Prices are falling, and they are about to go negative year-over-year. If interest rates go up, the price decline may gain momentum and lead to a significant leg down in local prices.
The housing market continued to struggle against fierce headwinds last month, losing ground in the face of tightfisted lenders and edgy buyers.
The median price of an Orange County home – or price at the midpoint of all sales – fell to $438,000 last month, housing tracker MDA DataQuick reported Tuesday.
That's the lowest since April and up just 0.3 of a percentage point (or $1,500) from the October 2009 median.
Next month, we will likely see a year-over-year decrease in the median home price. The double dip will be official. The next milestone will be breaking below the false bottom put in during 2009.
Meanwhile, sagging sales stretched into their fourth month, with 2,298 Orange County homes trading hands in October.
That's 9 percent fewer than in September and 17.9 percent below the October 2009 tally.
While sales typically drop from September to October, last month was the second-slowest for an October since DataQuick began tracking home sales in 1988. It also was nearly 36 percent below the average of around 3,600 housing deals in a typical October.
I keep repeating it because the bulls do not get it: sales volumes are way, way down. The only people who believe sales are strong are those getting their information from the Irvine Company marketing team. For every 3 sales that ordinarily occurs in October, only 2 happened last month.
The market appeared to be on fire during the first half of the year. But industry insiders now fret that state and federal tax breaks failed to ignite a stronger, longer-lasting recovery after ending in the second half.
"A lot of us were disappointed that the wind that would be in our sails just faded," observed Jeff Culbertson, executive vice president for Coldwell Banker's Southwestern U.S. region, which includes Orange County.
"We're not in a bad market," Culbertson added. "But we're not in a good market."
Used house salesmen never give up. They won't admit the obvious: the market is very weak and prices are too high. The reason realtors are not trusted is obvious. They lie. They ignore the obvious. The candy coat a turd and expect buyers to eat it.
Although October was the 14th consecutive month of year-over-year price increases, the gain was the smallest of a streak dating to September 2009.
Last month's median price also fell $12,000 from the 2010 high of $450,000 reached in May and July. That means that all the price gains of the past year have virtually evaporated.
At $280,000, the median price of an O.C. condo fell 11.7 percent from last year's levels;
How do you get a move-up market while condos continue to implode? You don't.
the median price of a newly built home decreased 1.1 percent.
I thought the Irvine Company was increasing prices and building even more homes. That isn't what the statistics are saying.
"Things have slowed down and agents are starting to get worried," said Irvine top-producer Mac Mackenzie. "I think buyer confidence has been reduced, and people are having trouble getting (their loans) approved."
"We're not seeing any move-up buyers," added Harry Solomon, managing owner of Nova Real Estate Services in Laguna Hills. "If you can't sell the little condo because you're upside-down, you're certainly not going to buy something else. ... If you don't have the equity to move up, people are going to renting."
Agents noted also that home sales at the high end of the housing market, which appeared on the verge of taking off, stalled recently.
In whose fantasy was the high end on the verge of taking off? The high end awaits its comeuppance. Prices will fall very hard at the high end when they get around to booting out the squatters.
For example, sales of $650,000 or more accounted for 30.4 percent of all home sales in July. Last month, they accounted for 27.6 percent of all deals.
"Once we get over (an asking price of) $1.5 million, it seems like it's quiet in the marketplace," said Newport Beach luxury home sales agent Steve High.
That's because nobody can afford those prices with their real incomes. Prices only got over $1.5M because we underwrote stupid loans at those price levels. Now nothing but air supports those prices. (see How to Lose $2,650,000 in Irvine Real Estate)
High noted that despite some of the lowest interest rates in history, buyers still are having a hard time qualifying – especially those seeking to get so-called "jumbo" loans of around $730,000 or more.
"You keep hearing about these low interest rates, but we still have a huge challenge in people qualifying for loans," High said.
Without liar loans, people have to qualify based on their income. And contrary to the popular fantasy of OC posers, there are not enough high wage earners in Orange County to support all the houses at those price points.
In Orange County's lower-cost central core, well-priced homes are getting offers within two weeks, said Santa Ana real estate agent Hector Ramirez of Citivest Realty Services.
Investors continue to buy three-bedroom houses selling for as low as $300,000, Ramirez said. With rent averaging $1,900 a month or more for such houses, the income will easily cover monthly loan payments. But such deals are hard to find.
Only a fool would pay $300,000 for a property grossing $1,900 a month rent. It may cover the loan payment, but it won't likely cover the other costs of ownership and have positive cashflow. I put an investor in a Las Vegas house for about $105,000 that grosses $1,300 a month in rent. That is a cashflow investment.
