Here's recent history of the Fed’s policy committee and its Fed Funds rate. Next Fed decision is June 24/25.
O.C. homes seen as 25% less unaffordable
May 22nd, 2008, 1:00 pm · 82 Comments · posted by Jon Lansner/O.C. Register columnist
Analyst Erik Franks at John Burns Real Estate Consulting from Irvine notes that falling prices are making a serious dent in shoppers’ affordability challenges nationwide:
Housing affordability has improved dramatically in the last year, particularly in those markets where affordability was previously the most concerning. Each month, we calculate our Housing Cycle Barometer rating - a measure of the relationship between incomes and housing costs - for more than 380 metro areas across the country. The number of markets that we designate as “Areas of Significant Affordability Concern” - where the Barometer rating was 7.5 or higher (out of 10) - has fallen from 42 markets one year ago to only 3 markets today.
By Franks’ math, O.C. is one of those markets that dropped off JBREC’s affordability danger list. Its affordability rating of 6.6 out of 10 in this latest report was way down from 8.8 a year ago, or — by your blogger’s math — a 25% drop in relative unaffordabilty. JBREC pegs O.C.’s median pricing falling at $570,000 vs. $695,000 a year ago, one reason why JBREC’s housing-cost-to-income ratio for O.C.’s dropped to 67% now vs. 78% from a year ago.
Studies from Realtor and homebuilder groups also show increased homeshopper buying power. CLICK HERE to read more on those results.
May 22nd, 2008 at 1:21 pm
even if 25% is true which is open to debate
that means theres still 75% to go duhhhhh
May 22nd, 2008 at 1:31 pm
Or if all else fails….you can do just as I did and buy a drastically overvalued ‘condo’ in America’s cornhole.
May 22nd, 2008 at 1:43 pm
The 5 Stages of Grief:
1. Denial ~ This stage is about trying to pretend that the event that caused the grief never happened.
2. Anger ~ The second stage involves feeling a “Why me?” response, raging at the situation that caused the grief.
3. Bargaining ~ This stage is filled with a feeling of “yes, but” or “if only,” which is all about trying to bargain your way out of having to accept what has happened.
4. Depression ~ In the fourth stage, you are starting to recognize that the event has happened, but there is still a feeling of resistance or feeling depressed or abandoned.
5. Acceptance ~ Here, you face the event with a sense of calmness, a kind of resignation that allows an acceptance of what has happened.
The PermaFools that frequent this venue are presently between stage 1 and 3 of financial grief.
May 22nd, 2008 at 1:47 pm
I believe these are the steps lee followed to get over her grief about mistiming the last real estate surge. Come on, get smart….mistime the market even worse, like I did, and buy a sheisty condo at an overly inflated price in the middle of nowhere.
May 22nd, 2008 at 1:52 pm
I don’t know why OC is having such job troubles. Employment out here in Murrietta is at an all time high….every corner has been claimed by a hooker….all our freeway offramps have at least one panhandler…..i’m washing windshields at THREE different intersections. Business out here is booming! Now if we could only find a way to get rid of the smell of feces.
May 22nd, 2008 at 2:04 pm
Are you being sarcastic david or serious?
May 22nd, 2008 at 2:23 pm
Poggi’s be smokin that Wacki Tabbacki
May 22nd, 2008 at 2:43 pm
As long as I still see a run down home in a bad part of Santa Ana presently listed for $300,000, there is no possible way we are close to “affordable” since the only person that can buy this hole in the wall is somebody making around $100,000 a year with $60,000 cash down. LOL, how ridiculous is that?
Riiiight, there is always Portola Springs townhomes in Irvine selling for $450,000 but with monthly Mello Roos fees of $2,000 (I don’t want to know what the HOA fee is) - another absurdity.
There is a ridiculous amount of inefficiencies in this market and right now it is the sellers who will be suffering. Buyers can just rent and wait it out, they are not “missing” out on any boat. What’s the “worst” that could happen? We hit bottom and things stay flat for the next 2 years. Clearly, there is no urgency to buy “now” like there was in 2005.
