If you’re wondering what’s going on with the housing market and whether a permanent home price stabilization trend is underway, you should read this article….which is one of the best ones I’ve seen recently on the topic of the US housing market and likely future trends. At HausAngeles we are seeing clear signs of what we would describe as a “mini buying frenzy” at the low (below 400K or so) and medium (below 750K or so) ends of the real estate market in Los Angeles County. Most properly priced homes listed to be sold are seeing multiple offers, with many offers and sales occurring above the property listing price.
While we do believe this is a better time than we’ve seen for a long time for first time home buyers and buyers of lower priced homes to purchase homes due to increased home price affordability, historically low mortgage rates, and a significant first time home buyer tax credit, we do not believe this is the market bottom.
Instead we believe there is likely further downside for home prices, particularly higher priced “jumbo” homes, due to the following key factors which we believe will drive significant increases in housing supply in the future:
1. Unemployment: Increases in the number of people who will need to sell their home – either through foreclosure or (hopefully) a more favorable foreclosure alternative such as a Short Sale (which is one of our specialities) – because they lost their jobs and were not able to replace the lost income adequately or in the same geographic location. We do not believe we have seen the impact of all the layoffs that started in Q4 2008 and are continuing today in the housing market yet for a variety of reasons including the fact that many people continue to make their mortgage payments for several months after experiencing a layoff (by using up their cash reserves/savings)
2. Option ARM Resets: Increases in the number of people who will find themselves unable to afford their mortgage payments due to scheduled payment re-sets on their adjustable rate mortgages, particularly Option ARM’s
3. State Foreclosure Moratoriums and Home Ownership Transfer Delays Resulting from Implementation of the Government’s Loan Modification Programs: Increases in the number of homes listed for sale as state foreclosure moratoriums start to expire, and as people who were unable to qualify for or succeed at a loan modification under the Government’s Making Home Affordable Program move and sell their home.
We’re not sure exactly how the above will play out in the “official numbers”, particularly the “median home price” data most often quoted and published….as the impact is likely to be highest on homes that are typically far “above the median”. However, while the jumbo market may not be reflected appropriately in median numbers….the actual changes (for those going through them either as a client or professional) will likely be very real for a lot of people, particularly on the Coasts and in our home market of Los Angeles.
High-End Homes Frozen Out of Budding Housing Rebound (Wall Street Journal; August 3, 2009)
By NICK TIMIRAOS and JAMES R. HAGERTY
KENILWORTH, Ill. — Housing is fast dividing into two markets: Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.
Signs of the divide are visible across the country, including in suburban Chicago. In middle-class Schaumburg, Ill., which had a median income of $65,000 in 2007, sales were up 41% in June from the depressed level of a year earlier and bidding wars have broken out on some properties. “I can’t even tell you how many I’ve been in over the last two months,” says Joe Stacy, a local real-estate agent.
But 25 miles away in the affluent town of Kenilworth, with a median income of $230,000, home sales have stalled. While there are 65 homes on the market, just 13 have sold this year. “We’re extremely oversupplied,” says Sherry Molitor, a local real-estate agent. “Sellers are struggling to realize that we’re back to 2001-02 prices.”
The divide between the mass market and the high-end — generally defined as homes that cost above $750,000 — partly reflects the effects of Washington’s housing-rescue plan, which is producing winners and losers.
Policymakers have helped spur sales of lower-priced homes by offering first-time buyers a federal tax credit of as much as $8,000, by driving mortgage rates to near 50-year lows and by expanding the mission of the Federal Housing Administration, which will guarantee mortgages for consumers buying homes with down payments as low as 3.5%.
Click here for the full article: http://online.wsj.com/article/SB124924069909799645.html
