MEDIAN PRICE -- UP...INVENTORY -- WAY DOWN... SALES VOLUME -- UP

What a month it has been!  It's been chaos if you're a buyer trying to find a property, and a little déjà vu if you are a seller that is getting multiple offers on your property that's for sale.  That being said, however, we are not seeing the double digit appreciation that was present in 2005 and 2006.  That is a good thing, as that was the start of the bubble that burst and caused the subsequent crash and the very slow recovery we are now enjoying.  September numbers brought some interesting news for Southern Californians.  (More specific numbers to follow.)  The median price was up 5.9% versus September a year ago.  There were 23,977 sales and that was up 16.2% from the previous year.  October numbers that are found in the next section, were even better.  But a really interesting fact from the last month of the third quarter was that local zip codes showed improvement in 53 of 83 for the county.  That shows that there isn't a concentration of business or growth in just hard hit areas such as Santa Ana, or south Orange County, where investors are flipping properties.  In fact, sales for October, the last complete month available, show that move up buyers, that elusive quadrant, has finally reemerged and these buyers are entering the market.  Obviously we need more to do so, because of inventory limitations, but it has started.  The upper end of properties over 2 million is moving more robustly than it has since 2006.  Finally, a last bit of good news is that home construction is finally on the rise, seemingly for good, not just a sputter of one or two developments, but begun in earnest by multiple builders.  In fact, 1,700 construction jobs were added as compared to September 2011, according to the Employment Development Department. This is good news, because without that vital addition of new homes, we would really see an inventory bog down in the next 2 years.  

WHAT WERE THE ACTUAL NUMBERS?

According to DataQuick, southern California home sales rose sharply in October as the previously discussed move-up buyers joined investors, shifting the mix of homes selling from the first time buyer, or investor looking for rental scenario.  Foreclosures hit a 5 year low, as short sales continued to move front and center as the primary distressed listing.  Make a note, however, that standard, or equity sales, are making a comeback as non-distressed owners may enter the market in an effort to sell and move up, or exit Orange County to become a retiree and move elsewhere.  The October total was 21,075 homes sold in Los Angeles, Orange, San Bernardino, Riverside, San Diego, and Ventura counties.  That was up a whopping 18% from the 17,859 sold in September.  The median price for the Southland was $315,000 in September and October, and that was up 16.7% from the $270,000 of September 2011.  Short sales made up an estimated 26% of the resale market in the Southland for October.  The total number of sales for Orange County was 3,148, which was up 40% from the same period a year ago.  The total number of resale houses was 2,066 and condominiums had 882 sales. New homes came in at 200.   The median price for all homes was $455,000 and for single-family it was $511,000.  The median price for condos was an even 300. Interestingly, buyers paying with all cash hit a near record 32.1% for southern California.  A final number which is somewhat sobering... 57% of all homes for sale, had multiple offers.

ORANGE COUNTY ECONOMY REBOUNDS IN FORECAST

So read the business section headline of the Orange County Register on October 25th.  Specifically, it was talking about the Cal State Fullerton economic forecast for next year.  They expect a continued rise in home prices, and lots of construction jobs in 2013.  The next highest sector will be professional and business services, followed by leisure and hospitality.  What's really interesting is that earnings of large companies have outpaced their own forecasts, yet no one really seems to feel really good about it.  More jobs were added in September than originally forecast for the nation, and Orange County seems to be holding its own in this parameter.  Interest rates are at a 15 year low, home prices throughout California have risen for 8 straight months, and the job sector is looking positive.  Recovery?  You didn't hear it here, but could it be Orange County's dirty secret?

INVENTORY SLIDES, GEN X AND Y, WANT TO BUY, AND THE SMALL INVESTOR

Los Angeles inventory is down 37.1% and Orange County is about there too.  The city taking national honors for the biggest slide is our own San Diego with 40.7% (according to the national KCM Blog.)  Generation X and Y, in a recent survey, were asked, "what is a fundamental indicator of success?"  A whopping 75% said it was owning a nice home and only 12% said an extravagant vacation.  Home ownership is in America's DNA.  Should the small investor attempt to buy a single-family property as a rental.  Only a discussion with your financial planner can tell you what's right for you, but here are some thoughts... 1) Nationally, rental leasing volumes were up every month for 2 years.  2) Supply of available rentals is down 11% in the same period.  3) Rent growth is expected to increase at a very strong clip in 2013. 

THE TALK OF THE TOWN IS LACK OF INVENTORY...IS HOUSING THE COMEBACK KID?

