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O.C. fixed-rate home buys near 6-year high
March 31st, 2008, 12:05 am · 63 Comments · posted by Jon Lansner/ocregister.com
Looking back at DataQuick’s latest monthly report, I discovered a hint of a little mortgage sanity returning. Just see how the admittedly small group of buyers in O.C. are financing their deals. In the first two months of this year, slightly more than 70% of the buyers who financed deals used fixed-rate mortgages.
The accompanying chart (click on it to see a bigger version) show that this is the highest level of fixed-rate use since May 2002. You can bet skittishness about variable payments and low fixed-rate deals helped push adjustable-loan use to a nearly six-year low.
For perspective, DataQuick says that 55% of all O.C. purchases since 1988 have been made with fixed-rate loans as the first mortgage.
March 31st, 2008 at 1:15 am
Makes sense since homes are getting closer every month it seems to 2003-2002 prices!
March 31st, 2008 at 6:54 am
since home prices always go up
it’s going to be a cinch for all the people who bought between 2004 and 2006 to refinance
“affordability investment products”
neither affordable nor investments…… discuss amongst yourselves….
March 31st, 2008 at 7:27 am
This is clearly part of the return to rationality of this market. Median has dropped again to $507,250. We’re getting there. $300K at the bottom, only another 40% to go.
Why am I so bearish? Because this market is not just going to go back to fair value. Once they get going to the downside, markets tend to overcorrect. This one clearly has all the ingredients to get to a healthy overcorrection.
People can buy now with bubble equity and a fixed, but only by selling elsewhere in bubble land; we need to get to where new money can come in with a reasonable down and buy to make up for the fleeing boomers and other move-aways.
With all the jobs OC is shedding, supply demand balance is still to the downside.
March 31st, 2008 at 7:51 am
I wish the “Kids” would give it a break. They’ve said the same thing so many times. “I want prices to come down so I can afford to buy.”
By this time next year they will all have new names.
March 31st, 2008 at 8:05 am
if DonS would stop stirring his coffee with his but plug he may have less crap to say.
this is not age, this is intelligence…you have it or you don’t.
the loonies that purchased in the last 3 years are going down fastest and hardes.
the next crew (sadly, i know a lot of them) are going down in the next year, they took out refi loans to the max, they had lots of cash to get thru the last year, but that cash is bottoming out.
they are mentally prepared to abandon the homes and move out of cali or into apartments…this will be a landslide in home prices.
March 31st, 2008 at 8:17 am
DonS,
Or maybe they are just really good at investing. That is why they did not buy when RE was cheep. They really know the market…Right???
I think it is difficult for them to cope with the idea that they will be lifelong tenants. So they post comments about how bad things are getting to make themselves feel better.
How is the rental market? I just resigned 2 one year leases and increased rent by 5% without a grimmace. I have another comming due in May and will do the same.
March 31st, 2008 at 8:25 am
The people that purchased within the past 6 months thought they got a good deal, that they purchased Real Estate at a discount. But they are knife catchers!
Given that the sales price is still way overpriced, I think that we had many knife catchers step into the market and buy RE. How many potential homeowners are out there that qualify for the home loans under the new loan standards? With a negative savings rate in this country, how many have the 20% downpayment, full doc, etc. and enough job security to feel comfortable enough to buy Real Estate at this given time in the economic cycle?
When that relatively small pool of qualified buyers dries up, we’ll see much more depreciation in OC home values. The price momentum is still going strong in the negative direction and no data indicates that we will see this turn around anytime soon. The increase in the percentage of fixed rate mortgages as part of a home sales transaction indicates that we have qualified buyers that purchase the homes today. Makes total sense with the changes in lending standards.
The question now is how many more of those qualified buyers are around before we see the next big depreciation phase in the prices of O.C. Real Estate.
March 31st, 2008 at 8:29 am
Scott,
“So they post comments about how bad things are getting to make themselves feel better.”
