HOMEOWNERSHIP: REPORTS OF ITS DEATH ARE EXAGGERATED

This headline was posted by the KCM Crew, authors of a blog for a real estate website called, "Keeping Current Matters." It's a great name for a blog, because in real estate, keeping current does indeed... matter. The above mentioned article randomly addresses the many negative articles regarding real estate, many of which have been published in local southern California papers. This newsletter, although not political, strongly disagrees with scare tactics and negative ploys designed solely to sell papers. After numerous recent articles all playing on the word, "scary", a pun on the Halloween holiday, let's level the playing field with some real numbers and let you, the discerning and intelligent reader, make up your own mind.

Local papers would have you believe that the sky is, in fact, falling; real estate will never recover and will never be the same. More on that later, with some real numbers that are a little sobering. But first, homeownership itself; is it dwindling? Is it, "on its way out?" Hardly. In fact, pick up a copy of the recently released Fannie Mae 2011 3rd quarter National Housing Survey. Both Generation Y (birthday mid-1970's to mid-1990's) and Generation X (mid-1960's to mid-1970's) have stronger beliefs in the importance of homeownership than those of the general population... yes that would be the boomers, and boomers have loved real estate. It seems clear that as the economy improves, so will housing demand.

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BUT DON'T BELIEVE THAT THERE IS NO DEMAND FOR HOUSING NOW

In fact, local associations of Realtors and Multiple Listing Data indicate that inventory is quite low. Part of the reason sales have slowed is there simply isn't enough saleable product out there. In this type of market, there will always be properties on the market that are technically available inventory, but simply have too many problems to overcome. They need a particular type of buyer. These properties can make it appear there is more inventory than is actually "saleable." Frankly, it is surprising that people who can buy, have chosen to back away from the market because of predictions of a triple dip. It's a "cost vs. buy" analysis. If you believe in home ownership, its tax deductions, its features of durability and stability for yourself and your family, then prices coupled with interest rates should make for a fairly attractive picture. Yes, prices could go down, but what it actually costs you, may never be better. Also loan programs could change and availability could change, since lending has been very volatile. But what won't change is the historic and undeniable return on investment that occurs in real estate every 10 years. Sometimes the cycle is shorter; sometimes the downturns (such as this one) are annoying. But check on a property, any property, and see what it sold for in 2000, and what its value is today, in the midst of our worst downturn. REMEMBER THE PROMISE OF MORE ON THE TOPIC, "REAL ESTATE WILL NEVER RECOVER?..."

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THE SHIP APPEARS TO BE TURNING, OR HOUSE PRICES TO FALL OVER NEXT SIX MONTHS

Well, both are true. October 31st, CNN Money reported: "Home prices headed for triple dip." Fiserv (a financial analytics company), has predicted a 3.6% fall in prices on a national basis by next summer. Now remember, southern California is a very different place than Las Vegas or Florida. But still, nationally it means that the Case-Shiller Home Price Index is going to fall to 35% below its peak in 2006. But what Ken Johnson, Ph.D. (Florida International University and Editor of the Journal of Housing Research) points out, is that the dip depends on circumstances being in place to lessen the impact that market anxiety causes. What circumstances? According to Johnson they are sometimes referred to as "housing affordability measures, and some of them are: 1) Price of income to the house 2) mortgage payment to income 3) buy versus rent analysis for various markets that encourage buying. Did you know that the payments to income ratios are at a 30-year low in all 50 states? Why haven't the local papers reported that? The downturn in prices will bring more affordability factors into play for more people, especially the Gen Xers and Gen Yers, which is where the pent up demand is going to come from in the first place.

Also of interest locally to southern California is the best prognosis for recovery you can have: skilled labor, desirable location, and economic resiliency.

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FASTEN YOUR SEAT BELTS, IT'S GOING TO BE A BUMPY RIDE

There is no easy way to inform you all of what's happening in today's real estate market. No one has a crystal ball that big, to handle all the variables. But a few things we do know. It was hard to miss the news of the downgrade from AAA to AA +, and it certainly rocked the stock market. But what about real estate? That's a very good question, because although investors could run to gold and many did with its all time high of $1,700 plus per ounce, it seems like you might be selling low and buying high. What might make more sense is real estate. Investors bought, in Orange County alone, 174 properties at trustee sales. There will be more numbers in a subsequent paragraph, but what does that number mean? Well, those are the transactions that we know for sure are all cash, because they are required to be so by the Trustees running the sale. But there are many other all cash transactions happening right now. California real estate is the cheapest it's been in a generation. But the last time it was this cheap, interest rates were 7 1/2%. What are they today? You can't quote them, because they change every 10 minutes, but there are rates in the high 3's to mid 4's as of early August. There is little happening right now that will change that anytime soon. All of this makes real estate look very attractive, because you can sell your stocks or whatever, and buy lower than it's been for years. Remember, anytime you look at a 10 year return spreadsheet on real estate, it outperforms all other investments when you add the tax benefits and leverage of your money. All that being said, prices continue to skid along the bottom with some decreases in certain segments, primarily the upper end, still continuing. The question should always be, "is right now the correct time, in light of my own circumstances to buy or sell?"

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HOME CONTRACTS UP

For the second straight month, the number of people entering into real estate contracts rose (this reflects May and June, the latest complete months available). According to the National Association of Realtors, its index of sales agreements for resale homes went up 2.4% in June, with a reading of 90.9. Most economists want to see that reading at 100 to signal a healthy market. The last time it was that high was April 2010, the last month of the federal tax credit.

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S & P DOWNGRADES ON FANNIE AND FREDDIE EXPECTED TO HAVE LITTLE EFFECT ON STATE

State Treasurer Bill Lockyer says there's no reason the ratings downgrade of the federal government will have an immediate impact on California. Lockyer issued a statement August 8th, which stated that the downgrade by Standard and Poor reflects the partisan gridlock in Washington and not much more than that. Last month S & P revised California's long-term ratings outlook from negative to stable as a result of Gov. Brown signing an on time budget.

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WHAT WERE THE ACTUAL NUMBERS?

These numbers are for Orange County for the month of June, the last complete month available. There was a total of 1,257 Notices of Default recorded for the month. Now before you start thinking that that is a big number, let's remember that there are over 650,000 properties in Orange County. Now that seems more reasonable given the current economy. There were 1,436 Notices of Trustee Sale. That number is bigger because the lenders are starting to clear out some of the properties that have been languishing in various stages of foreclosure. But what is most interesting is the breakdown of single-family resale properties by equity, short, and bank owned status. There were a total of 1,933 recorded sales which broke down surprisingly: there were 320 short sales, 276 bank owned, and (drum roll please...) 1,340 equity sales. While it may feel like every sale is distressed, clearly the statistics do not support that. Also, the median price per square foot is also surprisingly in favor of the equity seller. This would cast doubt on the common belief that now is not a good time for an equity seller because they may have to "give away" their property because of low comparable sales caused by the distressed properties. The median price for equity sales was $289 while short sales were $243 and bank owned came in at $234.

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