California
Ongoing thoughts about buying real estate and the real estate market in Pasadena, California and throughout greater Los Angeles by Terri Champlin.
Site Feed
 RSS Feed
|
Apr. 6, 2008
April Update
Employment is falling and the spillover into the greater economy is no longer a question of if but how much and for how long.
Commercial real estate is being impacted
In the January 17, 2008 - January 23, 2008 edition of Commercial Real Estate Direct as reported by Loopnet the current price declines may portend even worse activity and price levels.
"Commercial property prices declined in October and November, according to a pair of national property indices. Prices gauged by the Moody's/Real Commercial Property Price Indices and S&P/GRA Commercial Real Estate Indices reported that prices have dropped 20 basis points. The price fluctuations have been a byproduct of the credit crunch, which has reduced the availability of debt financing and created uncertainty about how to price properties. The Moody's/Real index recorded about 250 closed transactions during November, the lowest monthly volume since turmoil in the credit market began impacting the commercial property sector last summer. "
Additionally, Allen Matkins with the UCLA Anderson Forecast California Commercial Real Estate Survey reveals that the Southern California office space market "will generally continue to weaken through 2010" as reported on Business Wire via Yahoo! Finance on Thu, 24 Jan 2008.
Lending standards are tight and getting tighter
Nothing has happened in the last month to indicated that the market has firmed. If anything, there is a preponderance of evidence that the credit markets are still unable to regain their footing and function correctly. It is expected that while Freddie Mac and Fannie Mae will be able to buy loans with higher limits they will be tightening their lending standards. Very soon I expect that the normal loan will once again be 20% down plus closing costs with a 30 year conventional mortgage.
That means for a $500,000 home you will have to have $125,000 or so in cash to cover the down payment, closing costs, moving expenses, and pre-move in improvements. This will materially limit the number of buyers. While credit continues to tighten, demand with be damped, and prices will continue to be under severe pressure. Additionally, with the tighter lending standards, many who need to refinance will not be able to do so. This means defaults and foreclosures are likely to increase through at least the the end fo the year.
Impact of Employment
One significant factor that I often try to keep in mind is that as long as employment stays relatively high then the market should at least stabilize by the end of the year. If large number start to lose their jobs then defaults and foreclosures will continue unabated. Thus, downward pressure on home prices will remain strong.
Apr. 19, 2007
Foreclosures are up; Home prices are up! Huh?
Foreclosures are up, according to DataQuick. DataQuick has provided real estate information since 1978.
Home prices for Los Angeles County are up according to the Los Angeles times.
Basic economics suggests that as demand decreases prices will fall. Is this time different?
The past run up in price was credit driven. After 9/11 as credit became much easier to obtain more household were able to buy homes. As demand rose, prices roses. As prices doubled many were not able to afford homes even with the most aggressive types of mortgages and home sales stalled. Additionally, rates on adjustable rate mortgages (ARM), rates on many interest only mortgages and rates on most second mortgages, rose. Now a 30 year fixed conventional mortgage can be less expensive than an adjustable rate mortgage (ARM). Thus, using an ARM as a way to get into a home has lost some its allure.
With many ARM products resetting to a rate higher than the borrower's initial rate and with appreciation not in the double digits, some are finding that they can not longer afford their payments. These homeowners also do not have enough equity to refinance into a loan that could work for them. As a result, foreclosures are going up. Principally, these are buyers who have bought in the last 18 months.
This is not the 90's. In the early 1990's a recession caused large losses of employment and many people lost their jobs. As a result of their job loss they could no longer make payments on their homes and their were massive foreclosures. The foreclosure rates of the early 90's were more than 5 times today's level.
Can prices hold up under these pressures? Absolutely, without large losses of employment most people will continue to make their payments and stay in their homes. Builders will continue to reduce their inventories, flippers and other speculators have already largely left the market, and new hires moving into the region continue to buy homes.
Will appreciation slow? It has. Appreciation in most areas is now in the low single digits. It is difficult to see further declines in appreciation without large job losses.
Could large job losses occur? Sure, Some speculate that the losses in the mortgage sector and other real estate related sectors will spread to the greater economy. There are no present signs of that. While some mortgage companies are closing others are expanding. Employment as a whole is quite stable.
So this time could be different from the early 90's because the cause of price appreciation slowing is different.
Does this mean it is a good time for you to buy or sell? To talk about currently market conditions and how those conditions effect you, contact me at your convenience.
Terri Champlin
Sep. 9, 2006
Buy Now?
Maybe now is the time to buy. If you are buying a house to live in for several years does it really matter if home prices drop? As long as you can afford your house payment, it really doesn't. As long as you do not have to sell as a result of a job loss or relocation then it does not matter if you are "underwater" at any point during which you own it. The only point in time which matters is the period in which you are going to sell it. So if you can hang on during any downturn then there is no reason not to buy now.
If you have a good steady job, have a down payment, have 2 months of cash reserves after closing, are employed in a field that is in demand or have multiple sources of income, then buy now. Why? Because whether you rent or you buy you are still paying a mortgage. When you rent you are paying someone else's mortgage and they get the tax breaks, any appreciation and they get the control. The owners control the landscaping, the interior, pet restrictions, and all material matters regarding the property. Don't underestimate the intangible benefits of owning. Buy when you can not when you think it is a good market or bad market.
Of course, if you are concerned about your job, don't have cash reserves, can't cover closing costs, or have a lot of other debt, then now is not the time to buy. If you want an honest discussion that will help you decide if now is the right time for you to buy, please contact me.