Not really. Just staying realistic and working with the data that is out there. I actually put my money where my mouth is and bought some put options for some companies. I think that earnings will give a clue as to where the economy is headed.
March 31st, 2008 at 8:45 am
nfest80,
Don’t crop soundbites! Let it be said like I wrote it.
“I think it is difficult for them to cope with the idea that they will be lifelong tenants. So they post comments about how bad things are getting to make themselves feel better. “
March 31st, 2008 at 8:55 am
The gap between homeownership and renting will continue to widen. I would be surprised if home value (not median!) decreased anymore than 5-15% over the next few years. However, It will probably be greater than 10 years before appreciation in value takes place. Just my 6 cents (indexed for inflation).
March 31st, 2008 at 9:49 am
BUY BUY BUY!!!!!!
March 31st, 2008 at 9:57 am
I’m not sure where most people are going to get money to buy houses in OC. It still holds that it’s unaffordable to most buyers regardless of age. It’s not just young people who can’t afford. So…guess we’ll continue to see values drop until it becomes at least somewhat affordable. I think we will see big drops in RE values! I’d be amazed to find otherwise.
March 31st, 2008 at 10:23 am
hey Scott,
Where’s the love?
Why is it that when current non-homeowners are bearish on Real Estate you, and others, are quick to judge that we do it out of hate. That is so stupid and immature. And the “soundbite” did not distort your message in any way, shape or form…
Since the very first day I posted on this blog I’ve always supported my (bearish) Real Estate forecasts with actual data and events of financial history that are an indication of what will/is happening with our credit bubble.
There will come a point when I will be bullish on (OC) Real Estate. That is several years down the road though as the worst has yet to come. Until then we will continue the “soft” landing
March 31st, 2008 at 10:24 am
“It still holds that it’s unaffordable to most buyers regardless of age.”
Untrue. Houses are a mere 7% above “affordability”. What you should have said is:
“It still holds that it’s unaffordable to most first-time buyers to be able to buy move-up homes in better cities.”
March 31st, 2008 at 10:33 am
invest80,
I am just being realistic and not forecasting what I want to see happen like others do for their own personal gains.
March 31st, 2008 at 10:34 am
Wow, it’s 7% above afffordability in OC? Where does that data come from? I thought I had read that it’s still quite unaffordable to most people in OC, isn’t that still true?
The gap (cost) between one’s current home and the new home they are looking to move-up to is still quite large especially because the more expensive homes hold their value as compared to condos/townhomes, etc. The property taxes often doubles too, making it even less affordable.
But maybe most people can afford to move up here, that’s new to me if that is actually true.
March 31st, 2008 at 10:44 am
The 7% is from the Global Insight report posted here a few weeks back.
March 31st, 2008 at 10:44 am
Rants,
In your URL: /opinion/sund…
Says everything!
Subscribe to wsj.com
Mick,
Get an investment adviser and invest in aggressive international stocks and commodities. Then you will understand.
March 31st, 2008 at 10:52 am
Scott: What are you talking about?!?!? There are plenty of wealthy folks who live in OC homes that are bearish on OC RE and are willing to state that. Are you feeling a little queezy this AM or something?
Insinuating those bearish on OC RE having to be people that will be lifelong tenants - and you of all people who is current bearish on OC RE.
I agree - state it like it really is. You sir, definitely did not.
So where are the intelligent bullish commenst such as, OC RE will eventually return to current values and go even higher. Or, no matter what, demand will always be there to force home values up in the end. Etc. Etc. I should get a buck from the register for every time I have to read such simplistic stupidity.
March 31st, 2008 at 10:58 am
As for the topic at hand: bears and bulls alike shoud be rejoicing in the point this topic makes. It foretells a healthy market ahead of us. People that can afford to buy are buying and those that cannot should not be buying.
Let everything happen to facilitate a healthy return to a normal market.
Eventually, the equilibrium will be hit and the market will flatten out for a bit and then return to a normal level of annual appreciation for all who truly can afford to enjoy.
