I’m seeing a drop off in the pending sales activity and the prices this month. Pending sales are down to 3,866 (400 less that last month this time) and median listed price of those properties is down to $375,000. The banks are trying to move em out before the end of the year and I’m seeing many more asking prices under $300,000 in Anaheim and central Orange County for SFR’s. There’s a Three 3 bedroom SFR in Santa Ana listed for $150,000. WOW.
Last month the MLS shows 2,323 residential sales in October with a median price of $416,500. Down another $12,500 from September. What a difference two years makes.
In 2005 I sold a rental house I owned on the Westside of Costa Mesa for $500,000. I’d had the same tenants in it for years and it as a fixer. The buyer did a quick remodel (kitchen, baths, carpet, paint and added a garage) and sold it for $625,000. That same house came on the market last week, as an REO, for $311,000. 50% off the price from less than 3 years ago. OUCH.
Sales numbers are going to creep down for a few months as the end of the year is always slow. REO sales are also slowing as the brokers are getting fewer assignments because the lenders are having to meet new notification requirements before filing foreclosure notices and holding trustee sales. But I feel that the reports that foreclosures are tapering off is premature. So many people are upside down that the temptation to walk away will lead to many more REO’s.
While the prospects are dismal if you’re underwater, the demand for low price REO’s never ceases to amaze me. I’m constantly seeing bidding wars for well priced property. Ten or more offers are not uncommon and sale prices ten percent above asking don’t surprise me.
Brad Davidson
Brad, how long can the competition for the low priced REOs last?
Are all the competitors coming up with 20% down intending to occupy, or are they investors?
Is the will to put cash down going to fade as prices continue to drop for either group?
This is what happens in a mania… there are always latecomers who believe that end up catching the falling knife, and that’s why we don’t have corrections as quickly as we should.
Chuck Ponzi
I’ve been watching this bidding for six months and I can’t believe that the competition has lasted this long. Part of it is “mania” part is hype from Realtors because this is the “Best Time To Buy”.
Some of my own clients have offered up to $50,000 over asking prices because they’re so eager to buy a house. In none of those cases have they got the house they were bidding on. Someone else bid even more.
I tell all my clients that there are plenty of houses coming onto the market and to be patient but so far there have been buyers for all the houses. I see no end in the line of buyers for the REO’s that are priced well.
I have very few clients putting down less than 20%. Several are putting at least 50% down and I have two all cash deals in escrow. Most of the REO brokers I talk to say that most of the deals are for at least 20% down and are mostly going to be owner occupied. Investors are not a big factor in the market.
I have 2 questions for you:
1. any idea where most of these people got 20%+ for a down? Savings? from left over equity in their prior home? somewhere else? ..and are we talking 500k homes or 200k? cause thats quite the difference in downpayment.
2. what kind of incomes are you seeing? is everyone qualifying at 28% DTI? Is it mostly dual income families?
Most of my clients have saved their 20%+ down payments. They sat on the sidelines as prices rose and saved their money. Some wisely sold a few years ago and have sat on the cash waiting for prices to fall. My sales tend to fall in the $350,000 to $750,000 range so the 20% down payment is substantial.
I don’t get involved in the loan side so I don’t know about incomes but most people in the OC market are dual income families. You just about have to be around here.
As far as DTI, 28% seems low. I thought total back ratio DTI of about 40% to 45% was standard. Depends on what other consumer debt you have.
Brad Davidson
That last paragraph is just filled with all kinds of wrong – not that you’re wrong, but how far off base current living standards are.
First, it assumes your other consumer debt. We as a nation need to stop spending money we dont have. I believe the time for this to be forced upon people is very near.
Second, if you break down a median income, and the amount of money people spend on things as a percentage of their income, 40% DTI is absolutely absurd. No wonder nobody has a savings account any more!
120k/yr income = 10k/mo
~30% @ taxes
~40% @ PITI, car payment. (those are really the only two loans you should have – and the car loan is questionable IMHO)
now that leaves 30% of your income, or 3k/mo for:
groceries, utilities, HEALTH INSURANCE (that alone can be 10% of your gross!!), car insurance, car maintenance, gas for your car, cell phone, dining out, saving for retirement, emergency savings account, saving for a vacation.
The numbers just dont work, even making 2.5x the national median income!
I’m out of state, and I’ve been trying to watch what’s going on in So Cal, because I’m thinking of buying a condo, perhaps next year, maybe 2010. I’m working on saving the downpayment. I also want to wait and see if prices seem to level out for a while before I do it. It would be an investment property, rented out, but perhaps we’d use it ourselves when we’re older. Seems like prices are going low enough (and rents staying high enough) that I could find one that rents for positive cash flow right from the start. Any advice?
There are certainly properties all over Orange County that will cash flow with 20% down. Add it the depreciation and you can actually turn a profit as a landlord. Most of those properties are at the lower dollar values. Single family homes in Orange, Lake Forest and Mission Viejo can be bought for under $400,000 and rented for $2,000 and more. Condos can be had for under $200,000 that will rent for $1,500.
I think you have plenty of time to think about it. The median price hasn’t hit the bottom and it will level out not bounce back up quickly.
I advise buying a single family home if possible. No HOA dues and greater appreciation. If you go for a condo, stay by the coast.
Call me when you’re ready.
Brad Davidson
We Help-U-Buy Realty
shyeah.
I’ll believe that they’re owner occupied when I see the owner living there.
Loan agents will believe anything. Anything. Just say it to them. Believe it or not, underwriting still is easier than in 2002. That’s a fact, and I just witnessed it firsthand this week.
Remember when Las Vegas was only 30% investors? Realistically, everyone says its their primary residence if they think they can pass it off. Have you seen the rates on non-owner occupied housing? It’s ugly. Fugly. I remember when spreads were 1/8th or 1/4th. Now, try 3/4 or 1%. That’s the difference between a profit an none. We have a culture of dishonesty in Southern California, so there’s little emotional barrier to it.
BTW, if you want the little picture thingy by your post, go to http://www.gravatar.com. I did a site upgrade yesterday.
Chuck
I have read that the market will stay this way at least until the the end of 2009.