Nov182015

Orange County housing will never be cheap again

The conditions that caused house prices to crash far below fundamental values will likely never happen again.

priced_out_foreverDuring the 00s house prices rose far above any justifiable fundamental value juiced by affordability products. When these products proved unstable, millions of delinquencies and foreclosures followed, and house prices crashed far below fundamental values. In 2012 a house price rally reflated the old bubble back to a new and higher equilibrium price based on record low mortgage rates and stable loan products.

In order to gain control of the distressed inventory on the MLS, lenders instituted new loss mitigation programs of aggressive loan modification, also known as kicking the can. If implemented in the future (assuming another unlikely mortgage disaster), must-sell inventory will never again come to the market in large enough volume to push prices below fundamental value like we saw in 2011.

In other words, housing will never be as cheap as during the housing bust ever again.

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O.C. housing ‘will always be expensive’

Jeff Collins, Nov. 13, 2015

Orange County – which had the nation’s third-highest median home price this past summer – will always be a pricey place to live, just like New York and San Francisco, Lawrence Yun, chief economist for the National Association of realtors said during the association’s annual convention, held this year in San Diego.

“Orange County has always been a sought-after county,” Yun said at a news conference Friday. “It’s a super-star county. London will never be cheap. Same thing with Hong Kong and Tokyo. Super-star cities will always be expensive.”

Lawrence_Yun_bullshitLOL!

He didn’t really say that, did he?

Yes, he did! ROFLMAO!

My belly hurts from laughing…

I’m tearing up…

London, Hong Kong, Tokyo, and … Orange County?

OMG!

I can’t stop laughing…

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Thank you, Lawrence Yun, for the best laugh I’ve had in a very long time.

Some OC residents undoubtedly got a thrill out of Lawrence Yun’s kissing their ass. It’s human nature to want to believe the place you live is special, and Orange County is more desirable than many other suburban enclaves, but Orange County is not a super-city. It has no urban core (unless you count Santa Ana).

Orange County can’t credibly be mentioned in the same breath as London, Hong Kong, or Tokyo.realtor_bla_bla_bla

Focusing on the nation as a whole, Yun noted the housing market just had its best year since the recession and likely will see more growth, only at a slower pace.

On the one hand, job growth and rising consumer confidence are giving the housing market a boost, he said. But price and sales gains are starting to level off in the face of decreased affordability, a low inventory of new and existing homes and projected mortgage rate hikes.

As I mentioned many times over, as mortgage rates rise, sales volumes will suffer, and if it gets bad enough, prices will fall.

Specifically, Yun predicted: …

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“So,” said Yun, “the recovery will continue, but at a slower (pace).”Mortgage interest rates will increase next year, but not enough to have much of an effect on sales or prices, he said.

He will, of course, be wrong.

Yun predicted the 30-year fixed mortgage rate will average 4.5 percent and “touch 5 percent” next year, compared to this year’s average of 3.8 percent. …

Five percent mortgage rates would certainly have an effect on sales and maybe prices, particularly in Coastal California.thick_skull

If mortgage rates rise above 4.75%, sales volumes will be severely impacted and prices may drift gently lower. The increased cost of financing will not allow buyers to bid high enough to support current prices. The discretionary sellers active in the market will be forced to lower their prices if they want to sell. The activity of these few discretionary buyers will cause prices to drift down at higher mortgage rates.

If mortgage rates rise above 5.25%, the housing market will be a catastrophe. Homebuilders won’t be able to sell anything, homebuilding unemployment will rise, triggering a recession, and the housing market will experience record low sales volumes and prices 5% or more below today’s levels.

Rising mortgage rates and a shortage of homes for sale are hampering sales, he said. Mortgage rates, however, are the least of the market’s worries.

The (30-year) mortgage rate will have to go up to 6 percent to have a meaningful impact on the buyer,” he said.

Remember he said that.

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So why is sales and price growth starting to slow?

“Affordability,” Yun said. “That is the key reason why the growth rate will be slowing down.”

Yun also predicted the “credit box” will open up slightly next year, with lenders starting to approve mortgages for buyers with moderately high credit scores.

Currently, buyers need to have a FICO score in the 750 to 760 range to qualify for a loan backed by Fannie Mae or Freddie Mac, Yun said. Next year, lenders are expected to approve loans to buyers with credit around 740.

I have to assume he meant the average FICO score is the 750 to 760 range because the minimum qualifying FICO score for a GSE loan is 620.

“If they go down to 740, it will be an improvement,” he said. …

“Fewer and fewer people are participating in this recovery,” Yun said.

Housing is as affordable today relative to rent as it was during the 1990s.

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Without affordability products, buyers can’t push prices above the new price equilibrium. For two and one half years now, house prices in nearly every market in Southern California have been tightly tethered to this predicted price level — and for identifiable reasons.

This price level is exactly where market rents dictate they should be, and if affordability products don’t return (and they probably won’t), prices should remain tethered to this equilibrium. The implications of this will become apparent when interest rates rise. The ill effects that Lawrence Yun doesn’t believe will happen will actually occur, and it will “surprise” him.


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