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Here are my thoughts on Orange County real estate in 2010...and what you should do about them...

1. Prices.

    Homes under $1M: The market for properties under $1M will continue to increase at least through June 2010.  With the tax credit for both existing and first time home buyers, with current low interest rates and with a solid supply of buyers, I expect the market to continue on its upswing at least through mid-summer. All these factors are creating a solid demand and we are seeing an expected upward pressure on prices.  However, when (not if, but when) interest rates begin to rise, expect prices to stabilize to decrease. 

    Homes over $1M: For homes over $1M, I expect this price range to see stabilization through June/mid-summer.   

    Estate Homes:  In this price point I am still seeing price decreases.  We recently took a detailed look at estate homes price trends in Yorba Linda and in Nellie Gail and both areas still show price decreases.  Usually this price range is the last to decrease but its also the last to increase.  Unfortunately, if interest rates rise before the market recovery can work its way up to large estates, this price range may recover very poorly.

    2.  Interest Rates. Interest Rates will increase.  Interest rates are currently (artificially) low do to several factors. One of those factors is the federal government's commitment to purchasing mortgage backed securities ("MBS"s).  This process ultimately frees up funds for banks to lend again and keeps interest rates down.  The federal government has announced it does not intend to keep doing so (and has already slowed down to 'ease' out of that market).  If they step out, another investor has to step in or liquidity is lost (read: banks will have limited ability to lend/for new loans).  Before the 2006 crash, MBSs were big with the international market.  Not so much anymore...domestic and foreign investors are not purchasing MBSs (and who can blame them...but that's another blog article).  In order to attract MBS purchasers, they will have to have an attractive return--which can only be had if they offer higher interest rates.   As I see it, either the Feds purchase the MBSs or the market will demand a higher return (read: borrowers pay a higher interest rate).  Investors will want the risk of purchasing loans covered.  Absent the Federal government changing its current plans (to stop the MBS purchases), I predict rates could get scary. 

And what you should do about it...

        Sellers:  If you are thinking about selling, get your home or investment property on the market ASAP.  Take advantage of the number of buyers in the market and the low interest rates.  Hurry...the perfect storm is upon us.  Increased interest rates and buyers who are no longer motivated by the tax credits that expire in June will damper the strength of the emerging seller's market.  

        Buyers:  Look hard and fast if you are in the market--particularly if you stand to benefit from the first time or repeat buyer tax credit (must be under contract by end of April and close by end of June).  Even in you do not benefit from the tax credits, let the looming interest rate risk issue light a fire under you...its time to buy (and when you do, get a FIXED, FIXED, FIXED interest rate).  In my opinion, you have until June--absent a Federal government policy change. 

        Investor/Buyer:  If you are an all cash purchaser/investor, you are the exception to my take action now advice.  Instead, take your time.  You may want to see if you can benefit from some bargains if interest rates take off.   If interest rates increase, you may get some price decreases.  If, however, you are financing your investment, get looking.  As I've repeated over and over in this blog, rates will not hold under the current plan.

        Investor/Seller:  Get it sold.  Benefit from the first upswing in years and take advantage of the number of buyers motivated by current rates.  Do not wait for interest rates to reduce the number of buyers or price decreases to lower your return. 

        Borrower:  If you have a variable interest rate loan, consider refinancing to a fixed.  Even if you have a fixed rate, if its above current market rates, consider refinancing.  Contact your favorite lender...and if you do not have one, call me and I'll refer you to one.

In short, unless the Federal gov't extends its current programs (buying MBSs, tax credits, holding interest rates steady), I think your best opportunities are in the first half of 2010--as a buyer or a seller (with the only exception being an all cash purchaser).  

If you have any questions, please give me a call or email me.  (714) 863-5485 johnsonlaw@sbcglobal.net

In the next few days Congress is expected to pass legislation extending, expanding and altering the homebuyer tax credit. The original $8K tax credit was limited to first time homebuyers and is currently set to expire November 30, 2009. At the urging of President Obama, it looks like Congress will extend and expand the credit. Its good news for news for all…and here are the expected details.

