what’s actually happening right now:
- Showings are up significantly at all of our listings priced below $500,000, and up modestly on our “move-up” inventory.
- That offer I made a few weeks ago that I told you about (See “Who should buy between now and Christmas?“): Outbid. Swamped with competing offers. My “all cash, close in 10 days, as is” offer didn’t even get a phone call back!
- Yesterday I surveyed several other agents I’ve known for years. Every one of them said buyer activity was up dramatically over the last few weeks.
- Even my partner, Blair, & his wife are about to make an offer.
Why?
Pretty simple, actually. Summer just ended, prices have been coming down, and–oh, yeah–mortgage rates just plummeted:
- August is almost always one of the slowest months of the year, but things generally pick up in September and October before slowing again as the holidays approach.
- Foreclosures and pre-foreclosure “short sales” have been forcing prices down all year. Data Quick’s August median for OC was back to the level of November 2003! Vacation over, kids back in school, & buyers are noticing that neighborhood they couldn’t afford last year is now within their reach.
- When the U.S. Government (that’s you & me, in case you didn’t notice) basically took over Fannie Mae and Freddie Mac, confidence returned to the mortgage markets and rates dropped around a full point, with 30 year fixed loans at 5.5%! Rates have ticked up a bit since then, but are still near record lows.
What’s it mean?
Good question. Is it a seasonal blip or did we just pass the bottom, at least for starter homes in built-out areas? Well, part of it is seasonal, but that’s not the whole story. What happens next will largely be determined by the answer to five key questions:
- What will the economy do?
- What will interest rates do?
- What will mortgage rates do?
- Are foreclosures peaking?
- Have prices corrected enough?
The first two will tend to counter-balance each other. If the economy continues it’s sharp declines, both the fed and investors will combine to drop interest rates, both short and long term.
As for mortgage rates, with the feds supporting the market, we know the margin, or mark-up, for mortgages will stay at the more normal levels we’ve seen over the past few weeks. One of the biggest challenges for housing has just been met. Federal intervention is having some positive results for home sellers and buyers, as we’ve been predicting all year.
Foreclosures may be the key here. In California it takes about 4 months to foreclose on a home from filing the initial Notice of Default through the Trustee’s Sale. Longer if the owner files bankruptcy. It takes another 1 -3 months to get the occupant out and the home on the market. We know that the banks have been taking back record numbers of homes, assuring a continued influx of foreclosed homes hitting the market through year’s end.
We can also check on homes entering the foreclosure process (we give you two links for that under “Useful Links” in the column to the right, but we prefer the data in the “Preforeclosure” link.) A month ago, it looked like homes entering foreclosure were peaking, but recently released August stats are up for both Orange and Los Angeles Counties. Government relief for foreclosures is about to kick in next month, and the shakiest borrowers have already lost their homes. On the other hand, a sinking economy combined with coming payment “resets” (increases) on many adjustables may put more homeowners in jeopardy. This one may be “too close to call,” but I think by mid spring of 2008 the worst of the foreclosure market will be behind us.
Which brings us to question # 5. You’ll get plenty of debate on this, but the multiple bids on properly priced REOs make it pretty obvious to me that some prices have, indeed corrected enough, provided interest rates don’t rise dramatically & the economy doesn’t tank.
What prices have corrected enough? The prices that bring competitive bids: The fire-sale prices the lenders are now offering on starter single family homes in built-out markets. Pretty much what we said three weeks ago, except it’s happening now, not early next year.
Is this the bottom?
For SFRs in the coastal plane of OC & L.A. Counties, maybe so, maybe this December, maybe later. It largely depends on the economy, interest rates, and when foreclosures peak. Stay tuned, & we’ll keep you posted on what we’re seeing here on the front lines of So Cal Real estate.
Our 2-hour, $5 October Buyer Seminar:
We actually scheduled a two hour buyers seminar with the city of Lakewood’s Community Services Department several months ago. It’s open to everyone, not just Lakewood residents. It’s from 9 - 11 a.m. on Saturday, October11 at Lakewood’s Mayfair Park (Clark and South St.). We designed this to help buyers make the most of this fall and winter’s unusual buying opportunites. Class size is limited to allow interaction. Sponsored by Lakewood’s Community Services Department. Details here. No, we’re not selling tapes, cds, books, or DVDs! We’re both former teachers, & we enjoy a chance to discuss real estate in a “classroom” setting.
Tags: 2008 Southern California Real Estate Projections, Market Trends, Real Estate Bottom
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September 18th, 2008 at 9:28 am
What exactly do you mean by starter homes. I’m keeping an eye on Torrance / South Bay, and it doesn’t seem like the bottom is near.
Do you really think the economy and interest rates will balance each other out? The employment reports / trends aren’t looking that pretty.
Have a good day.
September 18th, 2008 at 10:05 am
Waiting,
Maybe I should rephrase it to “starter neighborhoods,” because what I really mean is neighborhoods with lots of foreclosures. That’s what forces prices to market. . . or below.
I don’t think there are any such neighborhoods in the South Bay, although there may be a few starter condo complexes.
When the economy goes down, the fed lowers rates and, more important, the market lowers rates, anticipating further slow-downs. So, to some extent, they do cancel each other out, or self-correct.
However, as I’ve been saying for a year now, we are in uncharted territory. Nobody really knows what’s next. But that doesn’t stop us from guessing!
Good luck for success. I wouldn’t be surprised to see Torrance continue to decline for a while. You might want to start writing offers–even lowballs–in November.
September 18th, 2008 at 4:01 pm
Thank you. We actually own right now in OC (I don’t know if people realize that La Palma = OC), but are looking to move to the South Bay for commute / family reasons. We bought early enough in 2001 so that there’s some equity left, so we’re not in any rush. That equity sure is dropping at a faster rate, based on what I can see from local comps.
I wish you and your partner continued success, and I appreciate your straightforward feedback.
September 25th, 2008 at 8:38 am
I think the worst is yet to come in the real estate market. But as the government is stepping in the “free market” economy who knows? I guess smoke and mirrors will continue and the next generation will pay the bills, until the house of cards collapses completely.
September 27th, 2008 at 10:05 am
Everybody is waiting to see what is going to happen with the 700 billion bailout. Not to mention that foreclosures and notice of defaults are still increasing at a rapid pace however you should see a dip in foreclosures in sept. and oct. due to a bill that the governor passed that is slowing down the foreclosure process. Once things continue to flow normally we will continue to see inventory climbing. Lending is already tightening and the bottom line is that home prices are not sustainable at current levels. We are starting to see more defaults in option arms which will peak in a year and we are also seeing defaults in prime loans so i think we are all underestimating the size of the bubbled that popped. I expect home values to drop an aditional 10 to 20% across the board.