Trying Something New…

Life hands us things we don’t expect, and we can choose what we want to do with them. Keeping an open mind helps, and working with what you have been given can often lead to a happy discovery. I, myself, usually try to make the best of things, but have not always been successful.

In the latest episode of my free podcast, I give several examples of what I am talking about. Hoping you can relate and maybe get a laugh or two from my trials.

Buyer Home Purchasing Power

Purchasing Power: An increase in interest rates by 1% translates to an 11% drop in the home a buyer is able to afford.

The experts and prognosticators may have had their timing off, but they collectively understood that it was not a matter of “if” interest rates would rise, but “when” they would rise. With the massive manipulation of the monetary policy by the Federal Reserve, the United States has been in economic, uncharted waters, making the art of forecasting rates not an exact science.

At this point, the pressure on interest rates to rise is real. But, after more than a decade of extremely affordable rates, everybody has become accustom to these affordable levels. It is time for a brief history lesson:

  • 1981 = 18%
  • 1990 = 10%
  • 2000 = 8%
  • 2007 = 6.5%
  • Today = 4.5%

Yes, 3.5% is a better rate; however, 4.5% is still a very low rate in historical context. Buyers should not wait for another drop. Instead, they should cash in on today’s mortgage rates. These low levels are an absolute gift based upon the economic history book.

Buyers must understand that the longer they wait to purchase, the greater the risk that rates will rise. As they rise, a buyer’s purchasing power erodes considerably the higher then climb. If mortgage rates climbed by 1% from where they are today, buyers looking for a $2,500 monthly payment would see their purchase power drop from $616,750 to $550,375; that’s a $66,375 drop in purchase price. For buyers looking for a $3,500 monthly payment, it drops from $863,500 to $770,500, a drop of $93,000. And, for buyers looking at a $4,500 monthly payment, it drops from $1,110,125 to $990,625, plunging by nearly $120,000.

Keep in mind, 5.5% is still a very low rate. The trouble is there are younger buyers in the marketplace who have never experienced rates above 5%. The housing market is not going to implode. It will not be the end of the world. But, it will eat into affordability and purchasing power. That 1% increase in mortgage rates will result in an 11% drop is what a buyer is able to afford.

With an improving economy, the new tax law, trade reform, and a new infrastructure plan, expect rates to rise. Buyers should not sit on the sideline and wait for them to drop. If they do, they will watch their purchase power crumble.

Choosing a Neighborhood

Location is most likely the one feature that adds most value to any real estate property. Therefore, much consideration should be given to the neighborhood where that home is located. Here are some items to consider:

Property Taxes

Property taxes can play a huge role in your overall cost of living. In California, we have Proposition 13, so property taxes have caps on how much they may go up each year. But there may be special taxes associated with the property above the base rate. It may be a good idea to check out the Orange County  Tax Collector site ; they provide an interactive map with multiple layers for your use.

Safety and Crime

Before you sign on the dotted line, search sites like City-Data.com and CrimeReports to get a sense of the safety level of a particular neighborhood. As with all homebuying decisions, determining what level of crime you feel safe with is all part of the process of choosing a neighborhood.

Topography and Geography

Geographic features like views and privacy can add value, but they may also include additional costs and/or considerations. Are you in a special flood zone or a seismic zone that could impact your insurance costs?

Schools

School zones come to mind when thinking of location, especially if you have children (or plan to have them soon), as they tend to affect home values. If schools are important to you, evaluate the schools in your neighborhood and which homes fall into which district. Additionally, there may be community centers or parks that increase the value of the neighborhood.

If you are targeting Mission Viejo, I have a great site where you can check out the schools, homes, parks, etc. in the area. Check it out here.

There are other things to consider when choosing a home and and neighborhood such as current and future property values, access to area amenities, public transportation, hospitals, etc. I can help you research your target neighborhood so you can make the best decision possible as a home buyer.

Orange County Real Estate Market At a Glance

I think everyone knows that the inventory of homes is tight, especially in the lower end of the price range. Must be because the people living in the more affordable homes either can’t afford to move, can’t find a good replacement home or are perfectly happy where they are! So if you DO need to sell your home, and it is valued under $500,000, you can probably expect to sell quickly. Here are some more stats for the current Orange County Real Estate Market.

  • The active listing inventory decreased by 223 homes in the past couple of weeks, and now totals 5,639. The trend is down for the remainder of the year. Last year, there were 7,040 homes on the market, 1,401 more than today.
  • There are 41% fewer homes on the market below $500,000 today compared to last year at this time and demand is down by 21%. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly disappearing.
  • Demand, the number of pending sales over the prior month, decreased by 201 homes in the past couple of weeks, down 7%, and now totals 2,624. The average pending price is $860,101.
  • The average list price for all of Orange County increased from $1.6 million to $1.7 million. This number is high due to the mix of homes in the luxury ranges that sit on the market and do not move as quickly as the lower end.
  • For homes priced below $750,000, the market is HOT with an expected market time of just 42 days. This range represents 39% of the active inventory and 60% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 56 days, a hot seller’s market (less than 60 days). This range represents 18% of the active inventory and 20% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 93 days, a balanced market that does not favor a buyer or seller.
  • The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and only 14% of demand.
  • The expected market time for all homes in Orange County increased in the past couple of weeks from 61 days to 62 days, a tepid seller’s market (60 to 90 days). From here, we can expect the market time to slowly rise as housing makes its way through the Autumn Market.
  • Distressed homes, both short sales and foreclosures combined, make up only 1.5% of all listings and 2.4% of demand. There are only 33 foreclosures and 54 short sales available to purchase today in all of Orange County, that’s 87 total distressed homes on the active market, increasing by 5 in the past two weeks. Last year there were 125 total distressed sales, 44% more than today.
  • There were 3,110 closed sales in August, a 12% increase over July 2017 and a 1.3% increase over August 2016. The sales to list price ratio was 98.1% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales and short sales accounted for 0.7%. That means that 98.5% of all sales were good ol’ fashioned equity sellers.