Feb. 20, 2006 - Current Market Conditions - February

Now that we are done with Super Bowl, the spring market is starting to start!  The Olympics don't seem to be keeping anyone home and glued to the tv, so I think what we are now seeing is the actual beginning of our next buying season.  It's too early to tell if the activity will accelerate like it has the past 4 years, but we are definitely not headed toward any bubble bursting.

As of today, February 20, there are 177 properties on the market in Lake Forest.  There are 95 single family homes, and 82 condos.  The 95 homes represent about a 12 week supply, if the pace stays its' current level.  This is close to a balanced market, where neither the seller nor the buyer have a great negotiating advantage.  Multiple offers are not common, but may still occur when a property is perceived to be "under-valued."  The average time on the market for the 41 homes that are now under contract was 45 days. 

Jan. 2, 2006 - New Year Predictions

Since I am watching the Rose Parade and bowl games today, it feels like New Year's Day.  The Rose Parade is being rained on for the first time in 50 years, and the Rose Bowl football game is not scheduled until January 4th at 5:00 pm.  It feels odd!

I have always thought that the Rose Parade and Rose Bowl games helped generate interest in Southern California real estate, with people sitting in the mid-West, or back East surrounded by snow, thinking that they needed to move to "Sunny California."  This year is different.  I don't know if today's weather will affect the 2006 real estate activity in California, but it will be  interesting to see.  (Check back in a few months as I monitor the market!)

My official prediction for Lake Forest real estate in 2006 :

Slight increase in value ( up 3% - 5%)

Significant decrease in volume (down 12% to 20%)

We ended 2005 with the following statistics :

SFRs :

542 @ $701,496 average Sale Price (98% of List Price)

$/square foot = $368

# Days on the Market = 40

Condos :

565 @ $384,332 average Sale Price (99% of List Price)

$/square foot = $358

# Days on the Market = 38

One of my past clients called me last week to ask what I think the prices will do for entry level housing this year.  That's a really good question!  What I think, and what will really happen may be 180 degrees apart, but I will give it my "best guess." 

For entry level condos, I think the prices will have to either level off, or increase very slightly, but I don't expect them to continue the way they have for the past 3 years.  The rents have been increasing, but comparing the costs of owning to the costs of renting (even with tax considerations) the average first time buyer is financially ahead by renting.  At the moment, you can buy a nice one bedroom condo with a single car garage for about $300,000.  With a 10% down payment, 6.25% mortgage rate, private mortgage insurance, 1.2% property taxes and average HOA dues of $200, the payment for this would be about $2274.  To rent an equilavent apartment, would cost less than $1400 per month.  Obviously, to make this attractive, you have to add in appreciation, otherwise, it would be a very poor investment with a monthly loss of almost $900. 

I am starting to monitor the number and % of vacant homes on the market.  The vacant properties are owned by either sellers who have already moved to their next home, investors who have owned them as rentals, or speculators who bought them just to fix and flip.  If the market starts to turn, these properties will need to react quickly with price adjustments, or risk losing money by having to pay the carrying costs.

As of today in Lake Forest, there are 21 (27%) vacant condos out of 78 available.  There are 13 (22%) vacant single family homes out of 59 currently on the market.  Looking at the details, I found that 7 of the single family homes and 13 of the condos have been owned less than 24 months.  They were probably bought on speculation, and are feeling a lot of pressure to sell soon.