Our Real Estate Blog

REAL ESTATE MARKET OBSERVATIONS - SEPTEMBER 2011

September 14th, 2011 4:46 PM by Lehel S.

September 13, 2011

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

This is our first report in months.  We have stood back a bit and watched the market develop.  We attended many seminars and been to meetings with people in the know from various banks.  We gathered a lot of information and knowledge and are sharing that below. 

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 4.2 months - on average a 6 month supply is healthy for any market – our MLS overall has 4.6 months’ worth of supply based on 2011 volumes and 4.6 month’s worth based on 2010 volumes
  • most cities have a market supply that is now OVER 4 months
  • many high demand areas are have dropped to below 4 months of supply
  • some areas are have backed down and are closer to a 5 months of supply or below
  • large percent of the homes on the market are either short sales or bank owned (combined at approximately 43% for single family homes and 72% for condos)
  • in most areas short sales are the highest percentage

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 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 SEEMS TO BE SHY IN REPORTING THIS  --- and we are staying close to this low average price per square foot
  • We are still within 5% of this low price –
  • 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%

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 a loan even if the buyer does
  • most condo complex’s hud certifications have expired and few are paying the cost to have it renewed
  • 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 2010 was below 2009 levels and indications of this year show that we will likely be below close to or just below 2010 volumes
  • buyer activity is still good in many areas especially since interest rates have once again hit historic lows (interest rates are at the lowest levels that they have been in approximately 60 years)
  • 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 60 year lows
  • 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)
  • FHA loans are what most people are getting to qualify (FHA loan = FHA insures the loan) and it looks like the loan limits are decreasing unless Congress acts soon
  • We are all waiting to see what the faith of FannieMae and FreddieMac will be … the elimination of these could have serious impact in loans and loan rates
  • 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
  • There is a lot of talk that our legislators in Washington are thinking of making it required to have a large down payment – if this happens most buyers will no longer qualify and who knows what will happen to the housing market (most likely continued price depreciation and possibly another crash?)
  • 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
  • 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 still a 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
  • 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

  • we anticipate prices to stay low and maybe even go a little lower this year (there could be a triple bottom if the shadow market really exists or if some of the rumored mortgage changes materialize from Washington)
  • we also anticipate that demand for entry level homes at low prices will continue to be strong as long as interest rates stay as low as they are
  • 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
  • we anticipate interest rates to stay below the 5% range for a while longer and as we saw in the last few months we believe that there will be constant movement in the rates
  • FHA insured loans will continue to be the largest share of the market and the qualification for one will start 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
  • many of the larger banks believe 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

BOTTOM LINE:

1. INTEREST RATES ARE STILL NEAR HISTORIC LOWS  

2. Inventories are slowly but steadily increasing

3. PRICES HAVE HIT A NEW LOW IN FEBRUARY 2011 AND ARE STAYING LOW

FINAL THOUGHTS:

BUY!  BUY!  BUY!

And if you can REFINANCE!

Posted in:General
Posted by Lehel S. on September 14th, 2011 4:46 PM

Archives:

Categories:

My Favorite Blogs:

Sites That Link to This Blog: