Things to Know

Below are excerpts from an OC Register article outlining some improvement in the Orange County housing market. It specifically indicates that the Newport Beach market has improved in the upper end of the spectrum.

SoCal sales shifting to pricier homes
January 19th, 2010, 2:22 pm · posted by Jeff Collins

Home sales in the region shifted to pricier areas last month, pushing December’s overall median home price up 4%, MDA DataQuick reported today.

* Relatively large annual sales gains were recorded last month in such higher-end markets as Beverly Hills, Santa Monica and Newport Beach — areas that saw very low sales a year ago.
* Some of the more affordable inland areas that saw robust 2008 sales recorded year-over-year declines last month. Those markets included Moreno Valley, Lake Elsinore and Palmdale.
* Overall, the Southern California median home price increased to $289,000, the first annual price gain in about 2 1/2 years. It was the highest median sales price since October 2008.
* Prices rose in every county but Riverside and San Bernardino.
* Sales were up 12.1% to 22,328, the largest number for a December since 2006, DataQuick reported.
* Sales were up in every county in the region but Riverside.

What do you think?

Here are excerpts from the “California Economic Forecast” article by Mark Schniepp. It has the most uplifting outlook on the Southern California Housing market that has been published in a long time.

Following are some of the reasons that Mr. Scnhiepp outlines for the recovery to occur.

Expected Timeline for Recovery:
Southern California

• Home prices are stabilizing as foreclosures
  decline this year.
• Selling values will begin rising again, no less than
  one year following the end point (month) of the general
  recession in California.
• The general economic recovery in California will lag
  the nation by one quarter. Consequently, recovery occurs no later than the winter of 2010, with more convincing evidence by the spring of 2010.
• Home sales are rising now in Southern Santa Barbara
  County for condominiums and for lower priced single family homes. In the Santa Maria Valley, sales are soaring, largely due to fire-sale priced distressed homes. This is also true in the Inland Empire, the Antelope Valley, and Northern Orange County.
• More broad-based participation by all price ranges of
  the housing market will occur in 2010, providing mortgage rates and credit market conditions remain favorable.
• The likelihood that mortgage rates will remain compet-
  ive into 2010 is high. The Federal Reserve will unlikely increase
  rates over the next 9 months, to insure that the recovery
  evolves into a firm expansion of economic activity.
• The likelihood that credit market conditions will con-
  tinue to ease is very high. They are already easing now. Mortgage rate spreads have narrowed and bank lending standards are no longer tightening. Consumers are saving.
  There is less leverage in the economy.
• The likelihood that the economic stimulus will be
  impacting the economy is very high by the end of 2010.
• The likelihood that the trauma in labor markets is over
  by early 2010 appears highly probable, and job creation is forecast to be positive in California during calendar 2010.

Mr. Schniepp sums up his projection article with the following:

By mid-2012, selling values return to 2004 levels, a gain of approximately 30 percent from the lowest levels recorded earlier this year.

The complete article may be read here.

Here is an excerpt from a recent Bloomberg article that indicates a continued interest by the Warren Buffett organization in capturing good real estate investments now while the market is still down.

Berkshire, Leucadia Join to Acquire Capmark Assets (Update3)

By Andrew Frye and Pierre Paulden

Sept. 2 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. and Leucadia National Corp. agreed to pay as much as $490 million for Capmark Financial Group Inc.’s loan-servicing and mortgage business in a bet on the U.S. real estate market.

The partnership of Omaha, Nebraska-based Berkshire and New York-based Leucadia was paid $40 million by Capmark to enter into the agreement, the Horsham, Pennsylvania-based lender said today in a statement. The deal gives Capmark the right to sell the assets later to the venture, known as Berkadia III LLC. Capmark may file for bankruptcy after a $1.6 billion second- quarter loss, the lender said in a separate statement today.

Berkshire has been increasing investments in the U.S. real estate market, buying shares of banks including Wells Fargo & Co., the No. 1 U.S. mortgage lender this year. Yesterday, Berkshire’s real-estate brokerage unit announced it acquired a Chicago-based agency to expand in Illinois.

The Capmark deal “fits with the real estate brokerage they bought,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington who has studied Buffett’s investing history. “The market’s down. It’s time to buy.”

