Oct232013

With costs up 40%, California home sales plummet to 1988 levels

It’s been called “sticker shock,” but perhaps a more apt term would be “price revulsion.” The cost of ownership rose so high so fast that buyers simply stopped buying. Between rising prices and rising interest rates, houses have reached the limit of affordability in many markets, and buyers are either unwilling or unable to push them any higher — and which of those factors it is will determine what happens going forward.

Housing bulls postulate buyers are merely adjusting to the new price levels, and probably next spring, they will be out in force to push the market even higher. In other words, they believe it’s buyer choice that causing prices to flatten and sales volumes to plummet. Housing bears posit buyers are simply unable to push prices higher because they cannot get financing to reach current asking prices. Right now, whether by choice or by incapacity, buyers have walked away from the market rather abruptly, and sales are falling rapidly.

Sales of Existing U.S. Homes Fall as Affordability Drops

By Lorraine Woellert – Oct 21, 2013 10:11 AM PT

Sales (ETSLTOTL) of existing U.S. homes fell in September for the first time in three months as higher prices and mortgage rates curbed demand in an industry that helped boost the expansion last year.

Purchases dropped 1.9 percent to a 5.29 million annual rate from a revised 5.39 million pace in August that was the strongest since 2009, the National Association of Realtors reported today in Washington. The median price of a house climbed 11.7 percent from 2012, pushing affordability to an almost five-year low, the group said.

“We see a little bit of a bumpy ride,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, who correctly projected the drop in sales. “The jury is still out on home sales and how much of a pullback we might see due to higher mortgage rates.” …

The verdict is still out, and it will be until next April or May when we see the change in activity for the upcoming prime sales season.

Rising prices and stagnant incomes combined with higher mortgage rates are making it more expensive to purchase a property, Yun said at the news conference.

Affordability is getting hit quite sharply,” he said. “Lower affordability will hamper home sales going forward.” The group’s affordability index fell to 156.1 in August, the lowest since November 2008, from 160.7 the prior month. It reached a record 213.6 in January in data going back to 1989. A reading of 100 means a household making the median income can afford the median-priced house at current mortgage rates.

For Lawrence Yun, that is positively bearish. He hasn’t been spinning the data (polishing turds) nearly as much lately.

California home sales fall to 1988 levels

Low inventory stifles demand as market recovers from bust

Christina Mlynski — October 18, 2013 3:46PM

The home sales volume in California is on a downward trajectory as the state deals with a limited supply of desirable inventory …

Roughly 36,000 new and resale houses sold statewide in September, down 15.3% from August, but up 5.9% from a year ago, according to DataQuick.

The September sales count is hovering at one of the lowest levels recorded in years, considering more than 40,000 homes sold in 2009 during the midst of the economic downturn.

If the pace of sales is below 2009 levels, what does that say about the strength of the current recovery? I think we all know the answer to that one.

The typical monthly mortgage payment that California home buyers committed to in September hit $1,429 per month, down slightly from $1,456 in August, but up from $1,027 a year ago.

The reason the rally is abruptly stopping should be apparent from the math. You can’t increase the price of anything 40% in one year and expect sales to increase. The rise in cost of ownership is truly devastating.

Southern California housing market slows after torrid rebound

The median home price stays flat for the third straight month

By Andrew Khouri — October 16, 2013, 4:54 p.m.

Southern California home buyers have apparently had their fill of bidding wars, home shortages and double-digit price hikes.

For the third straight month, the median home price across the Southland stayed essentially flat, at $382,000. The September data confirmed expert predictions that waning demand would throw a wet blanket over the white-hot market. The stall is owed to multiple factors: buyer fatigue over skyrocketing prices, higher mortgage rates, an expanding supply of homes and a pullback by investors who had swarmed the market.

The implication from the reporters statements is that the decision is psychological. If that proves true, kool-aid intoxication may return in the spring, and buyers may try to push prices higher again.