As long as that urgency is absent, buyers can take all the time they want shopping for a good deal.
May 22nd, 2008 at 2:52 pm
FREE DEL TACO food for ONE year if you buy my condo in Irvine near the 5 freeway.
May 22nd, 2008 at 2:57 pm
“As bad as that sounds, the housing market is going to get worse, says Liz Ann Sonders, chief investment strategist at Charles Schwab & Co.
Because home prices are depreciating, the “real” mortgage rate for homebuyers is about 15%, Sonders says.”
Take a look at this video
May 22nd, 2008 at 3:02 pm
Inflation is going to get really bad.
This is what Bill Gross said this morning regarding inflation.
May 22nd, 2008 at 3:06 pm
test
May 22nd, 2008 at 3:07 pm
david pogy keep the jokes going!
May 22nd, 2008 at 3:17 pm
I’ve been reading posts and comments and finally decided to post! First, I think it’s funny that people can’t figure out how this has happened to the market. How can it NOT have happened? Prices were too high and completely unsustainable. Second, we just bought our first home and in our search, we saw the incredible and amazing (and not in a good way) things that people did to “afford” their mortgages. And this before all the rate resets. Third, I saw a comment that zero down mortgages were gone. Not true! We bought our house, zero down. And lastly, I think that is a good time to buy, if you planning on staying put. The times of flipping homes in one months time to rake in obscene profits are long gone!
May 22nd, 2008 at 4:05 pm
OCTrojan: is that correct? $2K a month on melloroos?
If that is correct - someone, somwhere, honestly thought very little of their fellow man - they must have taken them for an absolute moron.
May 22nd, 2008 at 4:26 pm
I love it, another stuck up OC resident is pretending to be me. How sad that you have nothing better to do with your life. Every post on this article that says it’s by me is obviously fake. Except this one.
I think I hurt someone’s feeling really badly by stating the obvious fact that OC real estate was, is, and will continue to be over priced for some time to come. I’ve lived here my whole life. But unlike some of you I’m not in denial. Pull your heads out of the sand before it’s too late. If you really feel that every family in OC should need to make $250,000 a year to have a decent place to live, good luck to you.
May 22nd, 2008 at 4:31 pm
And that person is obviously right. Buying real estate in an already over-priced county a few years later at the height of the hugest bubble market of all-time is much better than buying in an up and coming city during a year when values just fell 50%. I’m sure there’s much more change that a condo in Irvine will be worth $1,000,000 before the one I’m buying in Murrieta is worth $300,000. Dream on!
I’ll be doubling my money over the next few years while someone buying a similar place in Irvine will be barely treading water. Not to mention the fact that they’ll be home-poor and slaves to their mortgage payment while I’m going on vacations. Good choice current OC buyers.
May 22nd, 2008 at 4:38 pm
The bears on this blog have been screaming “its about affordability,” but they still aren’t satisfied when we approach more typical historical affordability standards. The bears’ real concern has always been about personal affordability. They want home prices to drop so they can afford the home they think they deserve.
May 22nd, 2008 at 4:50 pm
Crystal Balls, way to tell everyone who doesn’t own a home how they feel and that they all think they’re entitled to a great home without working for it. I’m sure you can read everyone in OC’s mind.
And I guess before you bought your first place you felt you deserved some big house without having to work for it as well. You’re a moron with a capital M.
May 22nd, 2008 at 5:03 pm
A Senate bill aimed at reviving the beleaguered U.S. housing market could make borrowing for a home more expensive in high-priced markets such as California.
Loans made by Fannie Mae and Freddie Mac will drop to $550,000 after spending 2008 at nearly $730,000.
OC will get very little help from this Senate bill.
http://www.businessweek.com/ap/financialnews/D90Q9A0O0.htm
May 22nd, 2008 at 5:05 pm
What’s the historical affordability standard for oc? Does anyone have a link to a chart of oc home affordability vs year starting from as far back as possible?
The homes are becoming less unaffordable, but it seems to me it still has a way to go to become affordable.