The days of people entering the market to buy $600K homes with merely a $100K annual income is over (at least for those without trust funds, equity in other RE, and someone willing to gift them some dough).
March 31st, 2008 at 11:01 am
Scott,
“invest80,
I am just being realistic and not forecasting what I want to see happen like others do for their own personal gains.”
We must be obviously looking at different data then…I look at:
- sales volume
- NOD
- NTS
- % NOD –> NTS
- building permits
- interest rates / loan product availability
- unemployment
I further take the economic system as a whole into account. USD policies, stock market, consumer spending, U.S. Savings rate, etc.
How anybody can ignore and/or look at those variables and come to the conclusion that the O.C. Real Estate pricing correction is almost done and we’re closed to reaching bottom is far beyond my ability to comprehend.
March 31st, 2008 at 11:41 am
invest,
Well actually we are looking at the same statistics just interpreting outcomes differently. It is a matter of opinion.
I do not consider 10 plus years anytime soon for recovery. Does anyone?
March 31st, 2008 at 11:43 am
The goal of the government at this point is to decouple the broader economic markets from the housing sector. Presently the housing market is dragging the rest of the economy into the toilet for no reason. If the government can create the “detachment” and people are not worried about their real investments….then we will be OK.
All that will happen is that 10’s of millions of Americans(homeowners) will loose 50% of their paper real estate gains….no big deal. Its gonna happen anyway, lets hope that it doesn’t sink the entire economy.
March 31st, 2008 at 11:51 am
What’s going to happen in 10 years that isn’t going to happen in 5 or 2 or 15? Sound like a wildass guess!
March 31st, 2008 at 12:14 pm
the only guaranteed wildass thing i see here is september 2003 to march 2007
March 31st, 2008 at 12:27 pm
Thoughtful,
How negative do you think the Global Insight affordability number will get in this down turn? - 30 % , - 40%, what do you think?
In the 1990s it got into the negative 30% range…..
LOL@Ribsplitter
March 31st, 2008 at 12:56 pm
Fixed rate is up proportionally because the exotic adjustable products have disappeared. That tells us nothing about overall market direction, however.
March 31st, 2008 at 1:14 pm
Adjustables are alive and well. Get out of the house once in a while.
March 31st, 2008 at 1:16 pm
mav, we are not going back to the 1990’s. Aside from the fact that Orange County is different in every way from 1990, including its diverse economy, there is a little thing called supply and demand. And this does not even take into account the massive difference in buildable land since then.
1990:
Population of Orange County – 2,410,556
Housing Units – 875,072
2000:
Population of Orange County – 2,846,289
Housing Units – 969,484
Added 435,733 people since 1990
Added 94,412 units since 1990
Population increase since 1990 – 18.1%
Housing units increase since 1990 – 10.8%
2006:
Population of Orange County – 3,002,048
Housing Units - 1,022,937
Added 591,492 people since 1990
Added 147,865 units since 1990
Population increase since 1990 – 24.5%
Housing units increase since 1990 – 16.9%
The trend is not your friend!
March 31st, 2008 at 1:20 pm
not buying,
Sorry for the late response. I did not see your post earlier.
I guess only time will tell if you will be a lifelong tenant. Prove me wrong or not. It is up to you. I think most will probably be too “bearish” to ever make the commitment. I say this now because the opportunity for cheap RE was available in the past, but you all did not jump. That is fine with me though. It gives me business and will support an early retirement.
March 31st, 2008 at 1:23 pm
Nice data thoughtful. Do you have any indicators of OC population still increasing?
March 31st, 2008 at 1:24 pm
Eat it in the OC, what a fascinating article! These two have been out of a job for six months, they have burned through their cash and admit they are heading towards a wall, and yet they still don’t get it and still are in denial about how big their personal role was in this entire mess.
I especially loved this quote from the wife Mysti,.. “The media has somewhat tarnished the subprime industry and all the employees, and portrayed them as being dishonest,” she said. “We’re not dishonest. Not everybody was a bad borrower. Not every company was a bad lender.”
