Straight Digs

Photo by Tony the Misfit

Orange County housing inventory is relatively low right now.  Trendgraphix shows that as of May 2009, there were 11,694 homes for sale in Orange County.  That is the lowest that number has been in over three years (February 2006). 2006 is generally considered the peak of the Orange County market.

Some parts of Orange County are experiencing extremely low inventory.  Aliso Viejo, for example, had 263 homes for sale in May according to Trendgraphix, also the lowest since 2006 (January), but that number is just over the number for May 2005 when the market was booming.

Why is inventory so low?

Low prices are a key factor.  Prices declined dramatically in 2008, but have been stable all this year.  The median price has held steady from January through May.

Low interest rates.  Rates were as low as 4.75% for a while driving a lot of buyers on the fence into the market place.   Despite a recent rise in rates, they are still below 6% for conforming loans (up to $729K) and that has helped keep a lot of buyers buying.

Fewer short sale properties.  Short sales continue to pop up especially in the under $500,000 range.  However, many homeowners are electing to try loan modifications to save their homes rather than short sales or foreclosures.

Fewer bank-owned homes.  Rumor has it that banks that have foreclosed on homes are holding on to those homes and slowly releasing them on the market to keep demand up for their homes.  This is the so-called “shadow” inventory theory.  Makes sense to us, though carrying costs will catch up to the banks eventually.  We can’t remember a bank-owned home that did not get multiple offers recently.

Fewer equity sellers. Equity sellers are getting a premium over distressed sales these days, because they can be easier sales and because there are so few of them.  Homeowners who are selling these days have a need (growing family, job change, etc.) rather than just wanting to sell to get money out.

Photo by Linh Ngan

Most buyers focus on three things during the escrow period: their loan, the inspection and the appraisal.  From time to time, other issues crop up, but these are usually the focal point.

However, as Bankrate.com points out, there may be other factors to consider in completing your due diligence for your purchase.  Our favorites include: checking out the home at different times of the day and on different days of the week; driving the route between the home and work to get a feeling for the commute; and looking up school and crime information for the neighborhood/area.

Photo by the Boston Public Library

It happens all the time.  Mortgage fraud, according to the L.A. Times, has run rampant in the industry and Congress has decided to do something about it.

The FBI, Justice Department, and other government agencies have been given $500 million in funding to investigate and prosecute those who participate in mortgage fraud.  According to a Mortgage Bankers Association report, most fraud occurs on the mortgage application.  In California, faked bank statements or deposits are particularly prevalent.

Because we don’t usually deal directly with our clients’ loans, we don’t often see the kinds of mortgage fraud detailed in the L.A. Times.  However, in this current short sale market, our buyers have been approached by the sellers of properties to pay them money outside of escrow to get their offer accepted.  This is a clear case of mortgage fraud as the seller’s lender would not allow such a payment if it knew about it.

Mortgage fraud has always been illegal.  Now it has teeth.  Consult your agent and lender before doing anything that you think might be fraudulent.

Photo by Lauren at Clemson

Pending home sales rose in April nationwide by 6.7% according to the National Association of Realtors, the highest pending sales jump in 8 years.  NAR attributed the increase to the $8,000 tax credit for first-time home buyers.

The increase in pending home sales is tempered by the recent rise in interest rates to above 5% and fear of continued price decreases and layoffs.

As we have discussed before, prices have been flat in Orange County since January, they have not been declining as they have been nationally, which is dramatically different than 2008.  While rates are above 5%, keep in mind that just below 5% was the lowest average mortgage rate in history.  The median rates in 2008 and 2007 were over 6%.  Rates are still historically low.

Photo by Andres Rueda

Whether you are applying for a new loan or refinancing an old one, you may have noticed the importance of your credit score these days.  Bankrate.com reports that where just a few years ago most credit scores were good enough to get the best rates, today the best rates are reserved for those with 740+ scores.

How do you get your scores up?

• Find out what your credit report says
• Correct any inaccuracies and
  
• Ask a lender to help you determine what other factors might be keeping your score down.
  

And, of course, keep your credit card balances as close to zero as possible.

Photo by teofilo

Today, the U.S. Department of Housing and Urban Development (HUD) announced that buyers can apply their first-time homebuyer tax credit of $8,000 directly to their down payment or closing costs.  FHA-approved lenders (most lenders) will have the ability to buy the tax credit from the homebuyer and then get reimbursed by the IRS. Buyers no longer have to wait to apply to the IRS for the tax credit.

In Orange County, this will help those who are on the fence about buying this year make their decision.  With prices down 40% from the peak, interest rates below 5% and help with closing costs or down payment, it will be difficult for any remaining waffling buyers to stay on the sidelines.

Photo by tinou bao

In national news, the National Association of Realtors reports that national home sales increased 2.9% last month beating market expectations and supporting the view that the national housing bottom is here.

Much of the activity nationally was in the low-end distressed homes market.  “Low end” nationally is probably near the national median of $170,000.  In Orange County, the median price in April was $380,000.  From our perspective, Orange County’s “low end” is similarly seeing the most activity.

Photo by ark

You may read reports in tomorrow’s news that the Case-Schiller home price index showed a record decline in the United States for the first quarter of 2009.  Overall, prices were down in the U.S. by over 19% in this year’s first quarter.  In the L.A. area, including Orange County, prices were down about 22% from last year and 41% from the peak in 2006.

The Case-Schiller index measures this year relative to last year.  In our opinion, almost all of the decline for Orange County for this index probably occurred in 2008.

Trendgraphix, a company that compiles MLS data for Orange County, shows that locally prices per square foot declined 22% in 2008 and since have declined 3%, all of that decline in the first two months of the year.  The corresponding chart is below:

It is important when reading reports on the housing market to check what is being measured.  If it is not your local market, it may not apply.

Photo by epicharmus

Interest rates are down nationwide this week at near record lows according to Freddie Mac.  The average 30-year fixed rate is at 4.82% a few hundredths of a percent off the record low of 4.78%.  As a result, refinancings are up 2% from the previous week.

You can read the full story from the Los Angeles Times.