Straight Digs

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Is the media calling the Orange County housing bottom?  Here is a summary of recent news articles from the Orange County Register on the housing bottom over the last month:

October 7, 2009–The California Association of Realtors said home prices hit bottom early 2009 and forecasts that the median home price will rise 3.3% next year.

October 14, 2009–Prices and sales rose together, year-over-year, for the first time since September 2005.  15th consecutive month with year-over-year sales gains.

October 20, 2009–Aliso Viejo is the hottest housing market in Orange County with a market time of 1.2 months to sell all current inventory.  For all of Orange County, market time is down to 2.4 months from 4.76 months a year ago.

October 24, 2009–September national home sales had largest increase in 26 years and jumped 13% in the West.  Deutsche Bank chief economist calls the bottom.

October 28, 2009–Three Orange County cities, San Juan Capistrano, Lake Forest, and Tustin, are in state’s Top 10 price gainers in September.

October 29, 2009–UCLA economists project Orange County median price to rise next year by 15.9% to 16.6%.  Projected price increases to be smaller 2011-2015.

November 4, 2009–Expected market time for Orange County short sales is 56 days compared with 7 months a year ago.  Bank owned homes current inventory is just 21 days.

As with the housing peak, no one is going to perfectly call the housing bottom and no one can predict the future.  However, today the Orange County housing market is moving in the right direction, as reflect in the media reports.  If it continues, we will see price and sales increases in the future.

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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.

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The two greatest risks to buying an Aliso Viejo home in the last couple of years have been price depreciation and job loss.  With Aliso Viejo home prices dropping over 17% in the last year and Orange County job losses totaling over 70,000 in the last year these have been legitimate concerns.  This year, however, these risks have lessened.

Orange County home prices have appreciated over the last two months for the first time in years.  This is no guarantee that prices will continue upward, but it is a sign that price risk may be less in Aliso Viejo than it has in the past.

The risk of job loss may be less as well.  The California Association of Realtors has launched an insurance program designed to compensate first-time home buyers in the event of a job loss after their home purchase.  The program would compensate eligible buyers up to $1,500 per month for 6 months in the event of a job loss.  Individual builders are launching similar programs, including Shea homes which has several Aliso Viejo new home developments.  Shea’s program will pay the entire mortgage in the event of an involuntary job loss for up to 6 months.

Buying a home is a risky investment in any market.  The greatest risks of price depreciation and job loss are less this year, which is probably why Orange County home sales have been up for nine straight months.

Photo by Kevin Dooley

According to a professor at the University of California-Berkeley, the market in Mission Viejo is now “normal” at least as far as liquidity goes.  Professor David Zetland told the Orange County Register that his Real Estate Market Index shows that the real estate market in Mission Viejo is much more liquid than it was this time last year.  He said his index shows that flat prices, low days on market, and higher sales indicate a market where home buyers and sellers can buy and sell homes in a “normal” market.

Having sold a few Mission Viejo homes in the last year, we can tell there is a dramatic difference between this year and last.  Last year, even the “best deals” stayed on the market for a long time, at least long enough to see them.  This past week we set appointments for many clients in Mission Viejo and surrounding cities like Irvine, Aliso Viejo and Lake Forest and often found a third of the listings we wanted to show sold by the time we went to show the homes.  This is not the frenzy of 2005, when you sometimes had to make an offer while at the house you were viewing if you wanted it, but it is moving much more quickly than it was in 2008.

Photo by Mat Honan

There are a lot of buyers looking in Aliso Viejo right now and almost all of them want to know about Aliso Viejo property taxes and Mello Roos.  Here is a primer:

I’ve heard Aliso Viejo’s property taxes are 1% or 1.5%, which is it?

What we pay as Orange County homeowners on our property tax bill is not always a simple percentage of our purchase price.  Aliso Viejo homes, being built mostly in the last 20 years, have Mello Roos and other assessments that skew the property tax rate beyond the basic 1% (see below).  When a home is brand new, it is possible that the percentage is exact (e.g., 1.5%, 2%, etc.), but otherwise any percentage that an agent quotes on an Aliso Viejo home is an estimate at best and disingenuous at worst.

So if there is no one percentage, how do I calculate property taxes for my Aliso Viejo home?

The quick answer is to use the Orange County tax collector’s Web site.  Click on the link to Pay/Review Your Property Taxes.  On that page enter the property address and click “find” or press enter.  On the next page click on the parcel number and then click the parcel number again on the following page.  Towards the bottom of the resulting page, click where it says “Click Here for Details”.  Now you have all of the tax info for your property.  The assessments on the top half are those calculated based on your home or land value.  The bottom half are fixed assessments.

