Pete Flint, CEO of Trulia, expects sellers to become desperate this summer and begin lowering prices to sell before prices fall further.
Irvine Home Address … 221 MANTLE Irvine, CA 92618
Resale Home Price …… $688,000
I'd pay any price just to get you
I'd work all my life and I will
To win you I'd stand naked, stoned and stabbed
I'd call that a bargain
The best I ever had
The best I ever had
The Who — Bargain
With the failure of this year's spring rally, market observers are looking to the summer for sellers to become more motivated and begin to lower their asking prices in earnest.
Kerry Suess — Saturday, June 11, 2011 7:27 am
Home prices are already a third off their highs, but this summer could bring the real discounts. Buyers are still cautious, and anxious sellers will have to price aggressively to get them off the fence. That could result in a “summer clearance sale,” predicts Pete Flint, CEO of Trulia, the real estate web site.
Realistically, I don't see any bargains this summer, but the continued light transaction volume will signal to motivated sellers that they will need to lower their price if they want to transact. By August and September, fear will begin to permeate the market. Then in October when the conforming limit drops from $729,750 to $625,000 and credit becomes even tighter, fear may turn to panic, and capitulation may be upon us. If we don't see more motivated sellers, transaction volumes will decline further from their already low levels. Lenders will be stuck with a huge portfolio of REO burning a 1.5% per month hole in their balance sheets.
“We don’t imagine a stampede of buyers, like outside of Macy’s on Black Friday,” he said. “We see this more akin to January sales where retailers are trying to get rid of stock before it gets stale.”
That's exactly what it will be like. Retail sales volumes in January can only be obtained by lowering prices significantly because most of buyer demand was spent in December. Similarly, most buying demand is spent in the spring and early summer, so sales late in the year usually require significant discounting as sellers compete with each other for the few buyers who remain.
Several factors, he said, will lead to blow-out prices. Accelerating price drops could be the result as home prices have already reached their lowest level since the housing bubble burst, and are now at 2002 levels.
Sellers may feel the pressure to make deals before their homes potentially lose even more value. There is a bloated inventory of homes on the market with more than eight months worth at the current rate of sales. Many are distressed properties — short sales and bank repossessions. Such homes are often selling at substantial discounts.
Prior to the expiration of the tax-credit stimulus last spring, lenders believed the delusion that market props had created positive momentum that would sustain prices and allow them greater recovery on their REO. With the expiration of the tax credits, the housing market promptly reversed, and prices resumed their declines. Lenders are now faced with the collapse of their cartel arrangement as they compete with each other to liquidate in a declining market.
Credit is still very tight and many potential homebuyers still can’t obtain a mortgage which is limiting the demand. Unemployment is still a major concern and while the job picture has supposedly brightened, unemployment is still hovering around 9 percent nationally and is higher here in California.
People without jobs don’t buy homes, obviously, but high unemployment also rattles working people. Lacking the confidence that their jobs are secure, they may not look to buy. These forces could all come to a head this summer, according to Flint, because of the cyclical nature of home buying.
Buying usually takes off in spring as many young families hope to make their moves before the new school year. “By the end of the home buying season, sellers will become increasingly desperate,” said Flint.
Discretionary sellers who merely wanted to sell their homes will withdraw them from the market, but more motivated sellers who for one reason or another feel they must sell, they will cut their prices to get out.
Adding to already swollen inventories might be a flood of new distressed properties poised to hit the market. Banks trying to foreclose on homeowners hit a roadblock, as some delinquent borrowers successfully argued that their mortgage companies can’t prove they own the loans and therefore don’t have the right to foreclose.
This year, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and others have raised questions about whether banks properly demonstrated ownership. Last fall, banks temporarily suspended foreclosures to address so-called robo-signing problems, where employees were approving legal documents without properly reviewing them. “By the summer, most of the ‘robo-signing’ delays will be over and more distressed properties will be on the market,” said Celia Chen of Moody’s analytics.
I don't believe we will see any large influx of REO. First, the entire robo-signer scandal was a ruse used by the banks to continue their amend-extend-pretend policy of withholding inventory from the market. Now that robo-signer is past, lenders will find a new excuse for delaying foreclosure or liquidation of their REO. Lenders will sell what they can, but many will simply add to their REO and shadow inventory to prevent a catastrophic decline in prices similar to what happened in Las Vegas.
Many banks had slowed foreclosure proceedings until they made sure that paperwork was in order. That put hundreds of thousands of homes into foreclosure limbo and borrowers were no longer making payments in many cases, but were allowed to remain living in the homes.
Shadow inventory is made up of millions of delinquent mortgage squatters, and many more will be added before lenders ramp up foreclosure efforts in earnest.
There’s little urgency for buyers to act in this stagnant market because no one expects prices to turnaround, according to Ken Johnson, a real estate professor at Florida International University and co-author of a new study on whether it’s better to buy or rent.
Realizing that home prices will likely get even better, buyers can wait for even better deals. “If people think we’re at the bottom of the market, they’ll act,” he said.
People will not necessarily act if they believe we're at the bottom. They may no longer wait out of fear of further price declines, but if people believe the bottom will be a long flattening followed by tepid appreciation — which is what will likely occur — then buyers will not feel a great sense of urgency to buy for financial reasons.