With some of the big investment organizations and their top management beginning to re-invest assets in the real estate market, now may be the time to join them and secure a property while prices are down.

In attempting to figure out the direction of the housing market, one needs to consider strategies of the major real estate investors.  This article from CNBC.com News gives some insight into the thinking of a few major REIT fund investors, where they feel the real estate market is headed and when.

By: Jeff Cox, CNBC.com | 02 Jun 2009 | 02:27 PM ET

After taking a beating for the past two years, real estate investment trusts are regaining popularity with investors looking for bargains and a way to capitalize on an industry rebound.

More commonly known by their acronym, REITs are funds that provide investors with a broad range of investment opportunities while delivering substantial tax breaks to the corporations that set up the vehicles.

Wildly popular in the earlier part of the decade during the real estate boom, REITs nosedived in 2006 and 2007 as the market fell correspondingly.

But recent developments over the past several weeks have sharp-eyed investors again examining REITs as a way to profit from a looming rebound in the industry.

* REIT Stocks: Long and Short Strategies

And contrary to the growing trend of investors to eschew the traditional buy-and-hold stocks strategy, REITs are being looked at as long-term plays that will stand up against expected economic trends.

* Special Report: Investor Spring Cleaning

“It’s not a play I’m looking to go into for a month or two. Over the next several years there will be opportunity in REITs,” says Joe Heider, president of Dawson Wealth Management in Cleveland, which manages more than $400 million in assets.

“The market did oversell, and if you look at the replacement costs, the net asset value of these individual REITs, and roll them up into a portfolio, that is where the opportunity is.”

But it’s been a tough ride getting here.

REITs have fallen precipitously over the past two years. In 2007, the FTSE National Association of Real Estate Investment Trusts All REIT Index fell 17.83 percent, then dropped 37.34 percent in 2007. While the index is down more than 10 percent in 2009 after negative months in January and February, March posted a 4.41 percent gain and April saw a rise of just under 28 percent.

Industry experts trace the rebound in REITs to several factors.

Over just the past several weeks publicly traded REITs have gone to the marketplace and raised more than $10 billion in equity, according to Real Capital Analytics, a New York firm that follows real estate trends. While that can be dilutive to share prices, the ability to raise cash in a market that has struggled for liquidity has been a show of strength from some of the less debt-laded companies.

There also has been an important economic trend that has fed into enthusiasm for REITs: Growing optimism that the economy is improving–so much so that inflation could be the next significant problem. Real estate is generally seen as an effective hedge against inflation as property values increase. [read more...]

During the last three weeks, in the small community of Newport Heights, Newport Beach California, five homes have been placed into escrow. They were all in the asking price range from $1,595,000 to $3,595,000. Is it possible that these buyers are also tracking the play of the major REIT investors?

For the past several months clients have been coming through my frequent open houses in the Newport Heights community of Newport Beach asking the same question- how is the housing market doing in this area? I have been telling them that the premium properties along the coast have been holding their values far better than their inland counterparts. Here is an article from the California Real Estate Journal ( by Chris Hawkins, a bankruptcy attorney ) which outlines several reasons for the stability of this isolated market segment.

But I believe another factor is that the Southern California economy is doing better than many other regional economies around the country. Here are the reasons why I believe that to be the case.

Construction and real estate are hurting here, obviously (and my colleagues and I do see a lot of clients in these fields under financial stress). But other prominent sectors of the regional economy are picking up the slack and softening the blow.

Domestic tourism, although slightly down, is still holding steady in Southern California. Many Americans who used to fly overseas for vacation are staying home due to airline prices, currency valuations and security reasons – and they are now staying domestic, and California has a lot to offer.

Many Californians who used to leave the state for vacation are staying close to home – planning “stay-cations” and taking advantage of what their own cities have to offer. Both trends are good for the local economy, as the tourism dollars continue to pour in here, providing business income, jobs and tax revenue.

International tourism is doing well. Many foreign economies have been growing mightily this decade, with China, India, Russia and Brazil leading the way. Their citizens have money and like to travel; many come to Southern California; and the currency exchange rates make our corner of the world seem downright affordable.[read more ...]

With the considerable inventory to choose from, it might now be a good time to revisit the idea of purchasing a home in the Orange County California coastal areas.