I’ve heard Aliso Viejo property taxes are higher than other cities, is that true?

Yes and no.  Orange County annually levies a basic tax of about 1.0% of the assessed value of your Orange County home.  When you purchase the home, the assessed value is usually your purchase price.  This is the basic tax regardless of your city.

Builders can use bonds to pay for construction of newer homes especially with the advent of Mello Roos bonds.  Most of Aliso Viejo homes have Mello Roos or other bonds to pay off.  A typical Aliso Viejo home has a 0.1% water bond plus Mello Roos and miscellaneous other smaller payments that total between $100 and $125 per month.  The Mello Roos and other payments are NOT based on your assessed value, so they are NOT a fixed percentage of your purchase price or assessed value.

So a typical Aliso Viejo home’s tax and bond payments are 1.1% of the assessed value annually plus $100 to $125 per month.  Property taxes are paid twice a year.  Because these amounts vary with each home, it is critical before buying a home to look up its tax rates and bond amounts so you are not surprised about your total monthly payment.

Some cities built recently like Ladera Ranch and Rancho Santa Margarita generally have higher taxes, while new construction in cities like Laguna Niguel have lower tax and bond payments and no Mello Roos.

Will my property taxes continue to go up and if so, how much?

After the first year, the county can increase or decrease your property tax assessment annually.  The tax assessor discusses how it does this if you need more info.  In today’s market, with prices decreasing in the last few years, the assessor has generally kept taxes level or lowered property taxes for recently purchased Aliso Viejo homes.

Rejoice, you now know more about Aliso Viejo property taxes than most of its residents.

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The Federal Reserve announced yesterday that it would buy $300 billion in treasury securities and $750 billion in mortgage-backed securities, sending interest rates plummeting.

As of the time of their announcement, the average 30-year loan was just under 5% with just over 1 point paid.  However, today a local Wells Fargo lender who lends in Aliso Viejo quite a bit said she had conforming loans with no points under 5% available.  If you are on the fence about buying or refinancing, this may be the time to take advantage of these rates.

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We have an Aliso Viejo home listed for sale that is range-priced right now and that has us thinking about how to bridge sellers and buyers in this market with range pricing.

Range pricing means instead of offering a home for sale at a single price, the seller offers the home in a price range.  Part of what we have consistently noticed about range pricing is that sellers want to sell their home at the top of the range and buyers want to buy at the bottom.  In the current market, buyers sometimes want to buy below the range as well.

One way to bridge the gap in range pricing is to get some definitions out there.  When range pricing a home, a seller almost always means they will respond to offers within the range.  If an offer is below the range, sellers vary on how they respond, but our experience is that sellers, even in this market, tend not to respond.

The numbers in Aliso Viejo over the last six months bear this out.  In the last six months, Aliso Viejo homes that closed with range pricing, closed within the range all but two times in the last six months.  That means there were only two sellers in Aliso Viejo in the last six months willing to go below the range of a range-priced home.

Incidentally, the two sellers that did settle below the range both settled within 5% of the top of their range.  So the difference between what the seller and buyer wanted was not extreme in these cases.  The lesson learned is that in Aliso Viejo if you see a home that is range priced, expect to pay within the range, otherwise you may be disappointed.

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Fannie Mae and Freddie Mac are opening up their new refinancing programs to investment homes and second homes.  Mortgages for investment homes and second homes would have to be in Fannie Mae or Freddie Mac’s portfolios or securitizations and would have to have been paid on time.  We discussed previously what to do to determine if your loan belongs to Fannie Mae or Freddie Mac.  Paying on time, under their guidelines, means making each payment less than 30 days late.

Fannie and Freddie broadening the scope of their programs benefits towns like Aliso Viejo, where about one-third of its occupants rent and many homes are owned as investment properties.

Photo by Jan Tik

The Aliso Viejo postal facility that the city of Aliso Viejo has been fighting for the past couple of years may have been dealt its final blow.  According to a spokesman for the U.S. Postal Service, plans to build have been tabled due to an unanticipated drop in mail volume.  The Postal Service is undecided as to what to do with the land.

Photo by Randy son of Robert

The Orange County Register reported that sales of Aliso Viejo homes soared in January/February 2009, up over 16% from 2008.  We believe that lower home prices are the cause as Aliso Viejo home prices are down 12% according to the same article.  The Register provides a nice chart that captures home sales and median home prices for all Orange County cities.  Most cities, like Aliso Viejo, saw price decreases and sales increases.