Is she kidding? She worked at New Century as an executive for years! She had to know just how slimy and shady their entire business plan was! And if she didn’t, she truly was oblivious to everything the company stood for and everything that was being said at the water cooler for the past five years. Mysti, honey, you are just as much to blame as everyone else. Just be thankful Mysti you didn’t end up in jail or in front of a House Sub-Committee on Un-American Activities.
Mysti and Kent, you have personal responsibility for this mess, and you were deeply involved in this entire ponzi scheme. You can not try to paint yourselves as the poor victims who had to sell the Corvette and fire the gardener. No one is buying it Mysti.
March 31st, 2008 at 1:41 pm
Thoughtful,
LOL, and trees grow to the moon !
they aren’t making any more land, this time it’s different !
March 31st, 2008 at 1:47 pm
Thoughtful, thanks for the data, but I don’t know if it tells the whole story. How much of that population increase is due to couples settling down and having kids? How many people moved to the IE/LA county and commute to OC because they can’t afford to live here. Just because there are fewer houses being built doesn’t mean that there is a low supply.
I don’t think builders would have delayed as many projects as they have right now if there was actually some shortage.
I don’t agree with the no more land thing either. THey can always build up as we saw with the high rises going up.
Does anyone know what % of people work in construction/real estate/finance in OC? Because these areas have been hit really hard and I know we are (were?) big on areas like financing.
March 31st, 2008 at 1:55 pm
Jonas, a statistical sample of 3 million is sufficient to draw conclusions. I don’t think there are all that more babies today than in 1990. Your comment on commuters isn’t relevent, because these are not the “daytime” population numbers, but the Orange County residents numbers. Of course they can build up, and they will, but that only makes land more valuable, not less.
March 31st, 2008 at 2:01 pm
Thoughtful, Thank you for your response. I still don’t think we have a shortage of land (have you seen the amount of open space out in Mission Viejo Ranch I think it’s called?) yet, though I’m sure we will someday.
Even if there is a scarcity of land, prices can only be supported by what people are able to pay. If incomes don’t meet the rise in prices at least somewhat, I would think prices would have to fall.
March 31st, 2008 at 2:01 pm
Builders taking a short-term breather due to extraordinary market disruptions is not related to demographics. And there is more of a shortage than there was in 1990. I promise: it IS different this time, and they ARE not making any more land! LOL.
March 31st, 2008 at 2:03 pm
When there is a 30 year supply of land, the value of it is different than when there is a 20 or 10 year supply. This is basic stuff, supply and demand.
March 31st, 2008 at 2:05 pm
truthi, there is a supply issue? you bet there is…… builders moth balling left and right, and record inventory levels
demand issue? you bet…. I bought a TV off a realtor at Best Buy the other day
March 31st, 2008 at 2:06 pm
“If incomes don’t meet the rise in prices at least somewhat, I would think prices would have to fall.”
You are right, but they may also get much less for the money going forward.
March 31st, 2008 at 2:08 pm
Tacky (and irrelevent), mav.
March 31st, 2008 at 2:12 pm
I read these comments like they are written in a static tomb. The economy is dynamic and especially now unpredictable. The Fed is pouring billions of dollars into the mortgage market and even long term 30 year fixed interest rates are below 6 percent. Yes, econnomics is cyclical and it does expand and contract, but fiscal and monetary policy can rapidly change the momentum and direction of economic growth.
It is difficult to be optimistic about the near term future of our economy, but I believe the key is to increase aggregate demand and economic growth. If we are able to increase productivity and increase GDP, all these inflated real estate prices will again be rational;. It is only when you believe things are going to get worse do all the negative beliefs and theories seem appropriate.
I personally know, I can do nothing to change macroeconomic trends, but I can work hard and hope to increase my own business on a relative basis to all the convinced that believe the economy is going to tank. Walking round with that message inscribed in your mind’s eye is a recipe for failure.
