Friday, August 31, 2007

The Surf City Guru’s Real Estate Market Update!

For well over a year now, the Orange County real estate market has been reacting to negative reports in the media regarding rising interest rates, home loan fraud, predatory lending practices, bank failures, sub-prime loans, increasing number of foreclosures and short-sales, dropping housing prices etc... The list goes on and on. As a result, many people have been waiting for the proverbial bubble to burst or for the Orange County market to crash, like it has in other parts of the country. To the contrary, the higher end of the Orange County economy and real estate market has been rather stable and prices in more affluent neighborhoods have continued to rise regardless of what the media might report! The lower priced portion of the Orange County real estate market is almost at a stand still, because most inexperienced young professionals are renting instead of buying. This situation has resulted in far too many lower and middle priced properties on the market. Even with an average over nine months of housing inventory, prices have not been dropping much and most sellers have been holding firm to their price. The Surf City Guru has noticed that most home sellers that want larger nicer homes are playing the waiting game too, since most of them are not in a position where they must sell now.

Why Some Home Sellers Discount The Price Of Their Homes

Most price reductions that the Surf City Guru has seen recently have been associated with one of the following conditions or situations:

1. The seller has a large amount of equity, is retiring and moving out of state or to a more affordable smaller home. Unless they’re strapped for cash, most senior sellers would rather move on with their lives as soon as possible by discounting the price of their homes just enough to sell it.

2. The seller is being forced to relocate by an employer and cannot afford to keep their current home. Some employers don’t offer relocation assistance or packages to employees. When a seller must report to their new job in another state, selling their current home quickly becomes a necessity; henceforth, they may offer a modest price reduction to get the home sold.

3. Sub-prime loans with automatic escalating interest rates and repayment schedules. Many sub-prime home loans where established here in O.C. In most cases, the homeowners will be able to tighten up their budgets and reduce spending enough to continue making timely home loan payments until the market improves.

However for those who have had unexpected financial losses, the time bomb is set. Unexpected things like major medical bills, legal expenses, divorce, unemployment, physical or mental disabilities, will eventually cause more short sales and some foreclosures, especially if the owner does not seek immediate professional guidance. Naturally, those who fraudulently obtained sub-prime home loans may end up losing their homes when payments rise over time and their ability to make higher payments does not keep pace. Keep in mind that just because one home in a neighborhood sold for less money, this does not set a new base price for the entire neighborhood. The seller may have taken a lower price due to one of the above stated reasons or it could have had deferred maintenance issues that justified a lower price.

Help! Help! The Prices Are Falling!

The local and national media, A.K.A. Chicken Little, continues to use sensational statistics, half truths and complete exaggerations to create fear or perhaps to validate their recent doom and gloom predictions for the Orange County residential real estate market. Recently the media reported a 600% increase in L.A. and Orange County Home Foreclosures. At first glimpse this sounds like a huge increase. However, the actual number of foreclosures last year was not very sensational, so this detail was simply left out of their report. At the extreme, the Surf City Guru anticipates only a few hundred more L.A. and Orange County homes will actually be foreclosed upon this year. This should have little impact upon home prices. Most properties with a notice of default will continue to be sold before actual foreclosure. Some of them will be sold through short-sales; however lenders are not expected to allow much discounting in the near future.

First-Time Homebuyer’s can pick a cherry now or accept a lemon later!

It is the Surf City Guru’s opinion that Orange County’s first-time homebuyers would be better off buying now rather than continuing to wait for prices to hit rock bottom. Due to the sub-prime lender problems, Federal home loan guidelines and requirements will most likely become much stricter. Mortgage interest rates were recently lowered by about ½ point. The Fed wants to raise them back up, due to their strong desire to curb inflation. Current market conditions have created some wonderful buying opportunities, especially for negotiating better prices, terms and conditions. Since Orange County communities have extremely high demand, current market conditions can shift quickly from a buyer’s market to a seller’s market almost overnight. Prices in highly desirable neighborhoods are already on the rise again. When the market does swing the other way, buyers will most likely flood the market, just like home sellers did when the market peaked and adjusted downward. The nicest homes and condos will naturally sale quickly, and fence sitters will quickly lose most of their negotiating abilities, opportunities and advantages. If buyers continue to wait, they will lose valuable homeownership time that cannot be recaptured; they will lose potential tax benefits for this year. For qualified first-time homebuyer’s, the time has come to stop sitting on the fence. Stop building equity for your landlord and start building some for yourself! There are still some great first-time homebuyer’s programs, including several that are offering 100+ percent financing with an interest only payment option. These are local, state and federal government sponsored programs. These are not sub-prime loans. If you would like to learn more about your current loan options, please let us know! For those with good paying jobs, low debt ratios and a good credit history, market conditions probably won’t get any better than right now!