Our Real Estate Blog

Real Estate Market Update And Opinion (4/17/2011)

April 17th, 2011 9:46 AM by Lehel S.

April 17, 2010

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

MARKET SUPPLY

  • market supply in Covina is at 4.9 months - on average a 6 month supply is healthy for any market – our MLS overall has 5.4 month’s 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 at or very close to 4 months
  • even many high demand areas are now above 3 months of supply
  • some areas are over 6 months of supply
  • the number of homes on the market has been steadily increasing
  • large percent of the homes on the market are either short sales or bank owned (combined at approximately 47%)
  • many buyers and agents that were previously not very interested in short sales due to the long wait time for the approvals are starting to look at them since they are the majority of the market

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
  • THIS MEANS THT WE HIT A DOUBLE BOTTOM IN THE GREATER SAN GABRIEL VALLEY – THE MEDIA IS SHY OF REPORTING THIS
  • 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 5.4%
  • the length of time a home is on the market before going into escrow has also been increasing

SALES VOLUMES

  • getting a loan for a condo purchase seems to be harder due to the fact that many complexes do not qualify for a 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 2010 was below 2009 levels and indications of this year show that we will likely be below 2010 volumes
  • buyer activity is still good in many areas especially since interest rates are still very low

INTEREST RATES AND LOANS

  • in the last three months we saw an increase of interest rates from the low 4% range to the low 5% range – and now back to the high 4% range
  • interest rates spike and sink based on various economic data that is released - rates are still well below historical averages - depending on various criteria, a loan under 4.75% or less is still possible - if you can afford it, you can even buy this rate lower
  • 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)
  • 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
  • FHA, Fannie Mae and Freddie Mac are changing their fees as well as when people who had foreclosures or short sales will be able to apply for a new loan
  • 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

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
  • patience is vital in this market with some homes receiving multiple offers – supply is increasing and demand is flattening
  • 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
  • there are rumors of an agreement between the banks and the government (in the wake of the robo signing issues) to make short sales easier and faster and possibly with some sort ov oversight
  • many offers are from buyers that are buying with cash
  • 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)
  • 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 this may be a good opportunity

LOAN MODIFICATION

  • 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 only 1 in 5 loan modifications is approved
  • we recommend trying a modification before anything else – just have patience and be prepared to provide a lot of documentation to the lenders
  • there are new programs and a bigger push to keep people in homes – if you are in trouble you have a fair chance of getting help – but you have to take the time and effort to contact your lender and provide them with what they require - timely

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)
  • we also anticipate that demand for entry level homes at low prices will continue to be strong
  • as supply continues to increase and demand is not very strong, we believe prices will go down – we just don’t know how much
  • 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 close to 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 loans will continue to be the largest share of the market and the qualification for one will start to get harder and cost more
  • in our opinion there will be more bank owned properties coming on the market in the near future and for the next few years, however we think the volume will be less than it has been
  • we believe that average per square foot prices will move flat with slight up and down movements and will finish the year flat or most likely lower than last year

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

4. IT IS A GOOD TIME TO BUY

Posted in:General
Posted by Lehel S. on April 17th, 2011 9:46 AM

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