August 13, 2014

When Demand Says ‘No Thanks’ Prices Must Be Trimmed

The Orange County Register reports from California. “Great schools and wider opportunities for their children have been key draws for Chinese home shoppers, who have flocked to grab properties in Irvine and a handful of other Southern California cities in recent years. But another key reason is to get their money out of China, fearing that a real estate bubble there might pop or that the government might clamp down on wealth. Spending by Chinese buyers on U.S. homes soared 72 percent in one year, to $22 billion, the most of any nationality, according to Realtor estimates. Thirty-five percent of that went to buying homes in California.”

“Chinese buyers seek out places like Irvine, which has a reputation for top schools and low crime. They tend to prefer newer areas, and since these buyers often rank among China’s elite, there’s a strong appetite for luxury homes. ‘The real driving force is preservation of wealth,’ said luxury home specialist Lee Ann Canaday of Laguna Beach, who has been attending real estate expos in China for the past three years. ‘They still see the United States as a safe haven.’”

The Press Enterprise. “Home affordability is a growing concern in Southern California, so much so that some real estate analysts are watching for signs of a post-recession housing bubble. Between 2008 and 2012, Inland household income fell about 9 percent. From 2012 to May 2014, said RealtyTrac VP Daren Blomquist said, Inland household income rose only 2 percent as home prices soared 53 percent from the 2012 bottom. ‘We got burned in the last housing bubble, so we’re paying very close attention to whether we are in danger of seeing another bubble, given the rapidly rising home prices over the past couple of years,’ Blomquist said.”

“A $445,000 home in Los Angeles County would eat up 50 percent of a median-income buyer, RealtyTrac reported. Buying a median-priced $565,000 home in Orange County would consume 47 percent of the Orange County median-household income, $73,617, the RealtyTrac data said. Jeanette Hartmann, sales manager of American Pacific Mortgage in Temecula believes favorable interest rates have helped keep homebuying on track. ‘Home values aren’t continuing to rise like they had,’ she said.”

“Homes are sitting on the market for 60 days before sellers get offers, helping prospective buyers feel more comfortable about their decisions. Buyers also are getting more realistic, she said. ‘I just had a client yesterday who makes $80,000 a year but couldn’t get approved for a $400,000 house,’ Hartmann said. ‘He had four car payments and a boat and alimony. I had to tell them, ‘Nope.’ When we worked the math backwards, they qualified for $200,000.’”

The Desert Sun. “Desert homeowners who had a short sale during the recession may have to wait two more years before they can borrow using one of the more popular kinds of home loans. Originally, they were required to wait two years after a short sale. Beginning Aug. 16, they will have to wait at least four years from the date of the short sale before applying for a loan conforming to Fannie Mae guidelines. The expanded waiting period will lock out a growing number of ‘boomerang buyers’ in the Coachella Valley, loan officers say.”

“Buyers who had a short sale sometime between July 2012 and Aug. 16 will be most likely be affected, desert loan officers said. ‘There are some that are just stuck, they don’t have the down payment money, and others are going to have to wait until the three-year time period and look to FHA for alternative means,’ said Dean Rathbun, president of Avis Mortgage Inc., which serves the Los Angeles, Orange County and Coachella Valley areas. ‘All of a sudden, the rules have changed after they made their ploy.’”

“‘A huge percentage of our buyers are boomerang buyers who went through a loss of a home, and now it’s 2014 and they can buy again,’ said Bret Cohn, a senior loan officer for Stearns Lending in Palm Desert. ‘People who owned multiple properties and let those go to short sale, they want to move here now and buy a primary residence. They were told to short-sell their house, not realizing that they’re going to have to wait because the rules have changed.’”

The Union Tribune. “California’s economy should continue to expand faster than the nation’s over the next five years, but the rising cost of housing in the Golden State is going to keep some of that growth in check. Hindering economic growth, however, is the rising cost of housing, which Beacon economist Chris Thornberg said is largely due to a lack of supply. Statewide prices have grown by double digit percentages since June 2012, the forecast released this week by Beacon Economics says. ‘You can’t add jobs if there is no growth in the labor force because people are leaving because they can’t afford housing,’ Thornberg said.”

The Bakersfield Californian. “Bakersfield’s housing market showed signs of weakness last month as prices slipped and more sellers accepted offers less than what they asked for. Appraiser Gary Crabtree’s July market summary says the median sale price of an existing single-family home in the city declined by 2.5 percent from June to settle at $210,000. ‘With long-term interest rates and prices declining, housing is becoming more affordable,’ Crabtree wrote. ‘But with the declining median family net spendable income and lack of meaningful job growth, the market is moving toward stagnation.’”

The Folsom Insider. “It looks like the recovery, though not over, sure has slowed down. For 18 months, from March 2012 to September 2013, homes in Folsom were selling fast, and by last summer were averaging 16 days on market. At one point, there were only 82 homes for sale in Folsom, and multiple offers were coming in, sometimes sight unseen. Things sure have changed. For the 7th straight month, Folsom housing inventory has been on the rise, ending July with 221 homes for sale, a 3-year high. No, it’s not time to panic. It seems to be a sort of leveling of the playing field.”

“I think that what’s happening here is that the investors snapped up the lower-priced, rental-grade properties, and have just about abandoned the market. The average price per square foot dropped from a $212 in May, $210 in June to $206 for July. If you’ve got a home on the market, or are considering selling, it is important to do your homework, work with your agent if you have one, and take your best guess at the right price. With today’s technology, the whole world knows when your home goes on the market, so if it’s taking longer than average to sell, re-think the pricing strategy. There’s an old saying that goes, ‘There’s nothing wrong with ANY house that a lower price won’t fix!’”

“The seasonal house-selling slowdown has once again morphed into overindulgence of real estate self-pity. I’m not sure that a one-year switch in regional buying conditions from the hyperactivity of spring 2013 to this summer’s relative calm is cause for much alarm. I assume all the real estate pros who in last year’s frenzied start said ‘This can’t last’ actually realized what that meant!”

“Still, the recent housing debacle is fresh in many minds, so anxiety remains a volatile real estate commodity. But it’s also sad to hear a blame game brewing. In today’s hypercritical age, sadly, somebody’s got to take the fall for any misstep or a hiccup like 2014’s perceived homebuying sluggishness. So as a public service – with my authorship tongue placed a tad in cheek – I have delineated nine likely housing cool-down culprits, ranking them by my sense of their culpability.”

“NO. 6: BUYERS Obviously, this summer chill wouldn’t be here if shoppers could only see the true value that remains in the housing market. Why do house hunters look at lofty home prices, (up 50 percent off the bottom in some communities) then recall the last housing debacle and worry? To be fair, shoppers should know why they are delaying a purchase. If it’s a bet that prices will be lower next year, they should weigh that probability vs. the possibility that mortgage rates will go higher.”

“NO. 2: SELLERS It’s not 2013, and that seller’s market won’t be back soon. Look, this pricing formula does not work: Take the last comparable sale, add 5 percent (or maybe 10 percent if you’re sure you have better view/backyard/paint/appliances/whatever). Be warned, the free market has a cost. When demand says ‘no thanks,’ prices must be trimmed. Perhaps wannabe sellers should visit a nearby new-home project to see what’s offered in their valuation range. Remember, builders are in one business: selling homes quickly.”

Bits Bucket for August 13, 2014

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