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Home sales volume and price peaks

By Bradley Markano • Jul 17th, 2011 • Category: Charts

This article looks at home sales volume, and discusses California trends in homebuying and selling.

Chart Last Updated 7/17/11

  June 2011 May 2011 June 2010
Southern CA
20,532
18,394
23,871
Northern CA
18,443
17,142
20,093

CA Total

 

38,975
35,536
43,964

 

 

 

Chart Last Updated 6/23/11

  2012* 2011* 2010 2009 2008 2005
NorCal 217,138 189,330 192,979 219,460 191,809 398,174
SoCal 238,862 216,851 228,655 245,331 201,894 355,698
Total 456,000 406,181 421,634 465,654 404,820 753,876

Data courtesy of MDA Dataquick

All forecasts are made by first tuesday based on current data, influential factors and market trends.

The above charts track sales of single family residences (SFRs) on a month-to-month and annual basis. This includes all resales and new homes in CA, including new homes sold directly by the builder.

Recent sales numbers suggest the upcoming year will be characterized by a bumpy plateau in home sales volume. Volume and prices slipped slightly during the first half of 2011, and are expected to continue falling through the third quarter, with an eventual (but short-lived) rise at the end of 2011 due to low prices and interest rates. [For more on the influence of interest rates on home sales, see the first tuesday Market Chart, Buyer Purchasing Power.]

Little overall change from 2010’s numbers will occur before early to mid-2012, and no sustainable improvement is expected before 2013. The state of stasis will continue until California employment and homebuyer confidence improve dramatically. Trends currently do not suggest this improvement is imminent: at the time of this writing, 30% of all homeowners cannot sell and relocate because their homes are worth less than the debt encumbering them and lenders are reluctant to undertake short sales.

first tuesday currently expects the housing market to begin making real, although slow, steps toward recovery in late 2012 or early 2013, with a total of 50,000 more homes likely to be sold in California in 2012 than in 2011. It is still expected to take until 2017-18 before home sales volume returns to the highs last seen in 2007. Relocating Boomers going into retirement will be the primary propelling force, with their Gen Y children adding to the volume as they become first-time homeowners.

Read More first tuesday Analysis
(last updated May 2011)

Causes for the rise and fall  

The trend in California home sales during the initial years of the 2010s remains grim for sellers, since sales have been excessively lender-driven, speculator riddled and easily predictable for single family residential (SFR) agents and their brokers. The center of all this action is the multiple listing service (MLS), the economic marketplace for all those affiliated with SFR sales and the financial base for the lifestyle of those agents and their brokers who are SFR-reliant.

For a forward look, some review of the recent past is needed to set the stage. Mid-2005 saw sales volume peak for all types of real estate in California. Early 2006 produced both the peak in sales prices and the initial precipitous decline in sales volume, with nearly 30% fewer recorded sales than in 2005. 2007 saw a drop in sales volume of 30% from 2006.

2009 sales were higher than anticipated due to subsidized purchases, but remained 39% below the 2005 peak year. 2010 saw a decline from the year earlier in both sales volume and prices. The continued widespread overpricing by sellers and listing agents kept buyers away from the more expensive housing market, the effect of the sticky price phenomenon.

2008 and 2009 introduced massive quantities of real estate owned (REO) re-sales. Resales continue to arrive in a slowly declining trend, and will continue for years until REOs return to their historic norms. These lender-owned properties were dumped at price reductions and on terms for payment and escrowing which attracted too high a percentage of investors and speculators to support sales volume for the long-term (and definitely caused actual homebuyers to be crowded out).

In turn, the speculators and own-to-let users artificially drove 2008 and 2009 sales volume above 2007 sales, with a sales volume peak in July 2009. This 2008-2009 fast-track rise and sudden peak represents the classic initial “dead cat bounce” in a real estate recession. Sales volume (and prices) in 2011 is headed back for lower, long-term levels and will not likely hit a bottom, on which the recovery of real estate can then begin, until well into 2012 or early 2013.

Now fast-forward into 2011 and 2012. In 2010, unemotional, objective real estate factors combined to push down sales volume in spite of tax credit stimulus to bridge homesales and get the market moving again (the last homebuyer’s tax credit, in 1975, was in retrospect unnecessary to boost real estate sales, but then we had major consumer inflation, and in this recession we have none).

As a result, sales volume will likely stabilize between the end of 2011 and mid 2012 and will most likely remain level as a vacillating trough in sales volume for 12-18 months. In 2013 or early 2014, monthly sales volume is predicted to pick up from the current plateau.

Anticipate modest price increases to follow, in 2014, with pricing and volume probably peaking during the 2016-2018 period. Short term interest rates will rise at a point in the interim to keep a lid on the recovery (as they did in both 1984 and 1994), then decline into 2016.

