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Category Archive: ‘Market Conditions’

Fewer First-Timers

first-timers

Hat tip to shadash for sending in this wsj.com article:

http://blogs.wsj.com/economics/2014/11/03/share-of-first-time-home-buyers-hits-27-year-low/

Here are excerpts:

Advocates of looser lending standards may point to the NAR’s latest survey to highlight problems on the mortgage market. But it’s worth noting that the share of first-time buyers didn’t increase during the housing bubble, when it was too easy to get a mortgage. That’s because home prices were rising. The share of first-time buyers fell to 36% in 2006, at the peak of the bubble, from 40% in the prior three years.

And even though credit was much tighter in 2009 and 2010, the share of first time buyers jumped to 47% and 50%, respectively. Lower home prices helped. So, too, did an $8,000 federal tax credit for first-time buyers, which expired in June 2010.

Home prices have been rising for the last two years—and first-time buyers have accounted for a falling share of sales in that time.

Rising prices have fixed a number of ills ailing the housing market. They make consumers more willing to purchase homes or fix up the ones they live in. They make it easier for owners to sell if they get into trouble on their mortgage, limiting foreclosures.

But rising prices also make homes less affordable, especially for the marginal buyer, which in many cases is also the first-time buyer.

The NAR survey also found that people are staying in their homes longer than in the past. The median age of tenure–that is, the amount of time a typical homeowner stays in one house–rose to 10 years in the most recent survey, from six years in 2007.

The typical first-time buyer last year was 31 years old, while the typical repeat buyer was 53.

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It’s not just the first-timers who are getting shut out – there are others too:

1.  Those with average incomes.

2. Those with above-average incomes who are picky.

3. Self-employed and others who don’t have beefy tax returns.

4.  Anybody with bad credit.

Yet the affordability has declined rapidly - from CAR:

CAR’s Housing Affordability Index – which tracks the percentage of households that can afford a median-priced, single-family detached home assuming current interest rates and 20% down – fell from 33% in the first quarter of 2014 to 30% in the second quarter, a 26% decline from a peak of 56% in early 2012.

While home buyers needed to earn an annual income of $56,320 to purchase the median-priced house two years ago, today they need an additional $37,270, or $93,590 total annually, to qualify.

The $93,590 annual income is needed to purchase the state’s median-priced home of $457,140.  Around NSDCC, the current median price is over $1,000,000!

Comparing the first nine months of 2014 to the frenzied first nine months of 2013, the NSDCC detached-home sales have dropped 15% this year - which is still pretty strong if you ask me.  We live in an affluent area!

By this time next year we should know if we have enough ready, willing – and able - buyers to keep prices at these levels or higher.

Posted by on Nov 3, 2014 in Jim's Take on the Market, Market Conditions | 5 comments

Estate Sales

We’ve explored a few of the alternative groups of potential sellers, but none are emerging as major contributors.  In a ‘normalizing’ market, it means we are back to the Big 3 sources of new listings; Death, Divorce, and Job Transfer.

Carmel Valley doesn’t have much to worry about here – the oldest CV homes were built in the mid-1980s.  But in the remaining areas of San Diego’s North County coastal region, where houses go back to the 1940s and 1950s, there are many long-time owners who will stay for the duration.

Back in the old days, it was routine to sell your parents’ home and split the proceeds with the siblings.

But that was when everyone could afford their own house.

Today, one of the siblings might want, or need, to take possession because they can’t afford these prices.  As a result, what used to be a steady flow of new listings may not be as fruitful as before.

It will be relative to the quality of the home.

Yesterday I was in Oceanside, where a past client had purchased in the 55+ community of Oceana.  I had sold her house about 10 years ago, and she moved there with her husband thinking it would be the final stop.  It was for her husband, but now she needs assisted living, so she is exploring those facilities.

Oceana is an average senior community – the homes are 1,000sf to 1,600sf and sell in the $200,000 and $300,000s.  Sales are increasing – here are the number of closed sales between Jan 1 and Sept 30:

2010: 57

2011: 57

2012: 50

2013: 69

2014: 66

There are 22 active listings today, which is no shortage of supply is you are thinking of living there, and it is an affordable option.