I welcome a more realistic attitude toward higher prices. In 2004 when prices went up to ridiculous heights, rather than turning buyers off, it turned them on. Everyone wanted to cash in on the housing boom. If buyers are truly having the opposite reaction, I think that’s a huge step forward, and it gives me hope that some people really learned the hard lessons of the housing bubble.

“They don’t feel the need to pull the trigger if it’s not a perfect house,” said Broker Derek Oie, owner of Century 21 the Oie Group in the Inland Empire.

Nancy Taylor and her ex-husband placed their Chino Hills house on the market in August. They put in roughly $20,000 to spruce up the five-bedroom home, getting it ready for what they expected to be a mad rush, filled with “tons of people knocking on our door.”

Not so much. To sell the home, they had to cut their asking price and purchase a new stove top, dishwasher, microwave and oven for the eventual buyers, who closed this month — at a $20,000 discount off the asking price.

Those sellers that missed the window of opportunity through June found a much different market thereafter.

It’s sticker shock,” said John Burns, a housing industry consultant in Irvine. “The market is stepping back and pausing for a moment and absorbing the new price increases and higher interest rates.”

John Burns has been in competition with other housing market analysts to see who can be more bullish. The implication of his statement is clear. He believes buyers will come back in force next spring once they accept the new realities of the market. Perhaps he is right, or perhaps they won’t because no matter their inclinations, they simply can’t afford to bid any higher.

If the current rebound is similar to previous Southern California housing booms, prices will rise substantially during next year’s spring buying season, said Lee Ziff, an agent who covers L.A.’s Westside. “Next year will be even bigger,” he said.

Ask a realtor, and that’s the kind of answer you’ll get.

Now prices and mortgage rates have climbed to the point where many buyers have checked out.

Sellers tempted by this year’s price appreciation are increasingly testing the market at the same time that demand is waning. That has caused some sellers to reduce their asking prices — a dose of reality, agents say.

Buyers are also demanding more repairs from sellers — and getting them.

“In April and in March, buyers pretty much took it as is,” said Carole Vicens, an agent who works in the Conejo Valley.

The number of listings rose in September from a month earlier in the Inland Empire, as well as Los Angeles, San Diego, Orange and Ventura counties, according to Realtor.com.

Declining demand and increasing supply is usually a recipe for lower prices, but not this time. Since the new inventory is almost entirely cloud inventory priced to get an underwater loanowners out of a jam, there will be no supply pressure on prices. The new supply will sit there and rot because buyers are unwilling or unable to afford them. The Mexican standoff continues.

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76 VALMONT Way Ladera Ranch, CA 92694

$459,900 …….. Asking Price
$479,000 ………. Purchase Price
8/22/2005 ………. Purchase Date

($19,100) ………. Gross Gain (Loss)
($36,792) ………… Commissions and Costs at 8%
============================================
($55,892) ………. Net Gain (Loss)
============================================
-4.0% ………. Gross Percent Change
-11.7% ………. Net Percent Change
-0.5% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$459,900 …….. Asking Price
$16,097 ………… 3.5% Down FHA Financing
4.24% …………. Mortgage Interest Rate
30 ……………… Number of Years
$443,804 …….. Mortgage
$143,316 ………. Income Requirement

$2,181 ………… Monthly Mortgage Payment
$399 ………… Property Tax at 1.04%
$225 ………… Mello Roos & Special Taxes
$96 ………… Homeowners Insurance at 0.25%
$499 ………… Private Mortgage Insurance
$303 ………… Homeowners Association Fees
============================================
$3,702 ………. Monthly Cash Outlays

($576) ………. Tax Savings
($613) ………. Principal Amortization
$25 ………….. Opportunity Cost of Down Payment
$77 ………….. Maintenance and Replacement Reserves
============================================
$2,616 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$6,099 ………… Furnishing and Move-In Costs at 1% + $1,500
$6,099 ………… Closing Costs at 1% + $1,500
$4,438 ………… Interest Points at 1%
$16,097 ………… Down Payment
============================================
$32,733 ………. Total Cash Costs
$40,100 ………. Emergency Cash Reserves
============================================
$72,833 ………. Total Savings Needed
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