May 22nd, 2008 at 5:13 pm
“The bears on this blog have been screaming “its about affordability,” but they still aren’t satisfied when we approach more typical historical affordability standards”
The person who wrote this is obviously in stage 3 of the 5 stages of grief.
Once again, Stage 3:
Bargaining ~ This stage is filled with a feeling of “yes, but” or “if only,” which is all about trying to bargain your way out of having to accept what has happened.
May 22nd, 2008 at 5:46 pm
Well, I have to say that not only was “Evil Twin” Poggi right on the money, he was also way more entertaining to boot.
Must be a case of paranoid schizophrenia, right Dr. Lee?
May 22nd, 2008 at 5:59 pm
Whew Poggi, I was worried. I thought maybe you had accidentaly moved to Moreno Valley.
May 22nd, 2008 at 6:02 pm
please, anyone with a 3rd grade education would know who that was
May 22nd, 2008 at 6:12 pm
I must say it was fairly comical Poggi…we knew it was not you though.
May 22nd, 2008 at 6:28 pm
No, I moved to Temecula so I could find hookups for my triple wide. I spent the extra cash I saved repainting the flaming firebird on the hood of my 75 Pontiac…she is a screamer.
May 22nd, 2008 at 6:32 pm
Bill:
Lower conforming loan limits is definitely a problem with the Senate bill, but it’s actually better than the status quo, where it drops back to about $400,000 at the end of the year.
May 22nd, 2008 at 6:38 pm
Realtor Dave…Bill is extraordinarily negative…after all, 750 job losses = 750 foreclosures in his “reality.”
May 22nd, 2008 at 6:39 pm
There are three components to affordability:
1. Home prices.
2. Interest rates (mortgage, preferably long term–not Fed overnight rates)
3. Income.
Unfortunately, the inflation we’re all experiencing, combined with the government’s unfettered borrowing is pushing interest rates up. (See “Oh-oh! We just passed a nationwide bottom!“)
What we need is flat or declining long term interest rates.
We’ll leave income for later.
Permanent spending/borrowing reform in DC would do more to help housing and the general economy than all the housing relief bills in the world.
All three Presidential candidates are in the Senate. How about real action & less talk? Maybe none of them deserve our votes, although I must admit that one candidate’s husband actually brought the deficit under control.
May 22nd, 2008 at 6:54 pm
RealtorDaveE says:
“1. Home prices.
2. Interest rates (mortgage, preferably long term–not Fed overnight rates)
3. Income.
Unfortunately, the inflation we’re all experiencing, combined with the government’s unfettered borrowing is pushing interest rates up. (See “Oh-oh! We just passed a nationwide bottom!“)
What we need is flat or declining long term interest rates.
We’ll leave income for later.”
Personally, I’d go for #1 declining or flattening into the range of #3 with short term #2 increasing to control all around inflation.
May 22nd, 2008 at 7:00 pm
I must admit that one candidate’s husband actually brought the deficit under control.
Do you honestly believe that would have ever happened if the other party wouldn’t have taken over congress in 94? That was the 1st year I voted.
Too bad that elephant party became addicted to power and abandon the very people who put them there.
May 22nd, 2008 at 7:43 pm
RealtorDaveE Says:
“What we need is flat or declining long term interest rates”
That’s actually the last thing we need.
Lower rates create:
Inflation = Dollar Worth Less
Higher Food Prices
Higher Gas Prices
Higher Utility Bills
Higher Deficit
Loss of Purchasing Power
Economy Slows
Unemployment Rises
Inflation is starting to choke the folks that have previously been able to make their payments on time.
Lower rates are a double edged sword.
When rates are too low they create more financial stress for homeowners than they alleviate.
May 22nd, 2008 at 7:54 pm
Actually, Bill Clinton had the defecit declining due to good ole’ fashion economic growth (not GOP congress) as we came out of the recession in the early 90s and then the tech boom. Gas was cheap (relatively), inflation controlled and no big wars. The only blame that the current admin for the debt I have is the war in Iraq since it was avoidable (and frankly unnecessary, a proxy war with Iran in Lebannon would have been way cheaper).
