Orange County Housing Forecast

You may have missed this article but it will reinforce what we already are aware of:

“2012-2013 Housing Market Forecast

Why the Housing Market Has Bottomed,

and How to Invest without Leaving Your Home

by Investment U Research

An Investment U White Paper Report

In case you haven’t noticed… the housing market is making a recovery.

Most investors still shudder at the thought of investing in real estate again, but it’s time to reconsider.

Here’s why:

• Housing starts have risen for three months in a row, with the number of units now exceeding an annual rate of 715,000 units. Admittedly, that gets the market nowhere close to the 2.1 million starts 2005 marked in its entirety, but it’s still a strong step in the right direction.

• Building permits usually act as a decent stand-in for future construction. And in March, they beat out expectations to reach 769,000 units, their highest annual rate since September 2008. Better yet, there are signs of more to come, since new home inventories have been at historical lows during the past three years. This means that there aren’t as many houses on the market, which means that any uptick in demand (which Investment U expects) will need to be met with new developments and individual residencies.

• The National Association of Realtors/Wells Fargo Index of builder confidence has moved upwards in each of the last five months. At the end of the first quarter of 2012 it touched its highest level in five years. So it’s no wonder then that Stuart Miller, CEO of Lennar Corporation, the third-largest U.S. homebuilding business, enthusiastically declared that “a very real trend is beginning to take shape… There are empirical data points that are today confirming that the market is showing real signs of stability.”

• In its most recent earnings report, Lennar Corp. (NYSE: LEN), the nation’s second-largest homebuilder, beat analyst expectations for earnings by 100%. New orders increased 33%. Backlog grew 39%. And total sales rose 30%.

• In the first quarter, inventories fell to less than a three-month supply in markets including San Francisco, Silicon Valley, Denver, Phoenix, San Diego, Los Angeles, northern Virginia and Seattle, according to online brokerage, Redfin.

• D.R. Horton (NYSE: DHI), the nation’s largest homebuilder, recently beat analyst expectations for earnings by 225%. (That marks the second consecutive quarter of stronger-than-expected profits.) New orders increased 19%. Backlog grew by 17%. And total sales rose 28%.

• For the first quarter of 2012, the Federal Housing Finance Agency reported that property values rose 0.3% month-over-month and 0.4% year-over-year. That’s the first positive reading since 2007.

• On May 15, the NAR reported its Housing Affordability Index hit a record high.

• In the first quarter, foreclosure filings in the United States fell to the lowest level since 2007, according to RealtyTrac Inc. And resale of foreclosures by Fannie Mae and Freddie Mac dropped 18%.

These are very positive signs that an improvement is underway. But before we get into more reasons why we think now’s the time to buy real estate-related investments (and our favorite investment in this industry)… let’s take a quick look down memory lane. To a time when real estate used to be the absolute darling of the markets.

Real Estate Value: Real or Delusional

Rallying behind one of Mark Twain’s many droll quotes – “Buy land, they’re not making it anymore” – people in the newly minted twenty-first century pounced on whatever property they could get their hands on, refusing to learn the lessons of even the recent past.

For example, as the 1900s came to a close and the 2000s first made their debut, everybody was ranting and raving about technology stocks, predominantly those pertaining to the internet: the so-called dot.coms. That ended very, very badly, of course, but not nearly enough people thought twice before jumping onto the very next bandwagon that rolled along. And as property gave solid return after solid return after solid return, the movement gained a religious and borderline cult-like following.

Nobody could say anything bad about it without fear of a good dose of professional and social censure. People were having too much fun and making too much money on the skyrocketing real estate market. They made lucrative side-jobs and even entire businesses off of buying up homes and selling them a year or two down the road for worthwhile profits. Sometimes they put some effort into remodeling the houses and sometimes they wouldn’t. But either way, they knew they were going to make a buck off of the deal.

And they were dead right… until 2006, when the market peaked and then 2008, when it crashed entirely.

Though history has proven them tragically mistaken, to some degree, their blind faith and willing worship at the altar of housing prices was understandable. It’s always much easier to look backwards and judge people for their foolishness than to fight popular opinion in the heat of the moment. And it’s especially difficult when all of the oft-quoted facts point to that popular opinion.

After all, housing prices had skyrocketed compared to where they were in the 1990s and 1980s. A certain amount of upward movement is expected due to inflation and an improving economy, of course. And a chart of the housing market from 1970 and 1998 shows just that. In 1970, the median U.S. home cost just above $25,000, nominally. A decade later, it was over $50,000, and it had doubled again another ten years down the road.

