Here's recent history of the Fed’s policy committee and its Fed Funds rate. Next Fed decision is June 24/25.
O.C.’s got a year’s worth of home to sell
August 27th, 2007, 12:16 am · 37 Comments · posted by Jon Lansner/O.C. Register columnist
Jitters in world financial markets helped nudge the inventory of O.C. homes for sale past one year’s worth of current buyers’ demand, says Steve Thomas at Re/Max Real Estate Services in Aliso Viejo. Thomas calculates “market time,” a benchmark of how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made. This index shows the inventory-to-selling ratio taking a decided upswing.
By this Thomas logic, it would take 12.12 months for buyers to purchase all homes listed for sale at the current pace of deals vs. 9.76 months two weeks earlier and vs. 6.79 months a year ago. And Thomas notes:
“The lack of liquidity in the financial market due to the past few weeks on Wall Street has put a giant lid on demand here in Orange County. Demand, the number of new escrows within the prior 30 days, dropped to 1,475 from 1,804 just two weeks ago. Demand had been plodding along the 1,800 home mark for the past few months until Wall Street began to worry that the slowdown in housing and the mounting losses within the financial markets would bleed into the national economy.” (To read more, CLICK HERE)
Data by the slice as of August 24 for homes listed on market; pending deals, Thomas’ market time, in months; and market time two weeks ago and a year ago:
| Slice | Listed | Deals | Mos. | 2 wks. | Yr. ago |
|---|---|---|---|---|---|
| All O.C. | 17,881 | 1,475 | 12.12 | 9.76 | 6.79 |
| •$0-$500k | 5,282 | 469 | 11.26 | 9.49 | 5.77 |
| •$500-750k | 6,722 | 558 | 12.05 | 9.48 | 5.97 |
| •$750k-1m | 2,693 | 219 | 12.30 | 9.44 | 7.37 |
| •$1-1.5m | 1,676 | 129 | 12.99 | 9.84 | 7.94 |
| •$1.5-2m | 792 | 61 | 12.98 | 11.66 | 12.34 |
| •$2-4m | 884 | 49 | 18.04 | 12.81 | 14.65 |
| •$4m+ | 276 | 21 | 13.14 | 13.80 | 12.78 |
(Note: k=thousand; m=million)
August 27th, 2007 at 7:28 am
Another junk story. The 12 month estimate is based on transactions over last few weeks. However, everyone knows that the last few weeks are the slowest of the year. Please, stop pumping the register with this garbage. The person who did the computation should have adjusted the number since this fall and spring 2008 are periods when transactions are always much higher. What is going on at the register? Have socialists taken over OC?
August 27th, 2007 at 7:29 am
[…] I’d expect is being replayed in many other key markets throughout the United States — housing inventories have skyrocketed in the past two to three weeks. Jitters in world financial markets helped nudge the inventory of […]
August 27th, 2007 at 7:46 am
A quick glance at the numbers would make one think that a rebound in the first time buyers market would signal the end of this drop.
Funny that Thomas, in the end of that article, stated that “now is the time to buy,” without providing any clear cut reason why people should not expect further drops in prices. And if further drops are expected, why would someone want to get in now rather than after another 6% or 15% drop? I mean, that amount could easily take care of what one would have had to pay in property taxes for the year and some commission and so forth (when eventually selling). He did nothing to address affordability. More comments about “get out there and buy” without exploring why people are waiting for the prices they can afford. No reason to buy was given except the long term outlook looks good. So does the short term outlook of prices dropping more.
It is very interesting to see the typical RE agents comments about the different markets. During the time when prices were rising fast. Prices had risen so high, that RE agents were saying that using any loan to get in to make it affordable was a no lose situation. “You could always sell, demand in OC is too high, prices will never drop again, people don’t buy for the long term anyway so just take the $ and run - don’t worry about actually paying down principle.” They were the ones to throw around that “people live in their homes for an average of 5 years only - so buying with an ARM or IO is not a big deal.” Now, their biggest comment is “buying for the long term is always a good thing.” The only problem is that they are saying it to the same people as before and expect no one to call them out on such a change in their tune.
Quite simply - prices doubled over 4-5 years - and still, to some people, that is a perfectly normal thing to happen, regardless of what caused this price appreciation. That is ridiculous. We have not even seen the majority of the resets yet. Late summer of 2008 will be a telling time. Eventually, affordability for the middle class will be restored and the young professionals will begin returning to the OC.
