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Discounts and interest rates fuel home sales
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More from BusinessHomes sales ticked up in July as many buyers, lured by deep discounts and rising interest rates, decided to pounce.
"Right now, I would buy until I ran out of money," said Michael Oliver, a real estate investor from Ventura.
Oliver recently purchased a tract home in Oxnard that he plans to rent, and he expects to close in a few weeks on a duplex in Ventura.
Oliver might be more enthusiastic than others, but he isn't the only one jumping in the market.
Ventura County sales for existing homes last month rose 20.6 percent from a year ago and 25.6 percent from June, California Association of Realtors reported Monday.
The median was $475,000, down from $480,340, or 1.1 percent, from June and from $682,930, or 30.4 percent, from July 2007.
The median is the midpoint, where half the homes sold for more and half for less.
Nationally, sales slide
A similar trend was seen throughout the state, with home sales surging 43.4 percent last month from a year ago, while the median fell a record 40.3 percent to $350,760, CAR reported.
Nationally, existing home sales slipped 13.2 percent from July 2007, but edged up 3.1 percent from June, according to the National Association of Realtors. The median dipped to $212,400, or 7.1 percent, from the same month a year ago.
"California's sales improved significantly in July and remained above the 400,000 level for the third consecutive month," CAR President William Brown said in a news release.
"Deeply discounted, distressed sales continue to drive volume in many regions of the state," he said. "In general, greater percentage gains occurred in lower-priced areas that had been most adversely affected by the market downturn since last 2005 and that are concurrently experiencing the biggest decline in prices."
Encouraging nonetheless'
Year-to-year sales increases ranged from 6.7 percent in the San Francisco Bay Area to 176.5 percent in the Riverside/San Bernardino region, Brown said.
While a significant percentage of the homes sold are foreclosures, the uptick in sales is "encouraging nonetheless," said Gary Painter, director of research with the USC Lusk Center for Real Estate.
However, Painter believes prices probably won't be heading up until 2010.
"It's still a transition time," he said.
The fact that there are a lot of foreclosed properties being sold will cause the median to continue to fall, which is both good news and bad news for people, Painter said. The good news, obviously, is that as prices fall, buyers are starting to make purchases.
The percentage of households that could afford to buy entry-level homes in Ventura County surged to 48 percent in the second quarter, up from 25 percent during the same period a year ago, according to CAR.
Prices being depressed
The minimum housing income needed to purchase an entry-level home at $415,250 was $79,330. The monthly payment including taxes was estimated at $2,640.
The bad news is the glut of foreclosures is depressing the price of other properties, Painter said.
Even in more prominent areas such as Thousand Oaks and Westlake Village, short sales and foreclosures are a problem, said Bob Merritt, a yacht broker who has been trying to sell his Thousand Oaks home for the past year and a half.
"It's everywhere," he said. "I don't think there's one area that's immune to it."
In order to compete with the distressed property selling for so much less, Merritt lowered his original asking price for his 2,653-square-foot, 4-bedroom, 2.5-bath home with a pool and spa from $969,000 to $799,900. But he won't go any lower.
While the typical real estate agent will weigh comparable homes in the area when setting a price, including distressed and traditional sales, the practice is "highly unfair," Merritt said, because the distressed properties are run down and abused.
Oliver, the real estate investor, said the homes he purchases to restore are typically rentals.
He added that he wouldn't consider buying and selling a tract house because it would mean trying to compete with banks that are dumping similar properties.
"I've had good luck renting," he said.
The one house he has for sale is an ocean-view home in Ventura, for $774,950, with a new kitchen and stainless steel appliances.
"I don't really compete with foreclosures," Oliver said. "There's no foreclosed ocean-view homes."
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Posted by Smashy_Crashy on August 26, 2008 at 1:34 a.m. (Suggest removal)
http://img171.imageshack.us/img171/65...
Here is a graph of what is happening locally from Dataquick. Sales are still very weak it is just we had such historic low sales last year from Wall Street pulling away from the mortgage market that we have easy comparisons for the rest of the year. As the traditional buying season ends sales will drop along with prices as the lenders keep trying to move foreclosures and short sales. The short sales and foreclosures are the major force in the marketplace and mostly the people willing to compete with them are selling, though you do see the miracle sale every once and awhile.
People don't understand what happened during the runup and so they will still not understand why everything is dropping. It just boils down to getting a mortgage, everyone was able to get them before, qualified or not, down payment or not. Now the banks care who they lend to and want down payments. Credit is still contracting. The buying pool is much smaller because people actually have to qualify for a mortgage. There will be no return to the salad days, lenders were lending other peoples money and now have to lend their own or lend money from people who care how its being lent.
