Live Lake Forest

Here is a quick overview of the Lake Forest real estate market today (all numbers are from the SoCalMLS ):

Our inventory of both homes and condos is very low right now, with the absorbtion rate under 2 months for homes, and less than a month for condos!  The 52 closed sales in the last month were very close to the final list prices, and the average price of a condo was actually a little bit more than the list price.

This time of year, the market generally slows down as people get settled in for the start of the school year, but with the first time buyer tax credit deadline of November 30th, it may stay busy for a while longer.  Escrows are generally taking 40 to 60 days to close, due to the new appraisal and mortgage disclosure regulations, so if you want that first time buyer bonus, you better choose your house and be in escrow by early October!

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The market continues to be strong for the foreclosed homes.  So far this year, there have been 3,254 bank-owned homes sold.  They range in price from a low of $42,000 to a high of $2,450,000 but the average comes to $326,549.  Today, there are only 463 foreclosed homes on the market, and 1,318 in escrow.  The average time to sell these properties has been 43 days.  

The short sales are selling, although not nearly so quickly.  Since January 1, the MLS shows that 1,445 short sales have closed.  There are currently 2,385 in escrow, and 3,015 available as active listings.  The problem with trying to analyze the short sales is that there is no consistency.  Some agents keep properties in the active status, and continue to show them long after they have received offers, while others put them immediately into “backup” status, but really have no idea what the lender will take or when it might close.  This process typically takes so long that by the time the lender gives an answer, either the value has fallen below the buyer’s offer, or the buyer has found another property and withdraws his offer. 

There are 5,964 properties classified as “equity” sellers, but 43% of those, are priced at over a million dollars!  For more modest home buyers, there are currently only 1,211 homes priced under $500,000 and 2,229 priced between $500,000 and $1 Million.  (These numbers don’t add up because some of these are range-priced, so they get counted in 2 categories.) 

I’m now hearing lots of stories of multiple offers for REO properties, as well as on the lower priced non-distressed properties.  I really hope that the real estate decline is coming to an end and that the market will stabilize, but it’s still too early to tell.  The moratorium on foreclosures ended on April 1, 2009 and the number of homes that are starting the foreclosure process has increased.  Since it takes almost 4 months to foreclose, we won’t have a lot of data to report until early August.  

If you are a first time buyer, the combination of the $8,000 tax credit and low interest rates make it very tempting to buy now.  You just need to make sure that the home you buy is one that will meet your needs for several (5 to 7) years because there is no guarantee that once the market “recovers” it will begin to appreciate again!

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A year ago today, I posted my predictions for the Orange County real estate market in 2008.  Today, I can look back and see that I got some right, and some wrong.  (Isn’t that how it always is?)

Some things I got right :

The volume increased, (but not as much as I hoped.)  As of today, there have been 24,237 closings in the MLS since 1/1/2008 in Orange County.  It is about 20% above the 2007 volume of 20,000, but I had predicted it to come out between 25,000 and 30,000.  Since there may be some more closings tomorrow, and many of the recently closed sales won’t get reported until the listing agent remembers to update the MLS, it is still possible to hit my “25,000″ mark, but it won’t go much higher than that.  I’ll admit that I was  optimistic.

Prices decreased - even more and faster than I thought they would!  The median price for a single family resale home now stands at $430,000 (off 34.4% from November 2007) and the median for a condo is $260,500 (off 38%).  See the DQ News Chart

There were a lot of foreclosures, and there will be more to come.  The big bailout, and help for homeowners has been a bust.  Very few delinquent borrowers have been able to modify their loans and keep their homes.  The foreclosures have slowed, but that is probably only due to the new California law that lenders have to document that they have worked with the borrowers prior to foreclosing.  There will probably be a big flood of new foreclosures that will hit the market around March.

A lot of real estate agents have left the business.  Final numbers won’t be available until late January, but I know many agents who have found other jobs and will not be renewing their local Association of Realtor®s  memberships.

The Real Estate Industry has become more “transparent.”   Let’s face it – there are too many places for consumers to do their research and credibility means a lot!   If you aren’t honest and open with your advice and opinions, buyers and sellers  will find someone else who will be.  

Nobody is going to buy a house simply because they see an ad that says “Now is a good time to buy or sell!”  DUH!   Actually, I have gritted my teeth recently when I saw a full page newspaper ad that declared “Work with a Realtor® because they know your market!”  The truth is, some do and many don’t!  To become a Realtor®, you need to have a license and pay dues of $115 per year.  You also agree to abide by the Code of Ethics, but there is no required education or additional testing to maintain your membership.  I am a dues paying member of the National Association of Realtors, and I abide by the Code of Ethics and enjoy some benefits like access to research reports, and publications, but membership alone does not give me any knowledge or authority, and I hate that they waste my dues paying for ads like that!  ( End of rant.)

The parts I got wrong: 

The mortgage market has still not settled down completely.  The FHA loans have made a big come-back, after being close-to-obsolete in California for the last few years, but they have also tightened up on their qualifications for many borrowers, and won’t approve a loan for a property that has changed ownership in the last 90 days.  This puts investors in a riskier position if they want to buy a foreclosure, fix it and put it right back on the market.  Loans of over $417,000 are difficult to approve, and the interest rates are substantially higher.  This is causing problems for buyers (with good credit and documented income)  to buy homes in the higher price ranges.

The lenders are pricing their inventory to get rid of it.  I never would have guessed that they would take this agressive approach.  I’ve been seeing REO properties come on the market at 10% below the most recent comps.  This has created a frenzy for buyers who can’t resist what appears to be a real bargain.  Multiple offers have become the norm for many of the REOs, and buyers have been bidding them up to an average of 102% above original list price.  The REOs and short sales, especially at the lower end of the price ranges, have made up 42% of all sales for 2008.

Overall, my predictions weren’t too far off, so I’ll give myself a B+ for getting close.   In the next few days, I will make my new predictions for 2009 and this time I will be more specific and try to get closer to actuals.