August 27th, 2007 at 7:47 am
Jimmy,
Why are you trying so hard to distort the facts? Unless, you are a realtor, there is no reason for you to do that. I’m a home owner too but I don’t much care if home prices go down, a price correction is normal and needed.
The fact is that inventories are going up. The National Association of Realtors just released the existing home sales report and it shows inventory is up 5.1% with a 9.6-month supply at the current sales pace.
These are national numbers. The OC numbers are definitely higher because we had more speculation here and prices went up during the boom more than in the rest of the country.
Are you going to tell me that the Realtors are socialists too?
By the way, these numbers are from July, before the credit crunch happened, so expect much worse numbers to come next month.
http://www.NationalBubble.com
August 27th, 2007 at 7:56 am
Jimmy-
There’s no need for a seasonal adjustment, because the table has the data for the corresponding period from the same time last year. Last year at this time there was a little more than a six month supply of homes on the market. This year there is a little more than a 12-month supply on the market. The data are there to allow for like-to-like comparison.
August 27th, 2007 at 8:08 am
Jimmy,
Here is the answer to your 2 questions.
“What is going on at the register? Have socialists taken over OC?”
The answer is the capitalist stopped lending the money.
August 27th, 2007 at 8:30 am
I am sure this is only a small problem Jimmy and Ken and ShockG and friends are going to swoop in on this “opportunity” and start buying like crazy. These are great prices to them and they will jump in there and start gobbling up all this cheap under priced RE. Once they get done there will be a day or two of inventory left if we are lucky, because they all know that RE never goes down and it is a great time to buy! Sure there was a 50% price correction in the OC in the 90’s, but that was last century babe, that is completely different than now. Now we have an expanding economy with a housing problem, then they had a recession, so obviously this time will be much less hard on the people in OC. Good luck guys, you are our own real estate men of genius!
August 27th, 2007 at 8:50 am
Jimmy-
The dynamics supply and demand in a free market economy can swing up or down. Just because supplies are reported as up and demand as down doesn’t mean socialist have taken over. It’s actually a sign of free market dynamics at work.
August 27th, 2007 at 9:36 am
Are we in a deep buyers market yet ?
Over the past 6 months I’ve suggested that if a “homeowner” wants to sell their homes within 3 months they price the home well below the current comps……..maybe 20 %. This price reduction is required to stay up with the price reductions of new homes.
Now things changed, and it will take a greater price reduction to sell a home. To get a buyers attention, I would suggest pricing 30% below recent comps. This sort of pricing may get the attention of the people that have money to buy a home and are waiting for the prices to fall.
By next year at this time it will take a 50 % price reduction to sell a home in a resonable time period….say less than 4 months.
If you are not willing to reduce prices, take the home off the market and stop wasting the real estate agents time.
August 27th, 2007 at 9:55 am
Housing corrections play out over YEARS, not MONTHS or WEEKS. It seems the OC Register is just trying to be objective about where this *may* be headed. Keep an open mind and begin preparing for a significant correction in the housing market. My guess is this could also lead to a recession now that the housing ATM is out of cash. This is a healthy event in the long term.
August 27th, 2007 at 10:41 am
I don’t think the majority of us are surprised by the negative housing trends lately. Bottom line is that the housing market is overheated and people are realizing that it’s stupid to budget over $4k a month to live in a “median” home on a non-toxic loan. Adjust upwards or downwards for various price points accordingly and the same logic applies. Tighter credit standards just eliminate the idiots who are trying to get a free lunch.
People like Jimmy are delusional and think the world revolves around them. If the stats showed houses selling like hot cakes, Jimmy would be raving about how great the Register is and tooting his own horn (even more than he does now). Over the years, I’ve learned that using statistics and facts always prevails over emotion. And boy is Jimmy getting emotional!
August 27th, 2007 at 10:56 am
This time next year, we’ll be at an 18-month supply, maybe more. The formula: Another few hundred billion in mortgage resets + ballooning foreclosures + no increase in the 417k non-conforming limit + no secondary market white knight (OFHEO will not let Fannie and Freddie back in until accounting mess is figured out) + no more IOs, Neg Ams, Stated Income, 100% mortgage products + plus rapidly tightening lending standards = growing inventory glut.