The real estate market is now settling into a long recessionary winter of waiting, with little warmth provided by homebuyers; they simply are not available in sufficient numbers (and, in fact, were presold for the following couple of years, reducing what would otherwise be 2011 sales, thanks to the 2009 first time homebuyer tax credits).

At some point in the mid-to-late 2010s, another wave of investors and an upsurge of household formations by the net-geners will kick-start the sales volume, and in turn, drive pricing momentum upward once again. Keep your eyes on the demands of buyers (not sellers, median prices, or the MLS inventory). Homebuyer demand is driven by age demographics, interest rates, tax credits, and new jobs; you fail to consider these factors at your peril.

Many favorable market factors are currently at work:

  • lower income taxes beginning in 2011 (for 95% of homebuyers);
  • increasing number of new jobs, as job losses bottomed out in 2010;
  • expiration of government-subsidized down payments (tax credits of $6,500 and $8,000 homebuyer grants, both ended April 30, 2010);
  • government largess in the form of direct lender subsidies for loan modifications on modestly upside-down mortgages;
  • much lower high-tier home prices (as well as more price declines in the low-tier and mid-range homes);
  • no competitive new construction starts;
  • high levels of MLS inventories for better selection at lower prices (fueled by a rise in REOs and a drop in speculator participation as buyers);
  • increased short sales (lenders will discount, since they are beginning to get more realistic about taking on REO risks and as the Attorney General’s office litigates to push foreclosure resolutions);
  • growing consumer confidence and spending;
  • the recapitalization of PMI to eventually replace government guarantees of home mortgages; and
  • increased congressional awareness of the need to grant cramdown authority to bankruptcy judges on SFRs (although killed in congress for the third time in December 2009).

However, sales volume will be inhibited by the public’s generally anti-business, anti-big, and pessimistic attitude about American economics which has methodically intensified since 1980. In addition to the fact the public has a generally negative bias about businesses, many unfavorable market conditions are still at work restraining sales volume from rising;

  • deflationary pressure on consumer and real estate prices (labor and materials for replacement of improvements and the price of land have become less expensive, commodity price jumps delivering no long term inflation rates as they will not continue to rise indefinitely, and will eventually return to normal);
  • increased personal savings (will hurt sales volume now but increase sales volume in 2013 and beyond);
  • impending stockholder wealth – while significant at the moment – will decline as the boomer generation dis-saves by continuing to leave the stock market (though not the real estate market: as those who sell their homes will nearly always buy a replacement home);
  • weakest homebuyer demographics in 15 years (boomers retiring and selling in the 2018-20 time period, the same period that will see the smaller, but still significant, group of their Net-generation children peak in their pace of household formations and first time homeownership);
  • excessive rental vacancies and reduced rents (landlords competing to rent excess shelter at a better value than a home purchase);
  • the temporary exodus of SFR speculators and income property investors, and the dumping of properties acquired by speculators in 2008 – 2010, followed by speculator dumping of larger income properties;
  • lease-option and land sales contract schemes exposed (due-on violations, reassessment avoidance and judicial foreclosures – including actions on wiped out home equity loans);
  • scandals in mortgage loan modification services and the status quo or pick up in the pace of foreclosures;
  • the slower than usual recovery of the 1,500,000 jobs lost statewide after November 2007; and
  • tightened lender standards as lenders are further forced to apply the forgotten fundamentals of sound mortgage lending practices (20% down payment on all non-FHA loans, and FHA down payments as low as 5%,, lower income ratios, the need for risk-free credit scores and full verification/documentation of income and funds for qualifying).

Future sales volume analysis by SFR brokers and their agents will indicate they need to consider adding SFR-related services to supplement their income. Those that do add related services will restructure their practice as all-service brokers by integrating transaction-related services to remain solvent and grow. SFR brokers should consider performing services for their clients such as:

  • escrowing their transactions in-house under the broker’s license;
  • entering into or expanding property management (a recession-proof service);
  • inspecting vacant homes and issuing BPOs for REO lenders;
  • negotiating equity purchases for investors from sellers-in-foreclosure who have a positive equity or the chance of a short sale discount;
  • demanding that prospective buyers commit to exclusive representations through a broker and his agent to locate a home (or other property) by signing an exclusive right-to-buy listing agreement just as sellers are asked to do when they employ brokers and their listing agents;
  • specializing (in particular property types, loan forms, locations, and sales approaches);
  • providing mortgage loan broker services for business loan origination by private lenders (no endorsement or registration required);
  • arranging carryback financing with loan assumptions (and buying and selling those carrybacks);
  • negotiating options to buy;
  • exchanging properties with equities to help owners relocate their wealth held in real estate; or
  • using barter credits in lieu of greenbacks, etc.