"There's not much to choose from," he said.
And even at the low end, the pace of sales also subsided since homebuyer tax credits dried up in June.
Lenders seized 604 homes from defaulting owners last month, 16.1 percent fewer than in October 2009, DataQuick reported.
Lenders also filed 1,501 default notices – the first stage in the foreclosure process – on borrowers who missed three or more payments. That's nearly a third fewer than the year-earlier level.
High, the Newport Beach agent, noted that prices will hold so long as the foreclosure rate holds steady.
But, he warned, "If we see an abundance of bank-owned properties coming on the market, we will see some volatility in prices."
Yes, downward volatility.
Culbertson, Coldwell Banker's regional chief, noted that the market needs to get over an "emotional drag," a sense among buyers that it's safe again to make a move. That won't occur until people start to hear more positive news about the economy and the job market, he said.
In other words, we need to give potential buyers a healthy dose of bullshit in order to dupe them into buying. This guy is shameless.
"The market that we're in right now," Culbertson said, "may be the market we're going to have to live with."
Register staff writer Jonathan Lansner contributed to this report.
Many loan owners started out in the late 90s and the 00s, so a housing bubble and irresponsible lending is all they know. However, many others survived the previous housing bubble and should have known better than to borrow themselves into oblivion. Today's featured owner borrowed all he could as soon as he could. He didn't leave much equity in the house before the market collapsed.
This house was purchased on 3/30/1990 for $260,000. The original mortgage information is not available, but it was likely a $208,000 first mortgage and a $52,000 down payment. That purchase date was the peak of the previous bubble. This owner spent most of the 90s underwater.
On 12/9/1997 he refinanced with a $243,000 first mortgage. As soon as the market bottomed, this borrower went Ponzi.
On 2/5/1998 he obtained a $50,000 stand-alone second.
On 12/14/2001 he refinanced with a $289,000 first mortgage.
On 5/23/2002 he obtained a $72,000 HELOC.
On 7/15/2003 he got a $322,000 first mortgage.
On 1/26/2005 he opened a $150,000 HELOC.
On 1/27/2006 he obtained a $592,000 Option ARM with a 2.2% teaser rate.
On 2/16/2006 he got a $65,000 HELOC.
On 6/26/2006 he enlarged his HELOC to $85,000.
Total property debt is $677,000.
Total mortgage equity withdrawal is $469,000.
If he hadn't borrowed the $469,000 as it appeared, he would only have netted about $300,000 on the transaction. Mortgage equity withdrawal is certainly the most efficient method for obtaining real estate equity. Of course, it is theft, and it requires sacrificing your credit score, but the potential gains are enormous. No wonder so many did it.
-$398 .......... Tax Savings (% of Interest and Property Tax) -$609 .......... Equity Hidden in Payment $198 .......... Lost Income to Down Payment (net of taxes) $73 .......... Maintenance and Replacement Reserves ============================================ $2,470 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $5,837 .......... Furnishing and Move In @1% $5,837 .......... Closing Costs @1% $4,670 ............ Interest Points @1% of Loan $116,746 .......... Down Payment ============================================ $133,091 .......... Total Cash Costs $37,800 ............ Emergency Cash Reserves ============================================ $170,891 .......... Total Savings Needed
Beds: : 5 Baths: : 3 Sq. Ft.: : 2067 $0,282 Lot Size: : 5,509 Sq. Ft. Property Type:: Residential, Single Family Style:: Two Level, A-Frame Year Built: : 1971 Community: : Westpark County: : Orange MLS#: : S639286 On Redfin: : 2 days ------------------------------------------------------------------------------ BEST VALUE IN IRVINE AND MAY BE IN SOCAL. !!! PRICED FOR QUICK SALE!!!! THIS is it, don't miss this one. 5 Bed room 2.5 bath in great neighbour. Association pool, spa, basket ball court, Tennis court available. Great freeway access and very convinient location. Show and Sell.
neighbour? convinient?
After the flurry of ALL CAPS, the realtor ended the sentence fragment with a period, then she added three exclamation points. Half way through this description, there is no information, but plenty of extraneous realtorspeak. Awful.
Many loan owners started out in the late 90s and the 00s, so a housing bubble and irresponsible lending is all they know. However, many others survived the previous housing bubble and should have known better than to borrow themselves into oblivion. Today's featured owner borrowed all he could as soon as he could. He didn't leave much equity in the house before the market collapsed.
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