Clearly things are more affordable in some areas..that’s great. But frankly, and I shouldn’t be knocked for this but I’m sure I will, I am waiting for something bigger or in a better neighborhood because every fiber of my being tells me that I’ll be in that residence for a long time before I’ll be able to move comfortably. If that’s in GG or SA well then that’s the way cookie crumbles but in the meantime (and I have lots of time) I’ll wait. Still not buying the fear product.
May 22nd, 2008 at 8:34 pm
Bill said:
“Lower rates are a double edged sword.
When rates are too low they create more financial stress for homeowners than they alleviate.”
I recall the bull argument that inflation (i.e. market forces), not speculation, was a major engine behind RE appreciation. Is this claim still valid when inflation has taken the opposite direction of RE prices?
May 22nd, 2008 at 8:55 pm
lee,
Actually, I was just thinking about that–how far the Republican Congress fell. where’s Newt Gingrich when you need him? (Guess his late ex-wife asked the same thing!)
Clinton got lucky (maybe too lucky) (not that–let me finish!) with the end of the Cold War & military cuts, but he was willing to hang tough on spending while implementing some moderate tax cuts.
I thought his economic policy was strong & he was competant on domestic policy, but failed us in foreign affairs. Domestic affair too, but that’s another story entirely.
Bill,
The Fed forcing rates down was a big part of how we got into this mess, so I’d have to agree that artificially reduced interest rates are not a good thing.
However, rates that come down as a natural by product of fiscal responsibiltiy are an overall positive, because governmental spending restraint is as anti-inflationary as government overspending is inflationary. Not well worded, but hopefully you get my drift.
A modest reduction in the value of the dollar is also beneficial to U.S. industry. Another double edged sword.
Regardless, I’d like to see Congress and the President quit acting like the worst of the sub prime borrowers and show some restraint. If they had FICO scores for Congess or the Administration, it’d be so low that not even New Century would give them a loan!
If you and I can balance our budgets, why can’t they?
May 22nd, 2008 at 9:20 pm
You know what’s ironic? With the high probablity of fixed rates rising in the coming months, the use of adjustables will become more and more sensible - but we are coming off a huge run up in pricing heavily fueled by record usage of such loan types when fixed rates were at their 40 year lows.
I have a question: how many folks here believe that monthly sales volume will match the 20 yr monthly average, on a monthly basis, by the winter months?
By next spring?
Talking about OC only, of course.
Just really curious
May 22nd, 2008 at 10:43 pm
I dont think so NBI…as much as I would like to see it. The bottom line is the very people who were scooping up mortgage backed securities as fast as they could until last August, are now piling everything they have into commodities. Does Wall St. understand the term diversify? What a bunch of sheep.
1997-1999: tech love…tech crash…niche blue chips here have done well since…think AAPL and RIMM…darlings of the Nasdaq.
2002-2007.5: mortgage love…primary cause of the runup of housing prices across the country. No big-fish buyers would have kept the masses out as lenders would not have been able to unload the mixed bag of A, Alt-A and Sub-prime…yep, they were packaged together. Just brilliance from Wall St.
2007-present: commodities lovefest from corn to oil to soy to wheat to precious metals. Add the ethanol craze (which will never work) and you have farmers feeding the politicians over people. Total lunacy to think corn is the solution to India and China buying as much oil as they possibly can which is the x factor in this whole thing.
Airlines are charging extra now if you check baggage…period. Well, American is doing it…will the others follow suit? I dont think they have a choice…must feel terrible to be in a business where your primary expense for doing business is completely out of your control.
May 23rd, 2008 at 5:29 am
RealtorDaveE Says:
“However, rates that come down as a natural by product of fiscal responsibility…….”
So true, but the Feds are doing anything but acting responsibly.
The Feds are trying to feed an unnatural, artificial housing bubble at the expense of the consumer.
To balance the run away inflation we’re experiencing, rates should naturally be adjusted upwards by 3 to 4 points.
The Feds are working backwards once again and unfortunately all of us will pay dearly for this error.