1. No longer just first time buyers! We expect the $8,000 tax credit to still be available to first time buyers (must be under contract by April 30, 2010 and must close escrow no later than June 30, 2010) but we also expect it to be available to current homeowners who have lived in their home for at least five years. We expect this existing homeowner tax credit to be limited to $6500—a bit less than what is offered to first time buyers but still a nice addition for those looking to move up or down! Both first time and existing homeowners must continue to live in the newly purchased home for 3 years or be forced to repay the credit.
2. Higher income limits before phase out! The tax credit is expected to increase from a single purchaser income limit of $75,000 to a single purchaser income limit of $125,000. Similarly for married couples, the income limit is expected to increase from $150,000 to $225,000.
3. Purchase Price Limit: $800,000 We expect the credit to have a new aspect---a purchase price limit. The final bill will likely state that the credit will not be available to a purchaser who purchases a home in excess of $800,000.

And one last note: Anyone who utilizes the program in 2010 will likely be able to take the credit on their 2009 taxes—a nice bonus come April!

The tax credit combined with current, low interest rates means it’s a great time to sell—while buyers are motivated by the current and expected, bigger and better tax credit. I’ll update you when the official details are released…but we expect the final terms to be fairly identical to those stated above.

If you have any questions, please do not hesitate to ask! You can email me at johnsonlaw@sbcglobal.net or call me @ (714) 863-5485.

-Melinda Johnson

of the first time home buyer credit and if so, it will impact everyone...buyers, sellers and vets alike.  It is the passage by the house of a bill that would extend the $8K first time home buyer credit for vets ONLY--effectively killing it for the rest of humanity. 

Does this impact you? Yes, if you are a buyer, seller or vet.  See where you fall in below....

First Time Buyer--you've got until November 30, 2009.  This means if you find a house ASAP, select a 45 day or less escrow.  You are dangerously close to the expiration of the $8K tax credit.  Lenders can sometimes delay closings by requesting updated documentation...so beware.  Try to pick a closing date at least a week before the actual deadline.  Unless congress changes directions, the tax credit will be gone for closings on or after December 1, 2009.

Other Home Buyers--You may be one of the two groups who can see something positive out of this.  If you have been looking in the $600K and under market and have been frustrated by the amount of competition out there right now, then drop in demand that will likely occur on and after December 1, 2009 should work in your favor.

Sellers--You may not think this affects you, but if you are selling a property under $600,000, it should.  Demand will likely suffer a one, two punch in December.  The first punch happens every year--less buyers during the holidays.  The second punch is the loss of buyers currently motivated by the tax credit.  If you get a decent offer, I would encourage you to discuss it carefully with your agent. 

Vets/First Time Buyers--If this house bill passes the senate, you will get a six month extension to buy a home and still get the tax credit.  The proposed law provides the credit to those who served 90 or more days overseas in 2009.  If you did, then we salute you and thank you--and Uncle Sam has this nice $8,000 tax credit gift for you, too (assuming you haven't owned a home in the last 3 years).

If you have any real estate related questions, don't hesitate to ask. johnsonlaw@sbcglobal.net

Legislation has been introduced to increase the down payment for FHA loans from the current 3.5% to 5% (HR3706).  Rumor has it that this legislation will also restrict the ability to have financed closing costs.

The increased down payment legislation is supported by financial big wigs like Ben Bernanke.  The likely motivation is that increased down payments may mean that a homeowner is less likely to walk away from the home when financial trouble hits. 

And, speaking of financial trouble, such woes have hit the FHA.  Given the losses due to foreclosures, reserves have fallen below the congressional mandated 2%.  In my opinion, this legislation will be an attempt to prevent or reduce the likelihood of of that in the future.  My best guess is that this bill will work it way through congress like a hot knife through butter. 

So, if you are looking to buy with an FHA @ 3 1/2% down--get moving.  It may not be available for long. 

If you have any FHA or other real estate related questions, do not hesitate to ask.  You can email me at johnsonlaw@sbcglobal.net or call me at (714) 863-5485.  -Melinda

If you read the papers, you'll get mostly a doom and gloom outlook...and rightly so.  Unemployment, along with other economic news, is dismal to discouraging.  So how can you explain an increasing, an UP, real estate market in a large segment? 

Where is this up market?  In Orange County and parts of Riverside and San Bernardino Counties, its clearly under $600K and it gets hotter the closer you get to the $300K and $400K range.  Its fueled, in my opinion, by two sources.  The first, and foremost, is the first time home buyer motivated by the $8K federal tax credit--a juicy offer that expires as of November 30, 2009.  The second is investors, fueled by low interest rates, increased affordability and available renters. 

If you are a first time home buyer, get looking!  You must close escrow by November 30, 2009.  If you are investor and would like an analysis of available properties and rents for one to four unit properties, just let me know.

If you have any other real estate questions, send me an email at johnsonlaw@sbcglobal.net or give me a call at 714 863-5485.  -m