But in the swankier parts of town, when a homeowner dies, their home is more likely to stay in the family today just because the siblings having such a difficult time buying their own home.

The condition of these homes is usually less than spectacular, and those that do come up for sale will be great flipper food.  You’ll see more of them in areas where homes were built in the 1960s and 1970s, because those original owners have had no better place to live for the money!

Posted by on Oct 29, 2014 in Boomers, Jim's Take on the Market, Market Conditions | 15 comments

Who’s Selling?

Yesterday we wondered if there was a possible threat of a baby-boomer liquidation sale in the coming years, and we had a load of comments – thanks for participating!.

Can we get a feel for what’s happening now?  Here’s a check of the 67 NSDCC houses that have sold between $750,000 and $1,000,000 in the last 30 days.

These are the years when the sellers purchased:

Years Purchased
Number of Sellers
1965-1980
8
1981-1990
4
1991-2000
12
2001-2007
23
2008+
20

Only a couple sold for less than the price they paid, and there were 3 short sales too (no REO listings).  The newer homes in Carmel Valley bolstered the more-recent stats too.

About 36% of the sellers bought their home prior to 2001, and are probably baby-boomers (or older). Most will at least be empty-nesters by now, and could be candidates for the ‘downsize and travel’ crowd. If their numbers increased, they would most likely be offering older fixers upon which flippers can feast, and eventually be sold to those looking for a substitute for new homes, which are in short supply.

Posted by on Oct 24, 2014 in Jim's Take on the Market, Market Conditions, North County Coastal, Thinking of Buying?, Thinking of Selling? | 16 comments

90% Same As 1986

Owning a house is one of the few ways to try to get ahead. From the Atlantic:

Today, the top 0.1 percent of Americans—about 160,000 families, with net assets greater than $20 million—own 22 percent of household wealth, while the share of wealth held by the bottom 90 percent of Americans is no different than during their grandparents’ time.

What does this look like at the household level? Perhaps the most striking chart produced by the economists’ efforts to measure U.S. wealth is the one below, which shows that after a long march upward, and then a steep decline, the “average real wealth of bottom 90 percent families is no higher in 2012 than in 1986.” Meanwhile, the top 1 percent of wealthy families has almost completely recovered from the ill effects of the financial crisis.

rich get richer

Read the full article here:

http://www.theatlantic.com/business/archive/2014/10/the-bottom-90-percent-no-better-off-today-than-in-1986/381669/

Posted by on Oct 21, 2014 in Market Conditions | 2 comments

McTeardowns

teardowns

From our friend Karen at BloombergBusinessweek:

http://www.businessweek.com/articles/2014-10-15/chinese-home-buying-binge-transforms-california-suburb-arcadia

“Oh, hey! How ya’ doin’?” Raleigh Ornelas hollers, leaning out the window of his spotless white pickup truck. He’s recognized the man across the street, a developer standing in front of a Tuscan-style mansion under construction. “Where have you been hiding at? I call you, you don’t call me.”

Ornelas is an informal broker in Arcadia, Calif., a Los Angeles suburb at the foot of the San Gabriel mountains. He’s been keeping an eye out for the builder, an Asian man with a slight comb-over who goes by Mark. Ornelas has found two older homeowners who’ve finally agreed to sell their properties, and he knows that Mark, like all developers here, needs land on which to build mansions for an influx of rich clients from mainland China.

Ornelas rattles off addresses on a nearby street. “Three-eleven, that guy, he’s wack,” he says, shaking his head. “He wants 2.8.” He means million dollars. “And then 354, they want $2 million.”

The lot is 17,000 square feet. “Seventeen for 2 mil?” Mark asks, incredulous.

“I know,” Ornelas says. “They’re going crazy.”

A year ago the property would have gone for $1.3 million, but Arcadia is booming. Residents have become used to postcards offering immediate, all-cash deals for their property and watching as 8,000-square-foot homes go up next door to their modest split levels. For buyers from mainland China, Arcadia offers excellent schools, large lots with lenient building codes, and a place to park their money beyond the reach of the Chinese government.

The city, population 57,600, projects that about 150 older homes—53 percent more than normal—will be torn down this year and replaced with mansions. The deals happen fast and are rarely listed publicly. Often, the first indication that a megahouse is coming next door is when the lawn turns brown. That means the neighbor has stopped watering and green construction netting is about to go up.