The OC market will not return until prices adjust to levels that will allow the broader market to finance home purchases with conforming mortgage products.
August 27th, 2007 at 11:08 am
I think a correction will be healthy. I am currently in the market for a house and still don’t understand how the majority of the owners do it. Sure, there are some that are just simply rich and then some that sold their old homes and moved up… still, that market can’t keep the market going at today’s prices.
August 27th, 2007 at 11:09 am
These markets don’t switch direction quickly. The result of the credit crunch will be a small number of people who lower their price which will slightly accelerate the trend. If it last longer it will accelerate the trend more. If you have your “ducks in order” financing ready and living in an appartment, you can wait and watch the trend change. If you did this you would not miss the bottom by more than a few percent. Well a local bottom. For once we hit a local bottom it could start back down again. Also it is much harder to predict an affordability peak where house is low and interest rates are low.
Unless interest rates are going to change quickly in the wrong direction this is almost certainly not the best time to buy. Crunch will pull comps down and sellers left in market will reduce more in fall. All part of the current trend. Suppose the fed does cut the rate by 1/4 point. Will banks want to jump in and give better loans. Doubtful.
August 27th, 2007 at 11:25 am
To all the OC bloggers, you want good advise. Dont listen to the
“Market Professionals.” Listen to the people who have lived and invested in the southern california RE market. DONT BUY NOW. Anyone telling you different is tyring to sell you something.You think Inventories are high now? Wait till all the bad loans reset. Wait till the Irvine CO builds out the Tustin and EL Toro Air bases. Wait till 30,000 new homes are dumped on the OC supply chain. Why buy a used home from a flipper when Builders will be begging to sell? Buy new december 2009 or 10. In the long run RE is always the best investment. In the short run, this is just the tip of the iceburg. Time for the players to come out in 2009. Batter up.
August 27th, 2007 at 12:08 pm
A Distorted View:Existing Home Sales.
http://www.thegreatloanblog.blogspot.com/
August 27th, 2007 at 12:16 pm
But, But, But, If I used the annualized average of the last 2 years of sales, then there is much less supply.
See it isn’t that bad, go buy a house, I need to unload a few.
sarcasm off/
Did that sound like anyone you know in the REIC?
August 27th, 2007 at 12:22 pm
Scott - that is great advice. All of the people that I respect financially own one or more California house. They ALL tell me to wait until prices are better before buying. They also tell me to wait until monthly costs “make sense” in relation to renting before buying.
They say the only people buying now are fools from out of state.
I believe them.
August 27th, 2007 at 12:46 pm
Scott, you might want to check your facts about development of the former bases at Tustin and El Toro. The land is not owned or controlled by the Irvine Company in either case.
August 27th, 2007 at 12:55 pm
Scott: exactly correct. Sure - it will eventually go up. You will get the following response though, “timing the market is not possible.”
Which - we all know - is a crock. Once signs of the first time buyers’ market is restoring, the bottom will begin to be in sight. All about affordability; as defined by incomes, savings, home prices and lending standards.
Its funny how RE agents make timing the housing market sound like timing an IPO.
We timed it before and we’ll do so again.
August 27th, 2007 at 1:01 pm
Eprobert- Thank you. I broker commercial insurance for a living, so I am not trying to pay for my lifestyle on the backs of the ill-advised. I currently own 4 homes and believe in CA RE for the LONG RUN. If any of you are a landlords right now, you know whats up. Rents are on the rise because no-one can afford an OC/LA home, and that were all the jobs are. OC register did the numbers and came up with 7% a year. I raised rents 15% this summer on all props. So I can testify that rents are only going up. If you all out there are first time buyers, just sit tight. Anyone who is telling you BUY NOW does not understand economic cycles. Now choices are few however, in 2009 you have your choice, buy a repo from a novice going BK. Or buy brand new from a builder who is going to be extremely motivated. Cash will be King in 2009, stack chips and get ready to swing the bat in a couple years. That is my advise, Looking to pick up # 5 on the correction phase of the cycle. But what do I know since I am not a “Market Professional”
August 27th, 2007 at 1:11 pm
Further proof that it is not about affordability, but psychology.
Affordability has been improving dramatically, yet transactions are dropping, not increasing.
It will turn when psychology turns.