May 23rd, 2008 at 6:04 am
Home loan failures in San Diego County continued to set new records in April, the 37th consecutive month of year-over-year increases for both foreclosures and notices of default.
There were 1,413 residential foreclosures in April countywide, a 35 percent increase from March but a rise of 169 percent over April 2007, DataQuick Information Systems reported Wednesday.
March had a foreclosure rate of 34 homes per day compared with 47 per day in April.
April notices of default, the first step in the foreclosure process, reached 3,297, an increase of nearly 14 percent from March and a rise of 145 percent from a year ago.
The renewed surge in defaults shows that an end is not in sight.
May 23rd, 2008 at 7:00 am
Mulli,
good for you….. you are starting to understand bubbles…. it sounds like you are now willing to admit that we had/have a housing bubble…. just like we had a tech bubble………. and it was all casued by poor monetary policy………
housing will remain depressed for years just like the NASDAQ until fundamentals return……….. still about a 20% drop in OC home prices left… based on fundamentals….
May 23rd, 2008 at 7:21 am
Mav,
The one stark difference I see in comparing the housing market to the Nasdaq is with respect to investing, there are loads of vehicles out there to choose…commodities, minerals, shorts, longs, stocks, spdrs, etc. With housing, and if you live here, you have two choices…rent or own.
My contention has always been that we were in a lending bubble. I think most agree with that, as the money sources have dried up a bit, although they are beginning to come back…very slowly but surely they are. I do not anticipate funny money coming back, with the 2/28’s, no money down for the 610 FICO individual.
There are 80/10/10’s out there and are easily accessible. They just will not be by countrywide or any of the sub-prime morons who were the very backbone of the greed. I cannot blame the consumer here as when you are giving money away, most will take it.
I remain bullish on RE mav…I know my emotions can become involved as I am passionate about RE. There are many good buys out there today which will cash flow for investors…my bet is a good bit of inventory that is moving is by this very bunch. There is a good bit of money on the sidelines itching to get in the game.
I know I have been guilty of this in the past: at times I have attacked, belittled some just due to the fact we may be on opposing sides of a debate. I have vowed no to do that in the future. I know there are some others who could admit the same…that will be up to them.
May 23rd, 2008 at 7:27 am
Mulli,
The NASDAQ run up was driven by internet stocks. You coud superimpose a chart of the NASDAQ over OC housing prices….. you would see how fundamentals returned to teh NASDAQ with a market capitulation……. and then went up at a steady pace with fundamentals. The NASDAQ is still well below the bubble point. OC Housing will take many years to recover.
Credit bubbles take years to correct. The crazy lending of yester year probably won’t happen again in our life time….. lending is going to be tight for quite some time………… that’s how credit bubbles work…….. and as you point out….. the money runs for the hills and goes into another bubble…… that’s how our crazy fed and government seem to operate……… so after commodities there will be another bubble………… but it won’t be housing for a decade or more……… there is still plenty of downside pressure on OC real estate…. a good 20% or more in price drops
May 23rd, 2008 at 7:29 am
on your last point, Mulli, it’s all in good fun, this blog is for entertainment……. some of us are more clever…….. then there are other obvious bloggers here who resort to being vulgar…… you have never been vulgar as far as i can remember….. so no need to say anything
May 23rd, 2008 at 7:34 am
Mav deserves a good slap once in awhile
May 23rd, 2008 at 7:35 am
Regionally, existing-home sales in the West rose 6.4 percent in April to a level of 1.00 million but are 15.3 percent below a year ago. The median price in the West was $285,700, which is 16.7 percent lower than April 2007.
May 23rd, 2008 at 7:37 am
I read alot about fixed mortgage rates on the rise. I disagree, as soon as the melt down of prices comes to a head, mortgage rates will fall drastically. right now, FNMA and FHA are priced about 1.5% above what traditionally they would be based on the feds cuts. This is because of the great market risk of the housing market. This will shake out in the next 12 months, dramatic falls in prices, especially on the high end in CA. Once the values come down to reality, rates will fall dramatically.