If any of us paid any attention at all to all the various headlines in Augusts' business sections in any newspaper in southern California, then you noticed a couple of items. Firstly, we are grossly below seasonal averages for inventory. In fact, many cities in Orange County are below 2 months. The city with the largest inventory, not surprising with the high end prices, is Newport Beach, with 5 months. Some very skeptical economist are wading into the shallowend of opinion, that housing is making a recovery. Not only is it making a recovery, but in fact it is one of the most solid pillars of the current, albeit weak, economic recovery. July's housing sales volume jumped 25.7% from year over year 2011 to 2012. In fact, according to an article in the Los Angeles Times business section, home prices are highest since 2008 and posted a 2% rise in July. According to research firm Data Quick, the region's median home price hit $306,000, reflecting that 2% rise from June and 8.1% year over year. Supply and demand will once again factor in the region's prices. According to Data Quick President John Walsh, "There's growing evidence prices have crept up in areas where more demand has met a shrinking number of homes for sale." There are many positive factors for housing's comeback besides shrinking inventory. Also fueling the market is financing, overall stable housing affordability, and pent up demand for many people who have sat out the market for years. They are coming back in droves. Don't expect a substantial rise in inventory any time soon. The time for sellers and buyers to act, may just be right now.

WHAT ARE THE ACTUAL NUMBERS?

The last complete month of data available paints a stable, if still somewhat troubled story. The total number of sales was 2,929 for single-family resale and condominium resale. This does not include new home sales for the month of July. Single-family posted 1,547 equity sales, 327 short sales and 224 bank owned listings sold. Condos had 486 full sales, 232 short sales and 113 bank owned. Although distressed sales will be with us for the foreseeable future (at least 3-4 more years), equity sales are climbing, indicating many sellers believe the market stable enough to warrant their return. There were 343 trustee sale auctions, with 170 being purchased at the sale by investors and 173 returning to the bank, where they will eventually become REO listings. The total number of Notices of Default was 1,406 along with 1,008 Notices of Trustee Sale. Both these numbers are down drastically from 2011.

FIVE BIGGEST REAL ESTATE OPPORTUNITIES GOING FORWARD

1) The 6,000,000 25-34 year olds who are still living at home. This generation scored over 65% on belief in home ownership and a desire to buy. 2) The "green" initiative. Conserving and changing how we live in our homes will shape the next 20 years. This is both for new construction, which will be hurrying to catch up once it starts up and also for existing home improvements. 3) The ever increasing Latino population and their belief in home ownership. 4) Baby Boomers rapidly approaching retirement with special housing needs, the need to downsize, and also their financial aid to their children to buy. 5) The new opportunity in short sales. The banks continue to see its usefulness as a tool to reduce bad loans, and this will continue to create buying opportunities to the patient buyer.

4 MYTHS OF SHORT SALES

Other than the fact that you must be patient and hang on for the roller coaster, there are many positives to buying a short sale. But did you know there are also many positives to selling as a short sale? Don't think that it isn't possible for you, rather arm yourself with the facts and talk to your lender. 1) Banks don't want to participate -- Nothing could be farther from the truth. Banks know that they will save on average $50,000 per property, by selling short over the carrying costs of a bank owned listing. 2) No options to foreclosure -- Simply not true. Many homes have had 2 or 3 postponements of trustee sales in order to allow a short sale to close. There is also the "deed in lieu of foreclosure, that some banks will allow. 3) Short sales will cost me money out of pocket -- Definitely not true! Not only will you have no cost to close, after submitting the proper hardship package, but in some cases the seller receives $3,000 to $25,000 from the bank at the close of escrow. This is no guarantee, of course, as it depends on your lender and your type of loan. 4) If I go through a short sale, I cannot buy another house for a long time. -- Well, first of all, if a home is foreclosed on, the waiting period to buy again is approximately 7 years. So you can't do any worse with a short sale. If you have mitigating factors as to why you had to move and sell short, and you were not behind on your payments, in many cases, you can buy again, immediately. Most short sellers are looking at between 1 and 3 years to re-enter the housing market, again depending on how badly credit was bruised and how quickly it has been repaired.

