The precarious balance of supply and demand in our local housing market is sustained at low sales volumes by low inventories. Is the new inventory coming to market upsetting that balance?
Irvine Home Address … 29 CHARITY St Irvine, CA 92612
Resale Home Price …… $1,449,000
The walls start breathing
My minds unweaving
Maybe it’s best you leave me alone.
A weight is lifted
On this evening
I give the final blow.
When darkness turns to light,
It ends tonight,
It ends tonight.
The All-American Rejects — It Ends Tonight
The array of government market supports are tentatively scheduled to be removed from the market. Unfortunately, the tax credit for houseowners is not helping sales, and many are worried about what will happen to the housing market when tax credits expire? People have good reason to worry because the housing market is still dependent upon government support to maintaining our inflated current prices.
realtors blather on about pent up demand, but in reality, there is very little demand because (1) many people were pulled forward during the bubble and (2) many who were not pulled forward during the bubble are either unemployed or underemployed and thereby not contributing to demand. The end result is low sales volumes that will persist until either prices are much lower or the economy recovers and those not foreclosed upon or bankrupted during the bubble start buying houses.
March 4 (Bloomberg) — Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers.
The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. Other reports today showed factory orders increased and first-time jobless claims declined.
The drop in contract signings adds to evidence the housing market at the center of the worst recession since the 1930s is struggling to rebound after reports last week showed unexpected declines in purchases of new and existing homes. The market may get another blow this month when the Federal Reserve ends planned purchases of mortgage-backed securities.
“When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.”
Mr. Vitner's analysis is right on; what little demand was left over has either been pulled forward during the bubble or it has since been pulled forward with the glut of government supports. Any decline in sales during the first half of the year fails to match the historic pattern and causes concern among the rational.
“The abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February,” Lawrence Yun, the group’s chief economist, said in a statement. “We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June.”
The Realtors’ report showed declines in January pending sales in all four regions, led by a 13 percent slump in the West. Contract signings fell 8.9 percent in the Midwest, 8.7 percent in the Northeast and 2.1 percent in the South.
Pending home sales are considered a leading indicator because they track contract signings. The Realtors’ existing- home sales report tallies closings, which typically occur a month or two later. The pending sales data go back to January 2001, and the group began publishing the index in March 2005.
Reports last week showed the housing market may be faltering. Sales of previously owned homes unexpectedly dropped 7.2 percent in January after a record decline a month earlier, according to Realtors group’s report Feb. 26. New-home sales slumped to an all-time low, the Commerce Department said Feb. 24.
Does Lawrence Yun have any credibility with anyone? Is there even one person who believes him? Isn't he a stuffed shirt?
President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners.
Among other concerns for the housing outlook, the Fed said it plans to end a program later this month to purchase mortgage- backed securities, which helped contain borrowing costs.
The rate on a 30-year fixed mortgage dropped to 4.71 percent in early December, the lowest level since Freddie Mac started keeping weekly records in 1972. The rate has hovered around 5 percent since then.
Is anyone surprised that Ben Bernanke refinanced his ARM to a fixed-rate mortgage late last year? Interest rates for fixed-rate mortgages are at bottom, and anyone who has not refinanced into fixed-rate financing should do so now.
Southern California Sales Volume and Price
Dr. Housing Bubble recently wrote a post on The Housing Metrics of Southern California – Seasonal Home Sales, Inflation Adjusted Home Prices, Tens of Thousands Living Rent Free, and the Japanese Experience. The chart below comes from that post:
From the good Doctor:
This is a fascinating look at the market. Even during the boom we clearly see the seasonal pattern in sales. Each fall and winter sales drop as more people take inventory off the market. Spring and summer overall are bigger sale months because of school schedules, family commitments, and just a general acceptance that this is when more inventory enters the market. But you’ll notice in 2006 that the trend radically shifted. The crash hit and sales plummeted. An interesting phenomenon occurred where the median sale price didn’t peak until the middle of 2007 well into the monthly sale crash. So it would appear that sales would actually lead future prices.
At the Irvine Housing Blog, we have been tracking inventory since January 2007. The chart of inventory is shown below.
If you think back to what was happening in our market, the inventory graph reveals much about the strength of our market.
In 2006, the market topped, sales volumes declined, and inventory increased.
Beginning 2007, inventories were already elevated and the market contained a dwindling qualified buyer pool and tightening credit standards; consequently, when a normal amount of spring listings hit the market, sales volumes were low, and inventories ballooned.