This flood of money, arriving from China despite strict currency controls, has helped the city build a $20 million high school performing arts center and the local Mercedes dealership expand. “Thank God for them coming over here,” says Peggy Fong Chen, a broker in Arcadia for many years. “They saved our recession.” The new residents are from China’s rising millionaire class—entrepreneurs who’ve made fortunes building railroads in Tibet, converting bioenergy in Beijing, and developing real estate in Chongqing. One co-owner of a $6.5 million house is a 19-year-old college student, the daughter of the chief executive of a company the state controls.

Read full story here:

http://www.businessweek.com/articles/2014-10-15/chinese-home-buying-binge-transforms-california-suburb-arcadia

Posted by on Oct 19, 2014 in Market Buzz, Market Conditions, The Future, This Is America | 4 comments

Most Expensive Cities

Folks had something to say about Washington D.C. being the most expensive – Susie wanted to make sure Honolulu was considered, and so did the WSJ.com:

http://blogs.wsj.com/economics/2014/10/14/no-washington-dc-is-not-more-expensive-than-new-york-city/

SD still expensive

As it happens, the Department of Commerce directly measures price levels for different regions. These price levels are the average prices paid by consumers for the things they consume. That’s probably what most people mean when they say a place is expensive.

These data show that the most expensive region in the U.S. is Honolulu, followed by New York. The D.C. area is seventh.

The Council for Community and Economic Research produces an index measuring the cost of housing, utilities, grocery items, transportation, health care and goods and services. This is pretty close to the concept people are curious about when they want to know how expensive different cities are. It scores Manhattan as 117% more expensive than most cities (more than double) and Brooklyn 67% more expensive. D.C. is only 38% more expensive, according to their rankings.

CCER

Posted by on Oct 18, 2014 in Market Conditions | 3 comments

‘Best Rates Since June 2013′

Oct 14th rates

We should see a resurgence in buyer interest now that rates are under 4%.  They probably won’t pay a lot more, but if sellers can live with the same price as the last comp, they should be able to sell.

From MND:

http://www.mortgagenewsdaily.com/consumer_rates/398692.aspx

Mortgage rates continued living the dream today, falling decisively past last week’s lows to claim another instance of “best rates since June 2013.”  Today’s move was exceptional compared to last week’s (or just about any other move lower of 2014 for that matter).  After heading into the weekend in relatively conservative territory, the bond markets that underlie mortgages were greeted with massive movement in broader financial markets over the 3-day weekend.

Some of that movement took place late on Friday–too late for rate sheets to experience much benefit–but most of it occurred in global bond markets during Asian and European trading overnight.

Motivation varies depending who you ask, but the concept of “global growth concerns” is the common thread running through most of the reasons offered for the drop in rates.

Last week’s best moments saw the most prevalently-quoted conforming 30yr fixed rates hover between 4.0 and 4.125% for top tier borrowers.  Today’s rates all but eliminated 4.125% from that list.  In fact, 3.875% would now be more common than 4.125% (assuming a flawless loan file, 75% or lower Loan-to-Value, and a competitive lender).  Rates haven’t been any lower since the first half of June 2013.

Posted by on Oct 14, 2014 in Interest Rates/Loan Limits, Market Buzz, Market Conditions | 0 comments

Be Sharper on Price

Wendy Lari in her new home. After buying the home in Mission Viejo, husband Thomas Lari wanted to rent out the old family home of the past 12 years. But Wendy wanted to sell the old home so the family would have enough cash to fix up the new one. They reached a compromise: Give me 60 days to get it in escrow, said Wendy Lari. If it doesn't sell by then, we'll rent it out. The home went up on the market in late April for $850,000. As time began to run out, Wendy Lari decided she had to drop the price.

Nobody is dumping on price – just be reasonable. From the ocregister.com

http://www.ocregister.com/articles/price-637201-home-percent.html

Thomas and Wendy Lari made a pact.

Thomas wanted to rent out their old home. Wendy wanted to sell it so they’d have money to fix up their new one.  So he gave her two months to sell it. If she failed, they would become landlords.

In the end, she met the deadline – just barely. But it took two price chops totaling $15,000.