May 23rd, 2008 at 7:42 am
motgage maker….. the more home prices fall…. the more risk exist in home loans…….parallel to this….the more a loaf of bread cost… the more likely long term rates will go up……….. it seems like the perfect storm….. but this was fate
there is a good post on how comps in a declining market effect lenders and credit access………. today at http://www.irvinehousingblog.com
May 23rd, 2008 at 7:52 am
Believe me, i know that rates are pressured to rise and if you think about it they have rose even though the feds continue to cut. The fed cant stop it, as much as they would like too. But, when the market levels off things will change. It is not going to take as long as you might think to washout our local market. Values are going to dump hard and fast, there are a lot of people who would like to buy a home at an affordable price and that qualify for loans locally. They will be able to shortly.
May 23rd, 2008 at 7:55 am
Mortgagemaker,
Eventually the premium for mortgages will drop to more normal levels, but most investors will be gunshy for years. As long as the government keeps running up the deficit, rates will remain high. The mortgage premium is only part of the picture.
On a more general note I’ll throw in one mildly bullish thought just for some balance, but PLEASE don’t mistake me for Gary Watts:
As I’ve said, the bottom in price still lies ahead of us, and things certainy look glum (from a homeowner’s perspective) right now. But my experience with prior downturns is that things really did “look darkest just before the dawn.”
I remember sitting on a panel on multi-family housing with for an appraisal convention in Anaheim around 1995. I was surprised that every multi-family agent I spoke with there was seeing a recovery begin in actual sales, while I wasn’t even thinking in terms of a bottom yet.
The real question is “How much of an adjustment is needed?” There are differing metrics, but prices are back to 2004 numbers, although medians are very deceiving. I think actual prices have declined more.
Affordabiltiy is up enough to bring many buyers into the market.
I think the onslaught of foreclosures will result in a temporary overcorrection, which may just keep the insane cylce going. Not that different in some ways from 91-07. Guess that’s why they call it a cycle?
May 23rd, 2008 at 7:58 am
Today we have more bad news for the housing market.
“Sales of existing US homes fell 1% in April, slightly better than expected, but inventories of unsold homes surged 10.5%, according to the National Association of Realtors.
It was the eighth decline in sales in the past nine months, while the backlog hit the highest level in more than two decades.”
“Prices fell in 43 states, with California and Nevada showing the biggest declines.”
Read the report.
May 23rd, 2008 at 8:04 am
well said Realtor Dave….the overzealous lending practices of the past have been replaced with irrational fear.
May 23rd, 2008 at 8:11 am
Hey Bubbie
“Regionally, existing-home sales in the West rose 6.4 percent in April to a level of 1.00 million but are 15.3 percent below a year ago. The median price in the West was $285,700, which is 16.7 percent lower than April 2007″
From the Report verbatim
May 23rd, 2008 at 8:17 am
Its not about bad lending, its about bad values. Our homes are not worth what lenders were lending on them, regardless of what kind of loan they offered. Full doc, alt doc, subprime, whatever, they lended money on a bad asset.
You think this is affordable?
$417,000 97% financing
$2500 pandI + 220 MI + 440 taxes + 200 hao + 100 haz ins = $3400
for what the market has to offer at $417k today, $3400 is no bargain. Thats why the dont sell. Wait and see what you get for $417k in 12 months!
May 23rd, 2008 at 8:18 am
Yep…alfa we know national numbers do not apply directly to our region. Just as national figures for values do not apply to our region. They never have. My neighbor in 1992 bought a 1700 s.f. home for $232,000. Go to 95% of the metro areas in that time and tell me what their values were in comparison. Nothing fancy here…just a home in Pacific Hills in Mission Viejo.
May 23rd, 2008 at 8:28 am
“By Franks’ math, O.C. is one of those markets that dropped off JBREC’s affordability danger list”
All the experts agree. That is what has fueled the SURGE in buying activity these past few months. And despite what Mr. Bubble has to say, OUR inventory is stable to dropping hard. Voice of Reason is 100% correct, the “affordability” argument here is all about feeling entitled to live in, say, Turtle Rock for half price.