After a serious four-year slump, many homeowners and buyers might find it unbelievable that the real estate market is finally showing signs of a healthy recovery. Builders and investors are making moves, fully expecting certain regions (like Southern California) to once again become the foundation for their wealth-building expectations.
During the past forty years, the rest of the nation looked to Southern California as the trend setter for the health of the national real estate market. Because California has a wide variety of regions and populations, it often acts as a barometer to predict what should happen nationwide. Southern California often sets the stage for public opinion for politics and finance. If Californians are optimistic about current economic trends, then the rest of the country will begin to feel better about their own regions.
Southern California’s real estate market saw the biggest gains during past housing bubbles, but has also suffered some of the biggest losses since the market collapsed in 2006-2008. There are clear signs that we are about to shift into a new generation of real estate value growth. The fact that builders and investors are returning to the area is a sure sign that we may be entering a new phase of growth and increasing values.
Some real estate experts believe that the next era will show more controlled growth and a safer environment for investors and homeowners. This is why:
1. Residential property inventories are dropping steadily
The Southern California residential real estate market is (as of June 2012) at a four-year low. Some areas have more buyers and investors than available properties. Supply and demand are the two more significant factors that affect prices, and prices are steadily going up as supply is going down. This trend is especially evident in prime properties in upscale hillside and beach locations.
Rule: Fewer properties = Higher prices
2. The days of “Easy Money” are over – at least for now
The single factor that led to both the “boom” and the “bust” of the most recent real estate bubble was the fact that anyone who could both breathe and sign their name could qualify for a real estate mortgage. Banks, including Washington Mutual and Countrywide, were offering loans with rates that would top out at 10-12% but with monthly payments set at artificially low rates of only 1 to 3%. As long as property values continued to go up and banks offered easy refinancing, everyone just ignored the facts and continued to follow that crazy path to its disastrous end.
Adding to the problem was the fact that other banks were willing to offer home equity loans (HELOCs) that allowed home owners to pull out every penny of equity (and in some cases up to 125% of the appraised value) to spend on cars, vacations and college educations.
After the real estate market began its downturn in 2006 and the financial markets crashed in 2008, the federal government implemented new guidelines and laws that eventually became enforced and written into bank lending procedures. “Easy money” financing will not be part of the future of real estate investing, at least for the present.
Rule: If buyers can not prove that they can pay it back – they will not get a real estate loan.
3. Reduction in number of foreclosed properties available for sale
Foreclosures began flooding the market in mid-2007 as the bursting real estate bubble began to reach its peak. Stressed homeowners sold their homes below market prices just to avoid the possibility of bankruptcy or repossessions. Buyers left the market in droves, not wanting to “buy high and sell low” that would be a likely future scenario. In some areas, almost every neighborhood had one or more vacant and foreclosed homes on every street. Some areas that once had exceptionally stable residents saw foreclosure rates as high as 20%.
With some exceptions, over the past two years Southern California counties have reduced the number of distressed properties to a much improved 5%. Some areas have none at all. That would be a typical level even in more normal markets. Investors and buyers are taking notice.
Rule: Fewer distressed properties mean higher and more stable values.
4. Median home listing prices and pending sales are at a two-year high.
Local MLS services are reporting that median home listing prices have risen to a new two-year high. Homes and condos are now selling at levels not seen since the summer of 2006. Buyers are noticing these trends and feeling confident about jumping back into the market. There seems to be a higher level of confidence that residential real estate has once again become a safer and potentially more profitable investment option.
Rule: Buyers return to the market when prices are rising, and availability is limited.
5. It takes fewer days on the market to sell listings.
In some communities homes are selling for the listing prices in half the time that they did two years ago. Fewer homes sell with substantial discounts. Well maintained neighborhoods and properties see more offers at or near the asking prices. More qualified buyers are venturing into the market. Interest rates for real estate purchase loans are among the lowest in modern times.
Rule: Qualified buyers plus extremely low interest rates plus competitive market prices = SALES!
If you are planning on buying a home or condo in any Southern California in the near future call us now for more information and a list of currently available properties. We can find the perfect home for you at the right financing and terms.
Give Compass for Real Estate a call today!