In my humble opinion I think next year we will be sitting here seeing about 10% higher sales and 15-20% lower prices. The year after that around this time it will be 5% higher sales the previous year and 5-10% lower prices. And then muddle around for a few more years of basically flat sales and 3-4% price drops. If the economy gets significantly worse it will accelerate the move to the price bottom. I actually think this is a relatively optimistic scenario, an assertion that many will argue, but I see the risk to the down side as I don't see many positive drivers for housing coming in the next few years.
To follow the economic conditions of the county I recommend Chris Thornberg from Beacon Ecnomics Ventura webpage:
http://www.bewebstats.com/EmploymentR...
Posted by Smashy_Crashy on August 26, 2008 at 9:24 a.m. (Suggest removal)
"The minimum housing income needed to purchase an entry-level home at $415,250 was $79,330. The monthly payment including taxes was estimated at $2,640."
This is pure CAR propaganda. What happened was the California Association of Realtors had something called the First Time Buyer Housing Affordability Index.. they had a formula which required 20% down, a 30 year fixed rate and a traditional housing ratio of 28% of income.
The problem with the boom was their Index was showing everything was unaffordable. So instead of reporting houses were unaffordable they changed the formula so housing looked affordable. Now they said "affordable" is 40% of your gross income spent on housing and use an Adjustable rate mortgage and buy a lower than median priced home. This loan doesn't even exist anymore. If someone is manually underwriting an FHA loan it is 31% of gross income and you have to include their mortgage insurance. Fannie/Freddie may underwrite such a high front end ratio but certainly not at the rate, 5.69 is what CAR is quoting, and no MI. Though the mortgage insurer may not.
A more realistic looking FTHB loan would be either a 3% down FHA or a 10% down Fannie/Freddie loan.
The FHA loan for a 79k income would look like:
3% down
6.25% rate
31% of income to housing would mean 2,040 a month for PITI + HOA + MI
That would roughly come to a 270,000 home. 9,000 down. 1,612 for the loan, 281.25 for prop taxes, 40 for insurance and 109 for mortgage insurance.
For Fannie/Freddie loans a lot is dependent on your other debt but it basically comes down to around $300-$320,000 at that income range and assuming no risk based add-ons (which is a lot to assume) and mainly because of the higher down required.
Posted by guy133 on August 26, 2008 at 11:08 a.m. (Suggest removal)
My household income is about 50% higher than $79k, and according to my math, I can only afford about $325k for a house. No way I could afford $415k and a $2600/month payment.
Posted by freethought on August 26, 2008 at 12:40 p.m. (Suggest removal)
guy133 - You must be using "old" CAR math. If you adjust for the "new" CAR parameters, you can probably "afford" to live in Spanish Hills - at least until the bank forecloses (a year or so?).
Posted by freethought on August 26, 2008 at 12:46 p.m. (Suggest removal)
Smashy - It doesn't matter what CAR says. When buyers go to the bank and apply for a $450K loan with an annual household income of $90K and a $40K down payment, they will receive the rudest of awakenings. The CAR has absolutely no control over what the banks and Fannie/Freddie will say or do. I believe they (CAR) will only further discredit themselves as people discover they can't afford as much house as the CAR indicated.
Posted by aeroj on August 26, 2008 at 1 p.m. (Suggest removal)
To Oliver, the real estate investor - There's a foreclosed ocean-view home in my neighborhood. It's been on the market for 170 days. It's listed at 359K but needs a little work. Perhaps you can install a stainless steel kitchen and sell it for 700K.
Posted by freethought on August 26, 2008 at 1:03 p.m. (Suggest removal)
"In order to compete with the distressed property selling for so much less, Merritt lowered his original asking price for his 2,653-square-foot, 4-bedroom, 2.5-bath home with a pool and spa from $969,000 to $799,900. But he won't go any lower."
Yeah, we'll see about that in six months.
Posted by freethought on August 26, 2008 at 1:05 p.m. (Suggest removal)
aeroj - Wow! The price of stainless steel appliances has really gone up in the last few months.
Posted by daleeks on August 28, 2008 at 9:36 p.m. (Suggest removal)
Jenny, you interviewed me a year ago (I am the lowly renter) and put my story alongside that of someone like Oliver who was "investing" in real estate as fast as he could shovel his life savings into the toilet and some mortgage owner who considered himself a proud "home owner." I suggested that you follow up on the same people a year later and see how they all did. How about it?
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