Market Conditions for Aliso Viejo, California Reported by Liana Norman, REALTOR Since 1989, Platinum Club, GRI Updated December 16, 2008.

Current Market Rating: 3 1 2 3 4 5 Buyer's Seller's

Current Price Trend: 2 1 2 3 4 5 Falling Rising

As of December 11th, the monthly Market Time Inventory in Aliso Viejo is up at 3.30 months with an average list price that has dropped slightly to $505k. Active Foreclosures & Short Sales makes has dropped slightly to 54.8% of all Active inventory in Aliso Viejo.

Orange County Housing Report: Lower Ranges Hot, Upper Ranges Not

December 11, 2008

The government has been hard at work attempting to jump start demand. The good news is that it is really working for all homes priced below $750,000, but little has been done to help homes found above $750,000. Homes above $750,000 represent 30% of the active inventory but only 12% of demand. What's the problem? Unfortunately, Orange County has a lot of high cost homes that just are not falling under the scope of the immediate government fixes. Thus far, the Unites States Treasury, the Federal Reserve and Congress have stepped in and poured billions of dollars into the conventional lending system. In March of this year, conventional and FHA loan limits were changed in high cost areas, like Orange County, rising from $417,000 to $729,750. They took over Fannie Mae and Freddie Mac, the two private agencies responsible for purchasing conventional loans from all of the lenders that originate these loans. And, just a few weeks ago, since Wall Street and investors were no longer buying "pools" of loans from Fannie Mae and Freddie Mac, the government announced that they would step in and invest in these pools to the tune of $500 billion. So, the government has utilized just about everything it has in its bag of tricks to keep the financial system flowing for conventional and FHA lending products. These fixes unfortunately do not touch the jumbo lending arena, loans found above $729,750. Besides extremely tough lender requirements and at least 20% down, buyers seeking a jumbo loan are facing interest rates that are about 3% higher than conventional interest rates. Conventional rates are now hovering around 5% versus jumbo rates at 8%. That's a significant difference. Prior to the current financial crisis, the difference between conventional and jumbo rates was about a quarter of 1%. Thus, demand in the upper ranges has been dramatically affected. Since the government is not backing up institutions that make loans outside of the conventional loan limits, jumbo loans, student loans, construction loans, investor loans, etc., lending institutions are making it much tougher to qualify and are charging a lot more for them. Without the government stepping into this area of lending, the products are "riskier" and lenders must charge extra for this risk. The current "frozen financial market" could have been avoided, and the severity of the current recession as well, if the government would have stepped in sooner. The programs pulled from their bag of tricks should have each been implemented about 6-months earlier. The "subprime meltdown" in March of 2007 turned into the "financial crunch" in August of 2007 as lending virtually came to a grinding halt. In September of 2007 Bernanke, the Federal Reserve Chairman, suggested that the conventional lending and FHA lending limits should be changed immediately and not wait 6-months for the crisis to grow worse. He knew that the government needed to be aggressive and proactive and not reactionary like it tends to be with just about every other crisis. Unfortunately, the government waited 6-months. Other government programs have followed a similar fate; thus, the "financial crunch" turned into the "frozen financial market" a few months ago. Investors were no longer willing to purchase the safest investment financial investments, loans backed by Freddie Mac and Fannie Mae. The government stepped in to purchase these pools of loans, something that should have been done much earlier in the year. Fortunately, 70% of the Orange County housing market has been aided by the government's efforts. And, there is more aid to come. The government is not going to let up until they turn around housing. Look for programs aimed at abating foreclosures, lowering interest rates further (for conventional and FHA loans) and tax incentives for buyers.

