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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