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Wednesday, July 06, 2011

Orange County Housing Market Summer 2011

Everybody is taking for granted that these current historically low level interest rates will last forever… they absolutely will NOT.

Interest Rates: we will not see interest rates like these every again during our lifetimes.
Remember the days when gas prices were below $1.50 per gallon? That was just nine years ago. At this point we would settle for paying $3.00 per gallon. Longing for those days will not make them come back. In fact, I don’t think we will ever see gas prices below $2.00 ever again, and most likely have seen the last of prices below $3.00 as well. Many buyers are going to be kicking themselves for not taking advantage of today’s incredible interest rate atmosphere. As a society, we unfortunately shop for homes strictly by price. Sure, buyers and homeowners want to take advantage of today’s interest rates, but I will bet good money that everybody has forgotten the day when we rejoiced at interest rates that dropped below 8% a decade ago. Very few people believe interest rates could increase dramatically. Yet, interest rates are poised to increase, they HAVE to. The United States government has dumped tons of money into the economy over the past several years in hopes to jump start activity. When the economy is flooded with money, inflation eventually rears its unwelcome head. When that happens, and it will, interest rates will jump. So, why am I making such a big deal about interest rates? I am making a big deal because as interest rates rise, affordability drops just as swiftly. This chart helps illustrate the impact of an increase in interest rates. For a $500,000 loan, as interest rates bump up from 4.5% to 6.5%, an inevitable reality down the road, affordability drops by $100,000. If rates increased to 8%, year 2000 levels, the monthly payment for a $400,000 loan increases to $2,935. For a $1 million loan, affordability drops by $200,000 with a 2% increase in interest rates. Since these payments are not going to hold at these historically low levels, for buyers that are waiting for prices to fall further, they risk being able to afford and qualify for a much smaller purchase price. It is time to shop for homes based upon today’s incredible low payments. We all shop for cars based upon the monthly payment, often negotiating to drop the monthly payment by $20. As mortgage rates increase, monthly payments go up by hundreds of dollars. We are worried about saving $20 per month for a car with, it’s time that we start worrying about saving hundreds of dollars and cashing in on today’s “once in a lifetime” historically low mortgage rates. If a buyer plans on holding onto a home for many years, a wise way to approach real estate today, the total savings over time with a lower monthly payment will be staggering.

Housing Demand: Demand dropped slightly over the past couple of weeks.
Demand, the number of new pending sales over the past month, decreased by 40homes in the past two weeks and now totals 3,060 pending sales. Last year at this time demand was almost at the same level with 3,107pending sales. The discrepancy in year over year demand has vanished because last year at this time the first time home buyer credit had expired.

The Active Listing Inventory: There listing inventory grew slightly.
The inventory slightly increased by an additional 51 homes, almost unchanged, and now totals 11,388. Last year, the listing inventory was continuing to grow at an alarming pace. This time last year during the same two week period, the inventory grew by over 3% and totaled 10,462, just 962 fewer homes than today. The year over year gap has dramatically diminished, starting the year with 2,694 home spread and now totals less than a 1,000.

The Distressed Market: the active distressed inventory changed very little this year.
The distressed inventory now totals 3,810 and represents 33.5% of the active inventory. The expected market time for foreclosures is remains incredibly HOT at 1.57 months. There are currently only 670 foreclosures within the active listing inventory, an increase of only two homes in the past month. There are currently 3,140 short sales on the active market, increasing by one home in the past month. The expected market time is 2.83 months for short sales, also a seller’s market.

Information generously provided by Steven Thomas


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