Ron Henderson President/Broker of Multi Real Estate Services and a Gov’t Affairs Chair for the California Association of Mortgage Professionals gives an overview of the present real estate market, inventory issues, and statistics for the San Fernando Valley region of Los Angeles California.
This is a real estate market update for the San Fernando Valley, Los Angeles California. The market is continuing the transformation I’ve been describing for several months now. The market has been slowing since it’s peak in May. The Hedge Funds and Foreign investors that came in hard and drove the pricing up, have backed away from the market. Now the general population has to come in and pick up the slack.
The overall inventory is still light historically, but is up quite a bit from the overheated market a few months ago. The new inventory has fallen off. Listings always slow down around the holidays, but owners that may want to lock in the recent accumulation of equity,should think about making a move. The quantity of new sales have fallen way off also. Buyers finding the right property with the lower inventory levels is still an issue, but some of the buyer base is falling out.
Interest rates are already up about 1 ½ % since May.
Yesterday the Federal Reserve started scaling back their Quantitative Easing by $10B a month. They’ve been artificially suppressing the interest rates for the past few years by buying $85B a month in US bonds and mortgage backed securities. We are going to be seeing higher mortgage rates going into the future. Not just because the basic interest rates will be going up, but there are other factors.
Loan costs have been going up, and underwriting guidelines tightening because of a lot of new Dodd Frank regulations will be fully in force January of 2014. The compliance and legal costs will be substantial for the lenders, and it will be passed on to borrowers.
Another fun one, the gov’t has been increasing the g-fees, or guarantee fees against Freddie and Fannie mortgage backed securities. The G-fee initially was to fund a reserve in case loans went bad at Freddie & Fannie, but Congress found out they can add the G-fees to loans, the general population doesn’t see it, and snag it as a hidden tax for the general fund. The g-feewere increased 4 times last year and another increase was just announced.
I’ve said it prior blogs. I find it hypocritical that one arm of the gov’t would artificially force the interest rates down to stimulate the real estate market and the economy, and another arm increases taxes against the loans,which produces the opposite effect.
Anyway the housing affordability index has taken a big hit from the increase in rates and the property values. What the index doesn’t take into account is the tighter underwriting guidelines that are just now kicking in. The share of 1st time buyers this year are at historic lows. That ratio should go up because the investors are pulling back.
All this is an indication that there will be fewer qualified buyers in the market, and the easy money has been made for this market cycle.
If you’re in the Los Angeles region, and have any specific questions, always feel free in contacting me through my website mres.com. or the email address or phone number shown below.