HOME SALES RESEMBLE BARGAINS AGAIN...DELINQUENCIES ARE DROPPING...FEWER LEAVING STATE, DATA SHOWS

These are just a few of the newspaper headlines recently.  In fact, there is a lot of positive news.  Even though the National jobs report was bleaker than expected, southern California's, although still shy of pre-recession numbers, has been one of the healthiest rebounds in the state.  Perhaps "rebound" is still too strong a word to describe our job market, but nonetheless, the local unemployment rate is third lowest in the state and the best in our region, according to the state Employment Development Department.  The top spots for low unemployment belong to Marin and San Mateo counties in the northern part of the state, Orange County bests all others down south with 7.4%.  Although there is still some hesitation on the part of employers to hire freely, there is still more reason to be optimistic than a year ago.  Now what about housing bargains?  This column has often argued that to have a mentality that it is better to rent than to own at any time, is perhaps to simplify the home ownership debate to a most basic level of nothing more than out of pocket expenses per month.  In other words, why own and have a house payment of two thousand dollars, when you can rent for $1,400.  But this argument forgets tax savings, equity build up and more importantly, (as we covered in recent months), an inflation hedge.  If you buy a home with a fixed rate mortgage, which right now is in the high 3 or low 4 percentiles, your housing costs in twenty years will be exactly what it is now.  Anyone want to venture a guess what your $1,400 rent payment will be in 20 years.  And you will never receive a dime of that back because you can't sell your rent house or apartment, you don't own it.  As housing demands rise, and they are rising the quickest they have in the last decade, landlords have good incentive to raise rents, simple supply versus demand.  Affordability is another big incentive as it hit the highest mark ever for the country at 77%.  Probably the best incentive, is the housing payment itself, driven by low interest rates.  You can get one right now for just about 13.5% of your income.  Granted, this is a generalization because it's based on the national median housing cost, and the national median income.  Housing costs are higher here, obviously, but so is income.  Plus FHA has become a big part of the housing home loan picture, with many borrowers qualifying even though they earn over $100,000.  What about fewer leaving the state?  California had its biggest mass exodus in 1993,4,and 5.  Those of us who lived here, remember it well.  It was a dismal time.  Defense spending plummeted, causing massive layoffs in defense, a major California employment sector, and military bases simply disappeared.  Southern California basically lost a million jobs over 5 years.  Although the numbers were nothing close to that in 2005,6,and 7, the state did see the highest numbers in a decade.  But by 2009, the number fell to 112,000, which for a state with California's population, is not a startling number.  But if you look at 2010, we have a population increase and no net exodus.  This according to the Tax Foundation-- an anti-tax group that's not partial to California, but still reported that we're losing fewer people to other states.   All told, there is reason to be optimistic about where California is headed.  We have oceans, beaches, desert, mountains, skiing, and moderate temperatures, and a more highly skilled work force than most other states.  We have some good reasons to be optimistic.  People need to live somewhere.  Ain't real estate great?

WHAT ABOUT THE ELEPHANT IN THE ROOM? HOUSES THAT ARE "UNDERWATER." WHO'S IN IT DEEP?

According to Zillow, 9,200 homes are worth half their mortgage.  Another 14.1%, or 62,500 households, owe about 20% more than their homes are worth.  And approximately 8.2%, or 36,600 homes, owe 40% more than their home is worthy.  Now without getting into the debate of how many of these homes were bought at market value in the past 12 to 14 years, and were refinanced two and three times, while owners took maximum cash in hand, much like an ATM, it can be argued that all but the most severe waterlogged properties, will, if held long enough, become once again equity properties for their owners.  But less the reader believe, erroneously, that every property is in danger, give you some numbers to bring comfort to the discouraged.  According to LPS Farm 2.0, a data company for title companies, there is a total of 696,776 residential properties in Orange County, that includes condos and single family residences only, both owner occupied and non-owner occupied (rentals).  When you look at that number, you can see there is a lot more home equity in this county than there is waterlog.  It's just that writing about the positive through all of this downturn, doesn't sell papers.  In fact, for the last full month available, there were 1,337 equity sales or single family residential properties in Orange County and 591 distressed sales (includes short sales and bank owned).  Condos didn't fare quite as well, but still, there were 427 equity sales of condos.

WHAT WERE THE ACTUAL NUMBERS?

The median price for a home for Orange County was $488,000, which was down just 1.4% from 2011, indicating the bottom of the market and a nearly stable market as well.  There were2,038 closed sales of single family resale and that was up 16.8% from the previous year, month over month.  When you add in condos and new home sales, the grand total is 3,059 and that is up 14.1% from the previous year.  There were 1,214 Notices of Default filed, down almost 25% from 2011 monthly totals and Notices of Trustee Sale, the last notice prior to foreclosure plummeted down to fewer than 1,000, after totaling nearly 1,750 month after month in 2011.

HOME OWNERSHIP STILL THE DREAM FOR AMERICA

A survey recently completed that appeared on the blog, "Keeping Current Matters", reveals that 91% of Americans surveyed, still say owning a home is a part of their American Dream.  But even more encouraging is the number of the "renting generation", that is 18-34 year olds who have yet to enter the market, an amazing 84% say they intend to buy.  Couple that with the affordability index that we have right now, and the real estate recovery would seem confirmed.  Just don't expect to go up as fast as it did to begin the first decade of this century, and don't expect it to go up as fast as it came down.  Finally, a note regarding short sales.  If you find yourself upside down in your home and have mitigating factors that are causing a need to move, don't assume you can't sell your property short.  There are some myths out there concerning that proposition, and you owe it to yourself to have an expert evaluate your position.  Here are two myths: 1) banks don't want to participate in a short sale.  Nothing could be further from the truth.  Banks have finally realized how much money and time they save by allowing a Realtor to sell and close escrow successfully in a short sale process.  You may even be eligible for "cash for keys" to help with your relocation.  2) The short sale process is too difficult and they often get denied.  That was true five years ago.  Banks dragged their heels and the transactions were dubbed "long sales" by those of us in the industry.  But today, the average short sale takes about 90 days unless there are unforeseen circumstances.  Make sure you know all your options.