Many of the experts, however, are telling buyers that prices will continue to erode all through 2011. Even after that, no one is predicting outsized price gains.
Actually, realtors constantly call the bottom to increase buyer motivation, and they also predict outsized gains because of pent-up demand or whatever other nonsense they can think of.
“There will be a lousy housing market for another year or two,” said Michael Larson, a housing analyst for Weiss Research. Even if we’re at or near the bottom, buyers are unlikely to see prices rise much if they wait. “I myself continue to rent,” said Johnson. “I know that even if I don’t buy for a year, it’s no big deal. Who cares if I miss the bottom if prices only go up a couple of points or so?”
The first 95% of this article is very good, but the closing was written by a realtor. Can you smell the bullshit?
That can be a risky proposition and to many it sounds like good common sense. Why buy now if prices are going to continue to fall and maybe increase only a little if at all over the next couple of years? That is certainly the case for the cash buyer, but if you’re like me and would need to finance a home or investment you might consider that terms can sometimes be more important than just the price. If interest rates rise or loans become more difficult to obtain you can easily miss the boat. Between now and the end of the year might be the best time of our lifetime to buy a first home or investment property. Don’t be kicking yourself down the road. Talk to your local lender about pre-approval and your local Realtor about your options.
Questions or comments can be made to Kerry Suess at firstname.lastname@example.org
Another recent buyer bails on Irvine
Anyone on The Irvine Company's mailing list has probably seen the deals closing out Woodbury East. The last few units in any project are the most difficult to sell. The builder or developer has often shut down the sales operation and moved on to other projects, and the last few units are often the least desirable, or they would have sold already. If a project has good momentum, the scarcity can work to the builder's advantage in selling the last few units. Unfortunately, with the weak sales of this spring, price reductions and incentives are the order of the day.
Since the builder is cutting price and adding incentives, any early resales face stiff competition. Why would someone pay 15% – 20% more to obtain a resale when you can get a new one directly from the builder for less?
The owner's of today's featured property paid $632,000 on 2/25/2011. They put plenty of money down, but this wasn't an all-cash purchase. It doesn't look as if the owners moved in. If these owners bought from a motivated seller who gave them a 15% discount, and prices have been declining ever since, what makes them think they can get a 20% premium?
|Jun 05, 2011||Price Changed||$688,000|
|May 26, 2011||Listed (Active)||$699,000|
|Feb 25, 2011||Sold (MLS) (Closed)||$632,000|
|Jan 24, 2011||Pending||—|
|Aug 04, 2010||Listed (Active)||$677,000|
I also find it interesting that this property was listed and sold on the MLS. Builders don't typically do that. Of course, since the housing bubble popped, builders have been trying new things to generate sales. Perhaps new homes being listed on the MLS is the future of new home sales. We will see.
Irvine House Address … 221 MANTLE Irvine, CA 92618
Resale House Price …… $688,000
House Purchase Price … $632,000
House Purchase Date …. 2/25/2011
Net Gain (Loss) ………. $14,720
Percent Change ………. 2.3%
Annual Appreciation … 25.7%
Cost of House Ownership
$688,000 ………. Asking Price
$137,600 ………. 20% Down Conventional
4.49% …………… Mortgage Interest Rate
$550,400 ………. 30-Year Mortgage
$119,380 ………. Income Requirement
$2,786 ………. Monthly Mortgage Payment
$596 ………. Property Tax (@1.04%)
$133 ………. Special Taxes and Levies (Mello Roos)
$143 ………. Homeowners Insurance (@ 0.25%)
$0 ………. Private Mortgage Insurance
$134 ………. Homeowners Association Fees
$3,792 ………. Monthly Cash Outlays
-$465 ………. Tax Savings (% of Interest and Property Tax)
-$726 ………. Equity Hidden in Payment (Amortization)
$229 ………. Lost Income to Down Payment (net of taxes)
$106 ………. Maintenance and Replacement Reserves
$2,936 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$6,880 ………. Furnishing and Move In @1%
$6,880 ………. Closing Costs @1%
$5,504 ………… Interest Points @1% of Loan
$137,600 ………. Down Payment
$156,864 ………. Total Cash Costs
$45,000 ………… Emergency Cash Reserves
$201,864 ………. Total Savings Needed
Property Details for 221 MANTLE Irvine, CA 92618
Sq. Ft.: 2181
Property Type: Residential, Single Family
Style: Two Level, Spanish
Year Built: 2010
Almost brand-new detached home located at Santa Cruz in beautiful Woodbury East. This plan offers a 3 bedroom, 2.5 bath, features the Conservatory Room for additional living space next to the Great Room w/ decorative fireplace. The kitchen offers white cabinets, upgraded stainless steel appliances including a refrigerator and washer/dryer, granite kitchen counter tops with a full backsplash. . Upgraded carpeting. Upgraded flooring in bathrooms. Custom paint. Tankless waterheater. Garage floor with epoxy coating. Professional landscaping. Cozy back/side yard. Enjoy resort-style amenities, Irvine Schools, and upscale shopping in Woodbury's distinctive Town Center!
Question of the day
Will lenders succeed in withholding inventory and preventing further price declines here in Orange County?
Breaking News: Attorney: Realtor group violates law on speech. More on that tomorrow.