I wish I would have had an opportunity to jump in and reply to this thread while it was cruising. Regardless, in November and December we had 8 closings. Based upon my experience in the market and what I?m seeing daily both sides of this discussion make good points that are reflected in the market at some level.
First, a home that shows well and is priced right will sell fast; moreover, it will often have multiple offers. That said, out of our 4 Irvine Closings in November and December all of them sold for less than they would have during the summer. Moreover, our advice to continue to look but not to be frustrated or over anxious during the tax credit and that deals would likely be available once the tax credit expired and that the tax credit was creating artificial demand leaving a higher probability of good deals once it expired was correct. As a result, 2 of our Irvine closings appraised for more than the contract price. While the other 2 Irvine closings were equally as good of purchases given the Irvine market, our client?s loans, and their goals.
For the Bears, our closing on 7 Pear Leaf (did not appraise for more than the contract price), serves as an example of what should happen to prices if supply is released and prices return to levels in line with people?s incomes. In April of 2010, one of the closest comparable properties to 7 Pear Leaf sold for $637,000. As a result a trustee sale buyer purchased it for $522,000 in August and paid off back taxes, HOA?s, installed new carpet, and painted and listed it at $650,000. Our client purchased the property for $525,000 in late November, a large reduction from the original list price of $650,000 in August, which was reasonable at the time based upon the comparables. This was the result of supply, demand, and motivated sellers pricing to what the market will support. As a result of this sale, 17 Bluebell, the closest model match that was active at the time of our clients purchased was allowed to expired and taken off the market in early December; it was listed at $630,000. Unfortunately for the bears, there are many homeowners in Irvine that have the ability to take their properties off the market and wait and hope that prices return, moreover, few tracts are allowed to build supply the way this one has as banks have made a point to avoid foreclosing on homes that they take larger losses, which tend to be in higher priced areas like Irvine.
On the flip side, many tracts in Irvine still lack supply. A good example of this is 43 Washington in the Walnut area of Irvine. By many accounts other than supply this property is over priced, however, due to the lack of supply the property went into escrow in less than 10 days. There are numerous examples of this not only in Irvine but also in many other areas. If there is only one property for sale in a given tract, they can hold off for their price and will likely get it. Unfortunately, in many of these tracts there are numerous homes that are not available, despite the owner?s inability to pay. There are people that can afford these homes, however, they should be able to afford homes one or two levels above if the market was allowed to work naturally.
Finally, with the artificially low rates despite the artificially controlled supply, most tracts in Irvine now have rental parity. Moreover, most people buy homes for their consumption value and not their investment value. As a result, even educated buyers will buy if they are planning on holding the property long term, are using proper financing, and if they can acquire the property at or below rental parity. If one looks at the drop in home prices relative to other assets like gold, I believe that one will see that home prices have dropped by amounts that match what many of the bears predicted. The frustrating part is that the prices in terms of dollars have not dropped enough to satisfy many bears because it was done by devaluing the dollar, thus helping the banks while hurting those that are educated and have been responsible and waited to buy more home with dollars and not gold.
In regards to the future, it?s hard to argue that if rates and supply are not manipulated that prices should not go down further. However, there is nothing to indicate that rates and supply will not continue to be manipulated. However, there is a huge back log of foreclosures that are currently set to be released at trustee sales after the new year, if they are not postponed or canceled and the banks bring the properties to sale in Orange County that are scheduled it will result in a dramatic jump in supply. Properties like Pearleaf are great examples of what happens when supply increases, however, only time will tell.