By the start of the new millennium, the average person looking to buy a home had to expect a decent $125,000 price tag. But just six years later, when the index peaked, that median price was pushing upwards of $250,000. And, really, who wouldn’t want a piece of that action?

Throw in the federal government with its affordable housing acts, the banks with their badly thought-out policies, and the general populace who didn’t bother to look into the real reasons behind the unprecedented rise… and it was a disaster waiting to happen. But on the surface, it just looked like a good thing going on and on and on.

Sure enough – as we know now – the bubble burst, the market crashed and people lost fortunes in the aftermath. Now several years down the road, the housing market still can’t seem to find its footing. Its performance has seemed sorely lacking ever since, and nobody wants to touch it as a result.

Things Might Be Changing

But just because nobody wants to touch the housing market doesn’t mean it isn’t worth looking at. Because there really is plenty to look at. Contrary to all of the rumors of double and triple-dips in real estate prices, there are actually numerous signs to indicate that the dipping – at least the significant kind – just might be over. And, in fact, signs of a rebound are popping up all over. We covered these earlier, but we’re not the only ones to notice…

Christopher Matthews at Time Business reasoned on May 15, 2012:

“The best reason to shed your hard-won dubiousness is a report issued today by The Demand Institute, a think tank jointly operated by the well-respected and non-partisan research organizations The Conference Board and Nielsen. The fifty-page study is definitely labeling 2012 the year of the housing bottom.”

Matthews goes on to explain the details of the report, which argue that rental prices – of all things – will fuel the recovery. With current economic trends being what they are, buying up properties to rent out is a very profitable option that real estate investors are beginning to recognize and act on.”

And there’s even more information out there indicating that housing might once again be where it’s at…

A Very Solid Foundation for a Very Real Recovery

House prices are cheap right now. At an average 30-plus percent below their peak, buying a home is a bargain in just about any area of the country. In fact, in many cities, it’s even more affordable to buy – taxes and all included – than to rent. Better yet, borrowing costs have been recorded down around 20% year on year and mortgage rates hit an all-time low in February.

There are so many added incentives for people to take up their piece of the American Dream – complete with white picket fence should they so choose – these days that it’s practically a tragic shame not to act on the chance.

That’s from a buyer’s perspective. But as the previous points show, there’s an even stronger case to be made from an investor’s standpoint.

Earlier this year, The Wall Street Journal’s Greg Zuckerman wrote: “Over the last couple months some of the best investors on the street… have been making big bets on homebuilders.” Those “best investors” include extremely familiar names such as Blackstone, a top-notch global investment and advisory firm first founded in 1985.

Then there’s also:

• SAC Capital Advisors, which is a $14 billion dollar corporation comprised of multiple exclusive hedge funds, among other things

• Caxton Associates LP, a trading and investment firm that manages “client and proprietary capital through global macro hedge fund strategies,” as it touts on its website

• Cerberus Capital Management, which, despite only starting out in 1992, quickly became a leading private investment firm… on a global scale

• Canyon Partners, a corporation made up of four separate divisions – Canyon Capital Advisors, Canyon Capital Realty Advisors and ICE Canyon – is an investment management firm running some $19 billion in assets for its clients

• CQS U.K., the United Kingdom division of CQS Global, which offers design management, cost management, project management and procurement advice among other construction-related services

None of those businesses got to their coveted positions of leadership in their various sectors by making foolish bets or chasing wild geese. So it’s telling that so many of them would be laying down the big bucks on such a hated market as housing.

More recently joining their ranks is Goldman Sachs, which made out like a bandit when the real estate market first collapsed. While most other businesses and individuals were falling and failing miserably in the crash, the big bank somehow managed to ride it to the top. And it’s once again placing its bets, this time by raising money for its U.S. Housing Recovery Fund.

Clearly, the smart money is moving into the housing sector. But there is still time to get in and take advantage of the bargains available. Negative sentiment still dominates the industry.

News outlets – from newspapers to radio programs to TV shows – are still painting real estate as being entirely hopeless. Skeptics say there is an oversupply… that more foreclosures are just months away from flooding the market… That housing can’t rise until the supply overhang is removed.

We believe the facts show just the opposite. They show now is a fantastic time to buy a home. Prices are cheap. And with record-low mortgage rates, housing is now more affordable than ever.”

So, if you want to buy a house, we think now’s a great time to do it so contact us today at MarleneDietrich@Realtor.com  and visit us at www.MarleneDietrichRealEstate.com