January 31, 2012

Our observations of the real estate market in the greater Los Angeles area (includes LA, Orange, Riverside and San Bernardino counties):

This is our end of the year report and thoughts for 2012. Over the last few years we have studied, read and watched the market. And, we helped our clients buy and sell homes. We use al of these experiences to put this report together.

If you may have questions that were not answered below, give me a call at (626) 339-0697 or (626) 922-2514 and we can have a chat.

MARKET SUPPLY

• market supply in Covina is at 3.4 months - on average a 6 month supply is healthy for any market – our MLS overall has 2.2 months’ worth of supply based on 2011 volumes
• most cities have a market supply that is now once again BELOW 4 months
• many high demand areas are have dropped to below 3 months of supply
• large percent of the homes on the market are distressed sales (either short sales or bank owned (REO))

HOME PRICES

• February was the lowest average per square price in Covina since February of 2009 which was the lowest since the high of the market – the June, September and December prices were very close to this
• THIS MEANS THAT (in our opinion) WE HIT A DOUBLE BOTTOM IN THE GREATER SAN GABRIEL VALLEY – THE MEDIA STILL SEEMS TO BE SHY IN REPORTING THIS --- and we are staying close to this low average price per square foot
• Prices seem to be within a 5% range of the low and continue to bounce up and down
• home prices are still low and indications are that they will continue to be low for some time
• average per square foot price of homes compared to last year averages is down close to 6.8%
• We believe that prices will hit another low next yer

SALES VOLUMES

• getting a loan for a condo purchase seems to be very hard due to the fact that many complexes do not qualify for an FHA loan even if the buyer does
• the better quality and shape homes are still receiving multiple offers (however the final sales prices are close to the asking price in most areas)
• the volume of homes sold in 2011 was overall close to the 2010 levels
• buyer activity is still good in many areas especially since interest rates have once again hit and historic lows (interest rates set new lows in January 2012)
• loans are getting harder and harder to qualify for so the current buyers are typically better qualified than before and are more likely to be able to complete transactions

INTEREST RATES AND LOANS

• interest rates are at new record lows as of January 2012 …. I have now seen 3.5% for 30 year fixed …. WOW
• FHA loans are what most people are getting to qualify (FHA loan = FHA insures the loan
• FHA loan limits will stay the same for another year
• We are all waiting to see what the faith of FannieMae and FreddieMac will be … this is a big wild card right now
• a pre qualification is not enough to win most deals, you need to actually have your documentation submitted and verified and have a loan approval to make your offer strong
• When going through the loan approval process the underwriters are questioning anything that may be an issues so be prepared to answer questions and if possible clean up as much of your credit report as possible before applying for a loan
• Keep your credit clean until after the loan closes … no major purchases while in escrow ….. credit reports are being checked at the very end of closing and some deals are falling out because buyers are shopping for the new house and their ratios change
• Just a reminder: when comparing interest rates also compare the fees that it will cost you to get that rate because that is really what you are shopping for (the cost of a particular interest rate)
• THIS IS A GREAT TIME TO REFINANCE IF YOU CAN

MAKING AN OFFER

• for most bank owned properties you still may need to cross qualify with their lender and for sure have to prove funds as well be qualified and prove qualification (not just a pre-qualification letter)
• patience is vital in this market
• short sales are the largest part of the market and banks have improved their processing of these – they are still taking a long time, compared to other types of transactions, to get approved - but more of them are getting approved
• many offers are from buyers that are buying with cash but right now these are mainly for underpriced homes that can be flipped - there is a lot of competition among investors and that hurts owner occupying buyers
• appraisals are another wild card and in most cases they are being scrutinized a lot more and sometimes more than one appraisal is requested
• homes in good shape and high demand areas are selling quickly – often in under two weeks
• many sellers and agents are not very interested in short sales due to the long wait time for the approvals – so if you have a bit of time and patience a short sale may be a good opportunity

LOAN MODIFICATION

• if in trouble … we recommend trying a modification before anything else – just have patience and be prepared to provide a lot of documentation to the lenders – multiple times
• while working on a loan modification please remember that the bank could still foreclose in the middle of a loan modification --- this is happening more and more and legally they can
• while we are hopeful that loan modification programs will allow folks to keep their homes – the reality is that most modifications do not help much and most do not go through to the final phase of modification for various reasons – statistically less than 1 in 5 loan modifications is approved for a permanent loan modification

INVESTING IN THIS MARKET

· GREAT TIME TO INVEST

· we are continuing to see a lot more investors buying properties (in many areas buying a home with 15% down will results in positive cash flow)

· we have seen some great deals on duplexes where the return on investment (cash actually put into the deal) can be over 20% and in good rental areas

OUR OPINION and FORECREST for 2012

• prices will stay low and even hit a third low n 2012
• interest rates will continue to be very low (3.5% 30 year fixed rate is available in today’s market)
• short sales will continue to be the largest part of the market and the banks will continue to accept short sales instead of foreclosing
• many of the larger banks believe, and unfortunately we agree, that we will continue to work our way through the current mess for at least another three to four years …. in other words, this will be the market for the foreseeable future
• the new HARP 2 loan program will have limited impact and overall much less homeowners will be helped than what is projected (just like most of the other programs)
• demand for entry level homes at low prices will continue to be strong as long as interest rates stay as low as they are (and according to the FED, rates should be low for a while)
• we anticipate interest rates to stay below the 4.75% range for a while longer
• FHA insured loans will continue to be the largest share of the market and the qualification for one will continue to get harder and cost more
• bank owned (REO) properties are coming on the market but slowly ….. we think the volume will be less than it has been and banks are being careful not to flood the market and therefore further deteriorate prices
• prices in some areas, like the high desert, do not have much more room to go down so they will likely maintain their current average per square foot price (between $ 55 and $ 90 per square foot – depending on the area) – this is lower than the cost to build the same size home today
• low rates will mean low inventory levels as people rush to lock in these low rates

BOTTOM LINE:

1. INTEREST RATES ARE AT HISTORIC LOWS (3.5% is available for 30 year fixed loans)

2. Inventories are once again LOW

3. Great time to buy and just as good a time to refinance

FINAL THOUGHTS:

BUY! BUY! BUY!

And if you can REFINANCE!

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We designed this page to help our clients and friends in Covina know what is happening in the city.  We update this page monthly with the previous month's data.  Click on the below link to find home sale data and statistics for single family homes and condominiums in the City of Covina. 

COVINA REAL ESTATE ACTIVITY STATISTICS  

SELECT AREA MARKET SUPPLY.xls

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If you would like to see this same data for a different neighborhood and or city other than Covina just let us know and we will try to get the data posted.

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 All data gathered from the MRMLS MLS system and is deemed reliable but not guaranteed.