August 27th, 2007 at 1:12 pm
Not Buying it- Did you ever buy it? A home that is? I am not an agent, see my responce to Eprobert. And yes you can time the market. for example. 1981 - 1991 Boom. 1992 Bust. 1993-96 Flat. 1996-2006 Boom. 2006-7 Bust. See a patern here? It is called the 10 year cycle. Expect 3 years of flat to declining prices. Three years off the peak of 2005-6 is 2009-10. I have followed this 10 year cycle as a model to aquire california RE. I now have 4 homes all with at least 20% equity, all on 30 fixed loans, total rental income of $82,000 annually. How about you?
August 27th, 2007 at 1:17 pm
Jimmy - The only ones who are socialists right now are the bankers and the hedge funders who want a bailout from the FED. Privatize the profits, socialize the losses. In the end, Joe6pack is the loser.
August 27th, 2007 at 1:56 pm
Scott,
There is one problem with your increasing rent comment……right now all of the flippers, speculators, and little donald trumps are realizing they can’t sell their homes. Guess what, they are just starting to rent them….The market is being flooded with rental homes…………as supply and demand in the rental market kicks in……rental prices will decrease. I watch Craigs list rentals and already there are reductions in rental prices.
You will learn this when one of your renters moves out and one of your homes sits empty for a year while you are begging for a renter. As so many are learning now, there cherished properties don’t have the value they wished for.
Personally, I am a renter after owning homes for about 25 years. My goal is to help a poor landowner avoid bankrupcy. See here’s how it works. An “invester” purchases a home for $1.2 million and has $3,500 per month of carying costs…….if he sells the property now he will lose $400,000(forcing a bankrupcy). He will go bankrupt in about a year becasue the carrying cost are rapidly emtying all of his savings accounts. So he tries to rent his million dollar home for $3,500 per month and there are no takers. Here is where I will help the poor landowner out. I will rent his home for $2,500 per month. Then his monthly loss will only be $1,000. He can make it at least 5 years before he has to sell the property………and the market may have picked up by then.
August 27th, 2007 at 2:49 pm
NanoWest–
Please clarify your statement. You say that there is going to be a biblical wave of foreclosures, but the rental market is going to be flooded with properties.
Where are all of the displaced people going to go? They certainly aren’t going to buy another home after being forclosed on. Everyone is being recommended to rent, not buy. Follow the herd.
Rents are going up at least 5% a year (most likely biggest jumps between tenants). Count on it, esp as inflation sets in, higher credit standards will keep people from buying, and interest rates are going to skyrocket keeping more people out of the market & renting.
Landlords will have a few good years after a few not so good ones.
August 27th, 2007 at 3:08 pm
The 1.2 million Dollar rental does not fit the “Model” for rental home in LA/OC. This landlord was a speculator/flipper and got in way over there head. Also at 3,500 a month for rent, anyone with good credit and that much inclome could just go buy there own house. My “model” for rental homes sugests rents that are more inline with Income. I have 2 & 3 bdrm units that rent around 2,250 with a 4 bdrm (exception ) renting for 3500 a month. The properties are not in forclosure areas like Telega and Ladera which also have high taxes, association, mell aroos. The units are in JOB HUBS with little to no commute. The job growth in LA/OC is going to support my rents… as they are inline with income. The only reason I raised rents 15% was due to the massive amount of construction I have performed over the last 2years. My tenant was happy to resign when he saw the investment I was putting back into the property. It is a win win. Outside of that rents are up 7% last two years. Check OCregister.com Lanser for details.
August 27th, 2007 at 8:40 pm
Tedster,
I suspect that when things start to settle out we will find that there is an oversupply of housing in orange county. My bet is that it may be as large as 10 % more homes(units) than there are people to live in them. The over supply was created by speculators and investors purchasing homes for resale.
No proof here just a hunch……………there are probably figures somewhere that show the growth in OC units and the populatoin growth. I did live in silicon valley during the glory dot com days and saw large rent increases, then in 2001-2002 the rents fell, they fell by a lot…mayber 20-30%.
Many of the displaced people will have to leave the region, espeically if they can’t affort to rent. Depends on what their income is………but there is a concept called the moving hole syndrome……….the only way to fix the problem is a large influx of home buyers………
As for the biblical wave of foreclosures………I think it will be more like a koran wave or something like that. I am a bear, and I believe that we will see a 50% decrease in home prices, to about 2001 values before this correction is over……again, just one bears opinion.