“I was a little bit disappointed,” Wendy Lari said of the final price of more than $800,000. “We knew that (our original price) wasn’t overly realistic, but we thought we’d give it a shot.”

Reality is setting in for home sellers across Orange County.

Rather than holding out for the big price gains seen a year ago, most sellers are cutting their prices to get their homes sold.

The average price cut for homes under $1 million was $15,500 this summer, according to figures from Brea housing consultant Pat Veling of Real Data Strategies. A year earlier, the typical price cut was under $3,000.

Put another way, buyers are paying 97 percent of sellers’ original asking prices this year, vs. 99 percent – almost full price – in the summer of 2013.

“It seems like 80 percent to 90 percent of the sales are reductions,” said Bart Smith, an agent with Evergreen Realty in Orange. “(Sellers are) overpricing them. They’re looking at listings and not at closed sales.”

Wendy Lari thought she was in the ballpark when she priced her home at $850,000 last April. A similar home in the area had sold for $844,000 two months earlier.

Time was running out to find a buyer when she got an offer for $828,000. That deal fell through.

But just as it did, a real estate agent made an offer equivalent to $835,000. The agent wanted to pay $814,500, but would forego her $20,000 commission. That deal closed.

“I was a little bit bummed, but it wasn’t horrible,” Wendy Lari said. “If you go in thinking that you’re going to get 3 percent to 4 percent more than the last sale, that’s not going to happen.”

She listed April 29, 2014 for $850,000, and opened escrow on July 2nd for $814,500 with no commission to buyer’s agent?  She didn’t give it away! (she had paid $460,000 in 2002).  P.S. the realtor who bought her home has it for rent on Zillow, asking $3,500/month.

Read full article here:

http://www.ocregister.com/articles/price-637201-home-percent.html

http://www.zillow.com/homedetails/27822-Trellis-Way-Laguna-Niguel-CA-92677/25552229_zpid/

Posted by on Oct 6, 2014 in Market Conditions, Thinking of Buying?, Thinking of Selling? | 4 comments

“Trend Towards Rentership”

Hat tip to GW for sending in this discussion on today’s market conditions:

http://finance.yahoo.com/news/housing-market-is-stuck-in-downard-spiral–shari-olefson-155251001.html

An excerpt:

Home prices appear to be moderating but that’s good news says Shari Olefson, CEO of The Carnegie Group. “Those big increases that we saw last year were not sustainable and in general we’re still seeing an upward trend when you look at the big picture,” she says.

Still, it’s not all roses for Olefson. “What I wasn’t happy with are some of the trends we’re seeing in new construction,” she notes.

New homes sales fell by 2.4% from June to July, yet July’s new homes sales were up 12.3% from the previous year. “New construction appears to be up significantly from last year but when you dig beneath the surface what’s up are multifamily homes,” says Olefson. “Single family homes are up by just 1% which defies logic because we’ve had over 3 million single family units that have been converted to residential rentals.”

Some believe that these numbers mean that housing is approaching normal levels, but Olefson disagrees. She sees more potential buyers turning into renters and believes there’s a lack of suitable housing and loan products for what people can afford now.

Posted by on Aug 26, 2014 in Market Conditions | 4 comments

What’s Holding Back Buyers

This guy says there are 5-6 million people who were or could be homeowners but are on the sidelines – the buy vs. rent equation isn’t compelling enough.

She says these potential buyers don’t have the down payment and don’t know about FHA, but she might be guessing.  Though FHA is very expensive and caps out at $546,250, it’s definitely a viable option in San Diego County.  Of the 14,129 house sales this year, 1,459 of them (10%) have been financed via FHA.

Remember when we said that the market would be seasoned when we see more FHA and VA purchases…..the bidding wars would have died down, and buyers with more horsepower have passed on those deals?  Here are the percentages of FHA+VA loans used to purchase SD houses:

2011 = 35%

2012 = 31%

2013 = 25% (FHA got tougher in June, 2013)

2014 = 25%

There are more VA loans than FHA this year (59% vs 41%).

Posted by on Aug 25, 2014 in Interest Rates/Loan Limits, Jim's Take on the Market, Market Conditions, Mortgage News | 3 comments