By 2008, many late buyers were underwater, and discretionary buyer viewed the price drop as a temporary apparition; therefore, many sellers did not bother listing their properties, and many that were listed had WTF asking prices nobody could afford. The result was a continued decline in sales volume and lower prices.
By 2009, the crisis prompted the government into providing an array of market subsidies designed to improve affordability and prevent further price declines. The same problems that existed in 2008 persisted into 2009 and became worse due to rising unemployment, strategic default, and a number of other problems.
Now in 2010, we are seeing inventory rise again, but we are still well below historic norms. Current pricing is sustained by restricted inventory and low sales volumes. If either inventory or sales volumes increase, it will adversely impact prices. Some of our recent inventory is discretionary sellers asking WTF prices that will never transact, but a significant amount of this new inventory is appearing as trustee sale flips that previously has been withheld from the market. Will the lending cartel be able to sustain prices, or with the incentive to cheat and sell while prices are still high force more inventory on the market and push prices lower?
At its current trajectory, inventory should break the 30 month trend of declining inventory very soon. In both 2008 and 2009, the seasonal inventory increase was abruptly reversed, and prices were able to remain firm. Will that happen again?
Irvine Home Address … 29 CHARITY St Irvine, CA 92612
Resale Home Price … $1,449,000
Home Purchase Price … $888,000
Home Purchase Date …. 3/25/2003
Net Gain (Loss) ………. $474,060
Percent Change ………. 63.2%
Annual Appreciation … 7.1%
Cost of Ownership
$1,449,000 ………. Asking Price
$289,800 ………. 20% Down Conventional
5.01% …………… Mortgage Interest Rate
$1,159,200 ………. 30-Year Mortgage
$300,371 ………. Income Requirement
$6,230 ………. Monthly Mortgage Payment
$1256 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$121 ………. Homeowners Insurance
$230 ………. Homeowners Association Fees
$7,836 ………. Monthly Cash Outlays
-$1521 ………. Tax Savings (% of Interest and Property Tax)
-$1390 ………. Equity Hidden in Payment
$565 ………. Lost Income to Down Payment (net of taxes)
$181 ………. Maintenance and Replacement Reserves
$5,672 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$14,490 ………. Furnishing and Move In @1%
$14,490 ………. Closing Costs @1%
$11,592 ………… Interest Points @1% of Loan
$289,800 ………. Down Payment
$330,372 ………. Total Cash Costs
$86,900 ………… Emergency Cash Reserves
$417,272 ………. Total Savings Needed
2 full 1 part baths Baths
2,910 sq ft Home size
($498 / sq ft)
6,223 sq ft Lot Size
Year Built 1995
108 Days on Market
MLS Number S596674
Single Family, Residential Property Type
Turtle Rock Community
Beautiful Plan 1: Professionally maintained gardens, decorator paint, brand new granite countertops, refinished hardwood floors and brand new never lived on designer carpet throughout. This home is truly move in ready. The yard is lined with Fuji apple tree's that bear great apples every year, Orange, tangerine and lemon tree's are also part of the back yard. If you are looking for a multiple purpose home to entertain, easy everyday living and easy to keep clean this is the one! This home is located in the best part of Concordia, best of the Irvine School system, always on the top 10 safest city list. Gated community with hill lined street and nice views. Centrally located to schools, shopping, freeways, toll Roads and minutes to the beach. Another bonus is that the association dues are low and there is no mello-roo's tax. This is a great place to raise a family and you are guaranteed University High which is a top high school. THIS IS THE ONE!!
This is chasing the market down:
Property History for 29 CHARITY St
|Mar 05, 2010||Price Changed||$1,449,000|
|Feb 10, 2010||Price Changed||$1,475,000|
|Jan 26, 2010||Price Changed||$1,498,000|
|Jan 18, 2010||Price Changed||$1,515,900|
|Jan 13, 2010||Price Changed||$1,534,900|
|Jan 11, 2010||Price Changed||$1,542,900|
|Jan 05, 2010||Price Changed||$1,547,900|
|Jan 01, 2010||Price Changed||$1,548,900|
|Nov 27, 2009||Price Changed||$1,549,900|
|Nov 19, 2009||Listed||$1,575,000|
|Mar 25, 2003||Sold (Public Records)||$888,000|
|May 23, 1995||Sold (Public Records)||$524,500|
At this rate, the house should reach its current resale value by 2020. Does any rational person believe this property has gone up in value about 80% since 2003?