August 27th, 2007 at 9:37 pm
Hey Jon,
Grow the hair back.
August 27th, 2007 at 10:24 pm
What happens if or when lenders are forced back into traditional/historic lending practices i.e. 3 x salary or even 4x. With the median OC income that gets you half a house,
If lenders don’t cover the difference between even a big 20% down payment and the cost of a median OC home, that difference has to come from somewhere? 30%, 40% down payments I don’t think so.
Maybe that’s why some see a 30-50% decrease, it make sense at least fundamentally.
Our bosses will have to be very generous in the coming years or we will have to sell our homes for a lot less, plain and simple. If you don’t have to sell great, but others will, banks and lenders will and they will set the new price.
It’s starting to look more and more like a real possibility the decline will be greater than most feared, who knows and we won’t know until we do.
When we stop thinking like the greedy people that got us into this mess maybe our kids will have a future and we can build a better OC and USA. But since that’s not likely to happen on its own, the market is finally taking over and self correcting at least until a band-aid is applied or greed finds its way back into the system.
Raise rents unfairly just because you’re mad at the bears and our kids pay, they can’t save for the 40% down payment required by the bank and you just made it worse.
I tell the kids, if your landlord raises your rent unfairly or treats you bad, give them hell, make them pay, they have much more to lose than you, just be creative and pay the rent on time.
August 28th, 2007 at 1:29 am
with bloated inventory and rising foreclosures there will more
propertys available to rent which will drop rent prices not
raise them- if scott were a true landlord hed know that
foreclosures up over 700% and massive layoffs in
mortgage industry also portends a deflation in rent
not an inflation
August 28th, 2007 at 9:08 am
Rants: I am a landlord. I agree with you and nano regarding forclosures. I agree with you regarding layoffs and how that affects the rental market. Yes that will have an impact in the HIGH END neighborhoods with mass forclosures ( Telega / Ladera ). In the low to middle class neighborhoods there are plenty of service jobs. The data shows the OC as a destination for the hispanic labor force. If you read my blogg, my rents are in line with income = $2,250 anyone two people holding a service job could make that happen. In LA/OC $2,000 is cheep rent for a 2Bdrm and the bottom, or floor for rent. Example,the Irvine company is charging $1,800 for a 1Bdrm and $2,500 and up for bigger units. The Irvine Company is raising rents 6.5% for 2007. The same increase is on the table for 2008. Check OC.register.com / lancer for more data.
August 28th, 2007 at 9:54 am
OCNative: You are right, Sorry for the haste: I should have stated the developers and there cronies! 30,000++new units dumped on the suppy chain in OC over the next two years by: TUSTIN FIELD by John Lang & buddies. EL TORO Base by LENNAR.
August 28th, 2007 at 3:34 pm
Scott,
Remind me never to rent from you!
$2000+ is cheap for a 2bd? Are you smokin’ something?
I pay $1150/mo for a 1bd less a mile from the beach. The 2bd places go for $1400. Should we even get into how much the places actually cost to BUY vs. rent? Rents could rise for several years and I’d STILL be ahead especially in this declining market.
August 28th, 2007 at 3:57 pm
Gregg in OC: We are not here to make insults, simply to discuss market climate. My point is this: RENTS ARE RISING. If you read my blogg, I stated: DONT BUY NOW. BUY three to four years from the market Peak. That would be in 2009-10. YES you would be better off renting in the short run. Yes that is cheep rent what you pay, however there will always be qualified renters who can afford two thousand a month. Let me put it this way: It is not a “Model” for high end. It is not a “Model” for the low end. Simply a rate that most working class people can afford to pay.
August 28th, 2007 at 11:33 pm
The only problem is that the Register, and other extreme left papers across the country, are talking down the housing market. These papers hate America’s success. Whether it be a rising housing market or winning the war on terror. What we really need to do is ban the press and replace it with a Department of Happy Information to prevent any future decline in assets and to ensure our security. If a house price declines in a forest and no one is around to report it, does that house price really decline? No.
August 30th, 2007 at 7:59 am
This just in we have only spent about 4 million in Iraq and Bush’s approval rating is really 97%. I know that this liberal paper would never report the truth.
Media bias is only biased if you think it is. If the majority dont think it is than it is not bias, but news. Anything can be spun any way you want it to.