Saturday, November 10, 2012
The Big Question
I BEGIN THIS MONTH BY BEGGING YOUR MERCY. ON OCTOBER 30 I
EXPERIENCED A COMPLETE SUDDEN COMPUTER CRASH. ALL DATA, I BELIEVE, IS RECOVERED
EXCEPT FOR THE ACTIVE MAILING LIST FOR THIS NEWSLETTER. I HAVE RECONSTRUCTED IT
FROM SCRATCH. IF YOU ARE RECEIVING THIS FOR THE FIRST TIME AND DON’T WANT TO
RECEIVE ANOTHER PLEASE REPLY WITH “REMOVE FROM MAIL LIST” IN THE SUBJECT LINE.
IF YOU HAVE HAD A RECENT EMAIL ADDRESS CHANGE AND THIS IS COMING TO YOUR OLD
ADDRESS PLEASE REPLY WITH THE CORRECTED EMAIL ADDRESS. THANK YOU.
THE TREND IS NOW BEYOND DISPUTE
Earlier this year I started talking about my “street level”
observation that the Orange County housing market seemed to have bottomed
sometime around the fourth quarter of 2011 and had begun a noticeable
“firming,” if not yet a definable recovery. We followed that in this newsletter
through the spring and summer, moving from a street level observation to an
increasingly strong trend line.
In the spring the news outlets seemed to all remain asking,
“when will housing bottom?” (The major national news was still reporting that
“California” would be buried for a long time to come—remember?) By the end of
summer many news outlets were catching up to the reality of what was actually
happening on the ground. (In all fairness the Orange County Register was
reporting on the strengthening market, dropping inventories, and clear recovery
taking place substantially ahead of their competitors, local or national.)
The three graphs attached are so clear that one only has to open
and absorb, so I have added no comments to them. However, if you will allow me
one note, in the graph for “south county under 750” (essentially inland from
the coast, from Irvine south) the trend line of active units in the market is
nothing short of stunning, ending October with a 26 day supply of inventory.
That is 26 DAYS, friends! It wasn’t but six months ago that we were celebrating
a 3 MONTH supply with enthusiasm.
WHERE IS THE “SHADOW INVENTORY”
We have discussed the shadow inventory at length in this
newsletter. There are still those waiting for the “shadow inventory shoe to
drop” and take the housing market down the tubes. I don’t dispute many of the
numbers used to calculate the actual lender owned or notice of default units
out there. Those are somewhat quantifiable. If you recall one of my more
emotional statements on the subject a few months back I think those forecasts predicting
large numbers of foreclosures based on nothing more than the number of
houses “under water” are mostly pure baloney. And, for those housing units that
are actually owned by a lender, or in the foreclosure process, the federal
government has made it quite clear that they intend to “slow walk” the banks
through that disposition process precisely so they don’t have to take those
losses all at once, and now. They will succeed with that strategy—just do a
quick study of the South American debt crises when they used exactly the same
strategy.
THE
SECOND MOST ASKED QUESTION IN THE LAST MONTH (OR TWO)
I have been asked quite a few times lately a question that
generally goes like this, “Are and/or how much are prices up this year?” That
question is really aimed at how much more, if any, is my house worth now than
it was a year ago? The Case-Shiller Index does about as good a job as possible
at trying to answer that question, but can only provide a somewhat wide scale
and generic change of index sort of answer. The only way to really answer the
question is from that street level perspective of watching it. It isn’t
scientific, it can’t be supported by a DVD full of statistics, and it certainly
can’t be quantified by a computer model.
With that caveat in mind here is my best answer to that oft
asked question. In south county one or two bedroom condominiums seem to me to
be up at least 20% this year, and if someone said 25% I wouldn’t argue with
them. South county single family homes in the sweet spot of under $750,000 are
up a good 8-10%. And, here’s the kicker, the gold coast homes under $2,000,000
are up about 10%, and the right house in the right location might well sell for
15% more than at the beginning of the year. And, as the charts above tell us
and, as the OC Register is accurately reporting, the crucial factor is simply a
lack of supply.
THE MOST
ASKED QUESTION IN THE LAST MONTH (OR TWO)
The words “fiscal,” and “cliff” are now a proper noun and title
with a “the” in front; “THE FISCAL CLIFF.” I have been in many conversations
about what I think (or everyone within ear shot thinks) will happen, and what
that will mean to the housing recovery. I have and always will be as honest and
unvarnished with you as I possibly can. I do not know what will happen. I have
a forecast in which I only have about a 60% confidence, which is that after a
frustrating amount of bluster and grandstanding, as well as genuine anger in
those doing the negotiating, they will extend some level of the current cuts
for several months. I suspect the top rate in one form or another is going up
immediately (elections matter). Will the deal worked out during the “extension”
really do the job or just produce more tinkering at the edges and window
dressing with the real problem passed to another administration and another
congress. I do not know.
If the above forecast is close to the way it actually goes down
then I suspect that things will continue along the same trends we have seen all
year. The housing recovery will continue, mostly because of pure structural
supply and demand issues. If they blow the deal on the fiscal cliff completely,
then it could really set the housing recovery on its heels for a while.
However, if they really roll of their sleeves and honestly go about making
major changes that will promote growth and give everyone confidence that they
know and can count on both the tax code and on regulations being sane for the
next four years, then I think the economy will take off, confidence will take
off, and housing will take off in a way that might be downright scary
(accelerating too fast would be long term unhealthy).
HOW DO
YOU MAKE IMPORTANT DECISIONS IN THIS SITUATION
I suggest you make decisions based on the fact that our leaders
are rational adults intent on doing the right thing, even if that definition
varies. (I believe that statement is accurate, by the way. Anyone laughing,
just quit it now—you’ll hurt my feelings.) If they do lock horns and go over
the fiscal cliff taking us with them, then you will have missed your
opportunity to sell your house already. If you’re thinking of buying, first
time homeowner, OR investment, and you think this issue gets solved then buy
now—call me the first chance you get. If you are thinking selling and buying as
a move up situation, then this is your kind of market—DO IT SOON. If you think
Washington will just plain blow it and we are headed over that cliff then do
not do anything now. It may cost you10% more if you get into the market in six
months, but your peace of mind will be worth it.
Thank you. If you would like to discuss any of these market
conditions, or if you would like me to zero in on something particular you’re
welcome to call or email any time.
Mike Shepard
DRE # 00524405
First Team Estates
900 Glenneyre St.
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Contact Information
Michael Shepard
Estate Represenative
Mobile: 949-395-6640
Email: mikeshepard@cox.net
First Team Realestate
Laguna Beach, CA
Estate Represenative
Mobile: 949-395-6640
Email: mikeshepard@cox.net
First Team Realestate
Laguna Beach, CA
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