Here is a fact most Orange Countians may find difficult to believe, but historically the Democrats have presided over more favorable economic times. The reason is simple, they focus on the aggragate demand, “a rising tide floats all boats.” As long as we moderate inflation and grow our economy keeping real interest rates low we do not have to see the housing market crash.
March 31st, 2008 at 3:00 pm
Furthering Jonas’ point, people get so easily confused about supply and demand. Supply and demand has little to do with how many houses total there are vs how many people there are in a county or city. Supply and demand is how many homes are available/willing to be sold by willing buyers AT A CERTAIN/SPECIFIC PRICE.
I don’t care if the population increases 250%, if the vast majority of the population increase can NOT afford homes at the offered/specific price, then none of those pepople consitute demand. That is where the bulls make their biggest mistake. (It would, on the other hand, make a huge difference for apartment owners, land owners, and what little low-income housing there is.)
As prices went through the roof, ask yourself how much of the ‘demand’ actually increased: people who could TRULY afford (i.e. pay back fully amortizing loans) the higher price points. I argue that demand actually decreased.
Furthermore, look at the numbers more closely, and even easier, look around you. Where are the increase in #’s coming from. Is it middle-income families or upper income professionals. Nope, those people are moving out in droves. It’s immigrants and lower income folks that make up the numbers (along with the birth rate). Again I say to you, demand has actually decreased during the boom (again, AT THE THEN CURRENT PRICE OFFERINGS). This is obvious now, as the statistics support it and sales are at crazy low levels and have been low for a long time.
True demand will not increase or return to normal until the offering price point drops to more historic norms, plain and simple.
Recap: higer population / more people does NOT equal more demand.
March 31st, 2008 at 3:04 pm
correction in paragraph 2: …. “apartment owners, LANDLORDS, and what little low-income housing…”
March 31st, 2008 at 3:05 pm
correction paragraph 1: …”sold TO willing buyers at a certain price”.
Sorry, typing fast here.
March 31st, 2008 at 3:07 pm
Troll, I said *exotic* adjustables.
Your growth stats actually demonstrate the oversupply of housing because you use population instead of household growth. Divide 24%/3.00 (US Census avg HH size in Orange Cty) = 8% housing growth was needed to maintain the 1990 status quo. 16% was built. We trivially have a 2x oversupply compared to that time.
March 31st, 2008 at 3:30 pm
“Where are the increase in #’s coming from. Is it middle-income families or upper income professionals. Nope, those people are moving out in droves. It’s immigrants and lower income folks that make up the numbers (along with the birth rate). ”
Can you document this, or is it just a wildass guess?
March 31st, 2008 at 3:31 pm
Now is a great time to buy.
March 31st, 2008 at 3:32 pm
If your statement is true, which I doubt, then the median income is artifically low, due to the many poor immigrants who are dragging down the income of the average homeowner.
March 31st, 2008 at 3:47 pm
The median income in Newport Coast is 278,000 or so. Does that afford them a 2-3 million dollar home? of course not. They don’t have lots of immigrants pulling down their median- and it’s way too low to afford the houses. Look at the median incomes in the higher end spots, and the median house prices. Does not compute.
March 31st, 2008 at 3:57 pm
quarmilearner, I already shot down your report. It is not at all what you are painting it to be.
March 31st, 2008 at 3:58 pm
“there is a little thing called supply and demand”
And here is your friendly neighborhood bean counter to remind everyone, once again, that demand > “I wanna house.” To be precise, demand = “I wanna house” + ability to pay for house.
The number of people saying “I wanna house” is basically flat in OC since 2006. The “Ability to pay for house” component is dramatically lower since then.
Demand for OC housing is therefore much lower than it was in 2006. Supply? Supply has risen (from continuing new home construction + speculators trying to cash in).
Thoughtful and Mulligan, you’re absolutely right: It is all about supply and demand. Just make sure you understand what the demand curve consists of.
March 31st, 2008 at 3:58 pm
Mom, are you crazy? Your neighbors are check writers. Whaddaya think the average down is there?