So, how do the numbers look? Let's count our blessing first and take a close look at total pending homes in Orange County compared to last year. Currently, total pending sales is at 3,890 versus 1,659 one year ago today. That's a difference of 2,231 pending sales, or 134% greater. The difference is nothing short of staggering. With the beginning of the financial crunch last year, demand and the total pending count suffered immensely and so did prices. Values of homes plummeted as supplies were high and demand was low. Values are still dropping in most areas today, but not at the clip that they were last year. Demand, the number of new pending deals within the prior month, dropped by 235 homes in the past month to 2,322. A drop in demand is part of the normal Orange County housing cycle through the end of the year. Last year at this time, demand was at 1,148, 51% less than today. Two years ago it was at 1,839, 21% less than today. Three years ago, demand was at 2,175, 6% less than today. The last two reports mark the first time that demand exceeded levels reached three years ago, that's 2005. Since demand is higher today compared to the prior three years, it is expected that we are in for healthier demand in 2009. All of the ingredients are there: lower interest rates, lower inventories, better values, more affordable housing, and more government programs geared towards stabilizing housing to come. In the last month, the active listing inventory has fallen by 870 homes to 12,388, its lowest point of the year. Cyclically, the inventory drops from September through the end of the year, but this is the first time since 2004 (prior to the current downturn) that a low in inventory was reached in the month of December. From 2005
through 2007, the inventory did drop, but each year ended with more inventory than it started with. Until this year, the inventory was methodically growing and reaching new highs. Last year the inventory was at 16,128 homes, 3,740 additional homes compared to today, 30% higher. Two years ago the inventory was at 12,661, 273 additional homes compared to today. Today's expected market time is now at 5.34 months compared to 5.18 months four weeks ago. There has been a drop in demand, but equally, there has been a significant drop in the active inventory; thus, the expected market time has virtually remained the same. Last year the expected market time was at 14.05 month and 6.88 months two year ago. The distressed inventory, foreclosures and short sales, has dropped by 276 homes in the past two weeks to 5,519 homes, its largest drop of the year. Distressed homes currently make up 44.6% of the total active inventory and 66% of current demand. 78% of all distressed homes are found below $500,000 and 92% are found below $750,000.

So, if you are a seller, how should you approach the market? Regardless of the time of year, in a depreciating market, the time to sell is NOW. A homeowner that has to sell should not wait for the Spring market, cyclically the best time of year to sell with the highest demand. Currently prices are dropping about 1% per month. To wait a few months is risking losing additional equity. With increased demand, many markets and lower ranges may reach a bottom in pricing in mid-2009, but we expect to reach only equilibrium with no real change in price. There will still be additional foreclosures and short sales to compete with throughout 2009. These additional distressed homes will keep a lid on any potential appreciation. As a homeowner, if you have the ability to stay in your home for years to come, you will do fine. As we approach a market bottom, this in NOT the time to sell and rent. As stated earlier, in many areas and price ranges, most depreciation has already taken place. It would be better to stay within your home as your value will eventually rise again and restore much of the lost equity. The bottom line, it just takes time. Now, if you must sell, keep in mind that there is a lot of competition and a lot of the competition MUST sell due to mortgage unaffordability, job loss, foreclosure, divorce, relocation, etc. Sellers that MUST sell are motivated. As a seller, carefully arrive at price, be certain that your home is in great condition and choose the absolute best, experienced, professional agent that will help you navigate in this challenging market. As a seller, these are the only factors that you have control over. Approach this market with care. Don't waste your time by overpricing your home and chasing the market down in price. Make sure that your home is in top showing condition to leave the most favorable impression for all potential buyers that walk through your door. And, turn to the expert with a proven track record in representing your real estate needs in this market. This is not the market to just leave the sale of your home to chance by working with the family member or friend or the "area expert."

Visit www.LianaNorman.com for all of OC listings or email liana@liananorman.com for the most recent real estate information.

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ZIP Codes: 92656, 92653, 92677

Approximate Location Boundaries: Aliso Viejo, Laguna Niguel,Laguna Hills

Location Characteristics: Aliso Viejo is a newer community with wonderful shopping centers, restaurants, theatres & more! Just off the 73 Fwy (Toll Road) and only minutes from Laguna Beach.

To view homes in this area you can search the entire MLS at www.LianaNorman.com or go to "For Buyers" or "For Sellers" and click on "Community Information."


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