Note: Southern California numbers correspond to MDA Dataquick’s selection of the most populous SoCal counties, and include Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties. NorCal numbers include all counties not listed.

 

 

– ftCopyright © 2011 by the first tuesday Journal Online – firsttuesdayjournal.com;
P.O. Box 20069, Riverside, CA 92516

Readers are encouraged to reproduce and/or distribute this article.

    June 25, 2010  

  

Welcome To The Weekly Update And More  
Rarely do we pick on or attack our competitors, however in our quest for the honest and ethical treatment of borrowers we have to expose or explain a shady deal when we see it. You may have heard the Chase ad about their mortgage with a 1% annual rebate (up to $500 max). We had a customer referred to us by one of our Realtors. The borrower started their refi at Chase and was locked into a 30 year fixed at 5.25%, loan amount $300,000 with 0 points. Our rate to them for the same terms was 4.75%. Let’s do some mortgage math (our favorite thing we love to do), the payment on a $300,000 loan for 30 years at 5.25% is $1656.61 (Chase’s deal). Applying Chase’s rebate $1,656.61 X 12=$19,879.32 per year, the rebate is 1%, easy math, just move the decimal place to the left 2 places, equals a rebate of $198.79. Therefore $19,879.32 – $198.79 = $19,680.53 gets us to the net payment. The payment on our option $300,000 loan 4.75% rate 30 year (both loans are 0 points), is $1,564.94 X 12 = $18,779.28. Getting to the finish line is easy, $19,680.53 – $18,779.28 = $901.25 savings with our deal. To steal a line out of Chase’s play book “Chase what matters” even if you have to run away from Chase. We think Mr. Shakespeare said it best, “All that glitters is not gold.” We will always tell you, with an apples to apples comparison, if someone’s offer is better than ours. We have done that and will continue to do that, that’s how we roll.   

It Must be Some Where?
  
We all know it’s true, but we need to see it in black and white. We are talking about the assumption of FHA mortgages. A very astute Realtor asked, “Where in the note does it say that FHA loans are assumable?” Well that sent us packing, we asked for a copy of the note and it did not mention anything about assumption. A call to our Government lending guru confirmed what we already knew, what we were looking for was not in the note. The light bulb flashed on for our guru and the assumption notice is part of the application for an FHA loan, DUH! We have explained that notice to every FHA borrower and did not realize that is it, there is no more than the “Assumption of HUD/FHA-Insured Mortgages Release of Personal Liability”. If you would like your very own copy, drop us a line and we will send you one; it’s only a one pager.  
“Exploit the Difference”  
Exploit is a word that doesn’t conjure up positive images. There is probably some textbook on selling that has a “Top Ten” list of words you should never use in selling and exploit is number 3. However we are going to tell you how to exploit a difference between Fannie Mae and Freddie Mac. Freddie Mac will combine ratios with a non occupant co-borrower, Fannie Mae won’t do this. We can even do this on Freddie Mac agency jumbo loans. Therefore, if a borrower has 20% down and is tight on ratios, we can add a non-occupant co-borrower and qualify. Better option than FHA if you have the down payment. Maybe we should create a tag line this “Exploit the difference” we like it better than “Chase what matters.” What do you think?  
Listening to a panel discussion this week one of the panelist had a novel idea that I thought we would try. They said, “Ask for the business.” OK we will give it a shot, we want your business! Next week we will not publish this newsletter in light of the holiday; Happy 4th.     

Sincerely,  

   

 The Meredith Mortgage Team, CMPS® 

Certified mortgage planning specialist  

“We Will Always Have Your Best    

  Interest In Mind”      

    

Erin & Kathleen  

The Bay Area’s Premier   

Mortgage Banker and Broker   

   

(925)983-3048 office  

(925)226-3215 efax  

(925)918-0585 mobile  

meredithteam@cmgmortgage.com  

emeredith@cmgmortgage.com  

   

Apply For Mortgage Financing with The Meredith Team, Click Below:    

http://www.cmgmortgage.com/LO/meredithteam/GetStartedApply.shtml  

The Home Ownership Accelerator  is helping people   

pay of their mortgage in record speed…click here  

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“I’m from the government and I’m here to help”, yeah right! Based on current law a borrower can sign their loan docs on the eighth business day after the loan was disclosed. We think that this law was put into place because some unscrupulous lenders were slamming borrowers in to bad loans. This protection would generally be a good thing. However there are always unintended consequences. One of our borrowers purchased a flipped property with a purchase price greater than 20% over the sellers cost. In addition it was purchased less than 90 days ago. Initially the borrower applied for an FHA loan, but that is a whole different story which we talked about last week. Long story short, we needed to convert to a conventional loan. Conventional lenders are also very concerned about flips with less than 90 days between the current seller’s acquisition date and the new close of escrow. The 91st day on this transaction is June 24. On that day we will have a new appraisal, contract and prelim. The borrower was hoping to take advantage of the Federal Tax Credit that that is set to expire June 30th (yes we know it may be extended, keep your fingers crossed). If we re-disclose on the 24th of June, he cannot sign his doc’s until July 3. The borrower is not happy about that. There is one exception in the law that would allow a borrower to sign before the 8th day. Here it is: “Imminent sale of the consumer’s home at foreclosure, where the foreclosure sale will take place unless loan proceeds are made available to the consumer during the waiting period, is one example of a bona fide personal financial emergency”. Sorry losing your tax credit is not classified as a bona fide emergency.  


