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6/14/2013

Why Orange County Home Prices Are Soaring

Robert Shiller says: recovery for housing is in process.
With the numbers of foreclosures, and notice of defaults shrinking in Orange County the real estate market is soaring.
 
Keep growing Orange County Real Estate Prices!

The shortage of homes for sale and rising home sale prices are being driven by three forces: 1. Banks and Wall Street Investors 2. Foreign buyers and 3. Fearful owner occupants who wait to sell or can’t sell because they are upside-down.

The major banks and Wall Street good old boy firms, (many were subprime lenders five years ago) now have reorganized themselves into real estate “investors.”  These all-cash investors are buying distressed property at the low end of the price scale, muscling out first-time homebuyers and smaller mom-and-pop investors. Big investors, like Blackstone, Colony and others, are snatching up low-priced housing units in bulk and renting them out to people who can’t buy. By amassing thousands of rentals, the Wall Street landlords are putting a crunch on housing supply, driving up prices and making millions of dollars. Thank you stodgy bankers for hoarding all the homes under $200000.

The second influence is the increase of foreign nationals buying investment properties in California, Arizona, Florida and Texas. Foreign investors driven by a multitude of Ponzi seminars and gurus who wrote a book on “get rich quick flipping properties in the United States” are buying cheaper housing units sight unseen. I see more Canadian investors than in the past fifteen year cycle. Right behind them are Chinese, Taiwanese, Australian, and Middle Eastern buyers all eager to find properties on the internet and make all cash offers.

As a mortgage lender I am getting several calls a day about our foreign investor loan programs. The biggest problem with these buyers is they have been told nonsense ideas to vest each property in separate LLC’s or entities. They often have complex financials with one parent trust. Unfortunately, with layered financials, their package appears often too complicated to actually show income enough to close on a traditionally priced loan. Canadians don’t have to go through all the fiery paperwork hoops that Americans do to get a home loan. They send in about twenty percent of the information and begin to argue about why so many items are required. The obvious solution is for foreign investors to close with a low documentation loan. Foreign investors are not required to go through the income tests that Americans must complete, but the cost is not in the four percent range. These loans cost around eleven percent and have larger upfront fees due to the high level of risk.

Unfortunately for stability in the market:  home sales and prices are up, but home ownership is down because it’s investors  — not first-time homebuyers —  who are buying up the majority of homes. RealtyTrac  shows  3.5 percent of all home purchases in the first quarter of 2013 were closed by “institutional investors.” Institutional purchases are up 34 percent from a year ago.
Meanwhile, the housing “scarcity” is a result of two factors: 1) borrowers who are “upsidedown”  -they can’t sell, but have hung on making payments out of pride or job reasons, and 2) banks refusing to modify underwater mortgages. Since more than 25 percent of all borrowers — or 11.3 million homeowners— are underwater, these homeowners can’t sell, can’t refinance and can’t get a loan modification.

Many homeowners are waiting to sell because prices are rising in many markets. In Laguna Beach the single family house under a million dollars is gone. A home on Santa Ana that I looked at sixteen months ago listed for $ 850000. They did not get an offer and took it off the market. This month they re-listed for $ 950000 and received multiple offers for larger than full price. No improvements where done to the home.

Sitting vacant are 14.2 million homes, this creates hardship, crime and a giant sink hole in a community. Would you want to live next to the vacant house that squatters are making a fire out of scraps to keep warm in Detroit?
Mortgage Blue Jay in my window, he is ready to soar.

(Curbside appeal of these two planters with waterfalls of flowers in Corona Del Mar)

Still buyers are interested in homeownership.  We all dream big.
 
Orange County California has turned the corner with few foreclosures and a trickle of notice of defaults. Most notice of defaults are located inland Orange County. A number of these properties are unimproved land. Here is a list of the locations that still are upside-down often with two lenders and not listed for sale:

East hill, Coto De Caza

W Martha Lane, Santa Ana

San Antonio, Fountain Valley

N Genesse St, Orange

Mount Neota, Fountain Valley

Mohave Way,  Rancho Santa Margarita

Granada, Newport Beach

N Fairview, Santa Ana

Walker Lane, Fullerton

Cabrosa, Mission Viejo

Foxtail Drive, Yorba Linda

W Palmyra, Orange

E Altura, Orange

Avon Cir, Westminster

Durango River Circle, Fountain Valley

San Angelo, Westminster

Poindexter, Garden Grove

Kings Place, Newport Beach

E Avenida Cornelio, San Clemente

Hopping St, Fullerton

Laguna Beach distressed or foreclosed homes on the market:











 


 
 
Garden gate in Corona Del Mar California, one niche market that is soaring

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