Aug. 9, 2006
An interesting piece of the jobs report is that the unemployment rate fell in the management, professional, and related occupations category to 2.5%. Jobs in this category include, attorneys and accounts. These tend to be higher paying jobs. Thus, the latest jobs report may be a sign that less people are making more money.
Despite the monthly increase in overall unemployment, overall job growth year over year is still positive. Year over year growth is more reliable than month to month statistics. Perhaps last month's report is a statistical blip rather than a sign of actual weakness in the labor market.
The small business owners that I talk with are desperate for qualified workers and the local Starbucks is hopping at all times of the day and on weekends too, from what I can observe. No sign of reduced spending or decreasing hiring needs there.
Another interesting note is that the 6 month unemployment rate was 4.7% and as it has been for several months. 4.7% is very low from an historical perspective.Why the focus on unemployment and growth? I don't think I can say this enough: People with jobs keep and buy homes.
As the economy slows, consumer at the very least become reluctant to buy large ticket items, like homes. This causes sales to at least slow. If the economy slows more than a little than companies shed jobs and people without jobs do not, in most case can not, buy homes. Also, homeowners who lose their jobs and often are forced to sell and this causes prices to decline. Thus, a solid stable growing economy with low unemployment is a great environment to buy and sell homes.
The evidence in the July unemployment report does not look bad once you dig into the details. Sources for these comments are Gene Epstein, Tom Sullivan, Michael Santoli all from the August 7 Barron's, and the jobs report from the BLS - http://www.bls.gov/bls/newsrels.htm.
Aug. 4, 2006
The Los Angeles city council will place a $1 billion bond measure on the ballot November 7th, 2006. If passed the monies from the sale of the bonds will be used to issue loans and grants for the development of affordable housing and grants to first time home buyers. Real estate taxes are expected to increase by about $14 per 100,000 of accessed value if the measure passes.
Affordable housing is a critical need in Los Angeles County. It is unlikely that the development and sale of these homes and the grants to homeowners would have any material affect on price of housing overall in Los Angeles County or Los Angeles City, in the short term. In the longer term it may enable families to become moved up buyers. Also, homeowners tend to have a vested interest in keeping their neighborhoods safe and clean. (If they don't the value of their home decreases). Business also follow homeowners as the number of homes near business affect the viability of many business.
The measure does have the support of the business community, as this article from the Los Angeles Chamber of Commerce and this article about the Los Angeles Business Council shows. Although, not all are convinced, as shown by a July 30, 2006 LA times article by Joseph Mailander and comments in LAVoice.org.
The larger question of whether government can effective do what the private market place has not done remains to be seen.
Aug. 3, 2006
As reported by RIS Media on July 31, Realtytrac has released its 2006 second quarter Foreclosure Market Report. Nationally, the report showed during the second quarter foreclosures fell 16% when compared to the first quarter of 2006 and increased 25% when compared with the second quarter of 2005. In California, the report showed that during the second quarter foreclosures fell 7% from the first quarter of 2006 and increased 100% from the second quarter of 2005.
It is worth noting that presently foreclosures are not above their historic mean and employment remains high.
Does this mean that we have returned to a normal foreclosure market? Or does it mean that as adjustable rate mortgages are reset in the current market of higher rates foreclosures are increasing?
As long as employment stays high then the statistic to watch is the ratio of foreclosures in adjustable rate mortgages versus the foreclosures in fixed rate mortgages. If this ratio increases foreclosures may increase above the normal trend due to excessive and possible undisciplined use of adjustable rate mortgages.
Aug. 1, 2006
On Monday, July 24, 2006, the Pasadena City Counsel approved $165 million to pay for the expansion of the Pasadena Convention Center. In general, business expansion brings employment opportunities during all phases. Low unemployment and solid job growth bodes well for stable home prices in the local area. Detials can be found here.
Jul. 31, 2006
The June Los Angeles County median home price rose again against a backdrop of declineing sales. In Los Angeles County, the median home price was $575,800 according to the California Association of Realtors.
In June, 37% of homes sold within 30 days. When compared with a year ago this represents a 65% decrease of homes sold in 30 days or less. This is more evidence that the market is slowing. And this is a good. The price appreciation seen in the last 5 years was not sustainable over the long haul.
Even with the median County price increasing, some areas had price declines. Historically, price declines are not the same everywhere and last month was no exception. According to the Los Angeles Business Journal homes sold in the Pasadena 91105 zip code showed a 15.5% decline in price while homes sold in the Pasadena zip code 91106 showed a 25.9% increase in sales price.
The median price of a home in the 91106 area is $995,000 while the median price of a home in the 91105 area is $785,000. Last year, those median figures were $790,000 for the 91106 and $929,000 for the 91105. So what does it mean for home prices to see this kind of year over year volatility?
This post is getting long, so I will end here and address the volatility issue in another post.
Jul. 29, 2006
Staff writer for the Pasadena Star News reported on 7/22/06 that Los Angeles County unemployment dropped to 4.6% in June 2006. As reported in the Pasadena Star News, according to Gary Kaplan, president of the executive search firm Gary Kaplan and Associates "the job market is even stronger than at the height of the technology boom prior to 2001".
Mr. Kaplan's comments is another indicator of how much the job market has strengthened since 2001. The strength in employment bodes well for continued strength in the Los Angeles County housing market.
|
Submit Feedback
Member Login
Blogs Homepage
Featured Entries
Recent Entries
Recent Comments
Tags
My Starred Entries
Create A Blog
Word of the Day
Ask the Experts
Question of the Day
Member Login
Join RealTown
Request Password
RealTown RSS Feed