The 5% Rule
Staying with our theme I’m from the government…We have or had a borrower that purchased a home back in November of last year and has an FHA loan. We were going to do an FHA streamline refinance (no appraisal required) lowering the borrower’s rate ½ of a percent and there were no recurring closing costs that the borrower was paying. The only thing they were paying for upfront was the money necessary to re-establish their impound accounts. By the way when they pay off their existing loan most of the impound money goes back to the customer. Granted ½ point drop in rate is note huge, but it wasn’t costing them any money nor were they using equity to pay for the refinance. In addition, the borrowers were going to keep this house a long time and it made sense to us and them, but not to our government. We fell into a booby-trap, an FHA streamline refi requires a 5% reduction from the current piti to the new piti. One work around is not to go streamline and get an appraisal. Normally this would work except in cases where the value has decreased from the date of purchase to the date of the refinance. OK, we will not forget the 5% rule

 

HO, HO, HO 6
Reminder, if you client is buying a condo or townhome they need HO 6 (contents) insurance. The insured amount needs to be at least 20% of the value of the property. Many borrowers are unaware of this and are not happy about the last minute hoop they need to jump through. Let’s keep our clients happy, remind them about HO 6.

 

Today we talked with a client that had a middle credit score of 615, they are relocating from the east coast. With the stress of a new job, moving and getting the kids in school it was overwhelming to them. We counseled them to just rent, get the scores up then buy. They were revealed and happy after this discussion. They told us we had a customer for life.

Sincerely,

The (Recently Expanded) Meredith Team

Kathleen, Erin, Monica and Guy

The Meredith Mortgage Team, CMPS®

Certified mortgage planning specialist

“We Will Always Have Your Best  

  Interest In Mind”   

 

 

Erin & Kathleen

The Bay Area’s Premier

Mortgage Banker and Broker

 

(925)983-3048 office

(925)226-3215 efax

(925)918-0585 mobile

meredithteam@cmgmortgage.com

emeredith@cmgmortgage.com

Apply For Mortgage Financing with The Meredith Team, Click Below: 

http://www.cmgmortgage.com/LO/meredithteam/GetStartedApply.shtml

The Home Ownership Accelerator  is helping people

pay of their mortgage in record speed…click here

 

Top News

Tightened rules for banks’ loans proposed – CNBC – – The rule-setting board for corporate accounting has proposed tightened rules that would force banks to value loans at current prices, prompting renewed opposition from the banking industry over a long-simmering issue.

Market News

Mortgage rates again sink to yearly low; 30-year at 4.78% – USA Today – – WASHINGTON Mortgage rates have fallen to the lowest level of the year as European turmoil caused investors to pour money into the safe haven of U.S. government securities.

5/26/2010 Mortgage Refinance Applications Continue to Increase, Purchase Applications Decline Further in

Latest MBA Weekly Survey » – Mortgage Bankers Association – – Welcome to MBA. The Refinance Index increased 17.0 percent from the previous week. This third consecutive increase marks the highest Refinance Index recorded in the survey since October 2009. 
New home sales soar 15% in April – CNN Money – – NEW YORK (CNNMoney.com) — New home sales soared in April as homebuyers rushed to claim the tax credit that expired at the end of the month. New home sales rose 14. 

O.C. real estate giant to split into two companies – Orange County Register – – One of the nation’s largest real estate firms has gotten so big that its managers have decided to divide it into two separate companies. 

Home prices fall 3% in early 2010 – CNN Money – – Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. 

Technology News

Browser Add-on Blocks Google Analytics – PC World – – Google has released an add-on for Web browsers that blocks information from

Other News

Luxury homebuilder Toll Brothers takes smaller 2Q loss – USA Today – – HORSHAM, Pa. (AP) — Luxury homebuilder Toll Brothers (TOL) said Wednesday that it took a smaller loss in its second quarter as write-downs of assets decreased.

Going, going, gone: Boom in house auctions – CNN Money – – NEW YORK (CNNMoney.com) — Going, going, gone: An increasing number of homes are now being sold at auction — rather than through real estate brokers — in an effort to dump properties more quickly and efficiently. 

 
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