David Welch’s Orlando Real Estate Blog

Have our housing prices hit bottom? I say, barring any more intervention by the government we are at the bottom here in Orlando. I should have placed that caveat in my prior predictions that we were at the bottom. I still feel there are a lot of factors that would suggest that Orlando’s current median price is well below where it should be. Possibly the most telling is the affordability index which is approaching 200. An affordability index of 100 means the median wage earner qualifies to purchase the median priced home. At 200 the median wage earner can affor to purchase two median priced homes. At this point though, I feel pretty confident that prices are at the bottom. Check out the link to the Orlando Sentinel article here: http://www.orlandosentinel.com/news/local/orl-home-prices-bottom-070309,0,4016271.story

Our median price has been stuck around $130,000 for three months in a row, and sales in June will surpass the 2,100 mark. I have to go back and check my blogs from early in the year, but I believe I was hoping for sales north of 1,800 by June. The inventory of homes for sale is down around 21% since the beginning of the year, and we have seen year over year sales in creases every month for nine months in a row. If the banks would loosen up at all, we could probably close another 500 sales a month. We currently have a back log of over 7,100 pending sales. A lot of people keep pointing to the next wave of foreclosures, but I think the banks have finally wised up. They exacerbated the declining prices by flooding the market with foreclosures then slashing the prices when they received their bailout. Now they seem to be holding back in placing REO’s on the market. We had about 2,000 active REO’s at the beginning of the year, but that number is about half that now. They are coming on the market slightly slower than they are selling, driving up competition and stabilizing the prices.

Orlando Real Estate, David Welch Real Estate Optimist

It is July 1st, and we are half way through the year. So far we have seen house prices as measured by the median sales price drop pretty significantly. At the same time we have see interest rates at historic lows, and tax credits for first time home buyers. The result of the low prices, low interest rates and first time buyer incentives has been a dramatic increase in sales. The sales don’t even paint the whole picture because the number of pending sales has skyrocketed. There are currently over 7,000 contracts pending, and I know they will not all close. If only half of them closed our sales numbers would be better by about 500 transactions each month. The banks’ inability to get short sales approved, REO’s cleared to close and loans finalized has been a big impediment to closing deals. Add to this the new HVCC regulations, and getting contracts to closing has been the single biggest hurdle.

In the next six months, I expect to see the pace of contracts and sales to continue at a fairly high pace through the summer before slowing down in the last quarter of the year. We should see a big push in October as first time home buyers take advantage of the tax credit before it expires at the end of November. I do not expect to see prices moving very much in either direction for at least the next six months as inventory has continued to drop. Interest rates however, will begin to climb by the fourth quarter as the Fed’s policy of buying up mortgage backed securities begins to slow. I don’t know that they will have to begin raising their rates before the year is up, but it is likely. The economy will almost certainly begin to improve, although employment numbers will not begin to improve before next summer. In a nutshell, the next six months is probably not going to look much different than the last six months in a lot of ways. I am hopeful that banks will begin to loosen up a little, so that we can get transactions closed. The sales pace will probably slow a bit as the great deals get bought up. If interest rates begin to go up, watch for the sales pace to improve as well. I see the light at the end of the tunnel, but it is still a long tunnel.

Sales posted so far in June 1,972 with an increase in the median price to $134,450, Actives down to 17,869 and Pendings up to 7,191.

Orlando Real Estate, David Welch Real Estate Optimist

The state has been talking about putting this in place for a while now, and it looks like we are putting our money where our mouth is. In my opinion, the Feds should have done this from the start. The only people buying right now are investors and first time home buyers. The biggest obstacle for most first time home buyers is the cash up front. Now they can get the $8,000 tax credit up front at least in Florida. You can read the whole article in the Orlando Sentinel. http://www.orlandosentinel.com/news/local/orl-asechome-buyer-tax-credit-fl-063063009jun30,0,414986.story

Low prices, low interest rates, lots of homes to choose from, and now the first time home buyer tax credit up front where it should be.

Orlando Real Estate, David Welch Real Estate Optimist

With today and tomorrow left until we close out June we have posted 1,689 closed sales with a median sale price of $132,000. We will probably end the month with around 2,000 closed sales, and if the price holds up a slight increase over May’s $130,000. The active inventory continues to fall with 18,172 properties available for sale according to MFRMLS. Pendings continue to climb with 7,281 properties under contract. There are more REO’s under contract than active right now, with 1,350 having contracts pending and only 1,035 active listings identified as bank owned. The total number of distressed properties, including bank owned and short sales stands at 6,924. I’ll have some more complete numbers after the end of the month.

Orlando Real Estate, David Welch Real Estate Optimist

I checked the numbers for Baldwin Park, my neighborhood and the inventory is just over half of what it was a couple of months ago. Today there are only 89 properties listed on MFRMLS. That is down from around 165 and the number of pendings is at 66. There have been 84 closed sales so far this year too, so we are right at a 6.5 month supply.

Currently in Orlando real estate there are 18,287 active listings, and we could drop just below 18,000 by the end of the month if the trend continues. Over 1,300 sales have closed so far this month with a median sales price of $130,000 which is the same as April and May. Can you say, prices have bottomed out? The big mystery is the pending sales in Orlando with 7,172 contracts pending right now. It really is not that big of a mystery though, because short sales are creating a huge log jam. 49.8% of those contracts involve a short sale property. That accounts fo 3,573 pending sales, but only a couple of hundred short sales get closed each month.

Orlando Real Estate, David Welch Orlando Real Estate Optimist, @RealtyOptimist

The number of sales pending in Orlando continues to climb. We are over the 7,000 mark right now, and adding to that total each month. In the past the pending sales were the best indicator of future closings. That is still true, but the relationship between the two is getting skewed by a number of factors. First, short sales are a large percentage of the the total number of pending sales. They account for close to half of all the contracts pending, but only a small number are closing each month. Second, bank owned properties are often difficult to close because of title issues and difficulty in obtaining estoppels from home owners associations and condominium associations. Finally, issues with closing purchase loans have lengthened the time to close by about 50% compared with our typical 30 day closing.

I try to keep up with the number of closed sales more closely, and as of this morning there were 1,104 closed sales posted with a median sales price of $130,000 which is right in line with the past two months. The total number of active listings is just over 18,300. The banks ability to approve short sales in a timely manner, clear title on their REO’s and close loans is at the core of the build up of pending sales due to delays. If you look at the number of contracts written each month, I think you will see a far greater indicator of the demand for Orlando Real Estate. New contracts have risen each month since November: 11/08 1,644; 12/08 1,871; 1/09 2,282; 2/09 2,434; 3/09 2,956; 4/09 3,412; 5/09 3,455. The number of contracts written is running almost double the number of closed sales each month.

Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist

Yesterday was the 10th of the month, and that means the official numbers have been released by the Orlando Regional Realtor Association. May was rocking with 1,854 closed sales compared with 1,347 last May. That is a 37.6% increase year over year and it tied April’s adjusted sales. There were 3,455 new contract written in May pushing the pending sales up to 6,603. So far this year there have been 7,834 sales closed, just think what those numbers would look like of all the pendings closed. That would be 14,437 closed sales or 84.2% more than what we already have had. The 3,455 new contract written last month are the most written in a month so far this year.

The active inventory is down with all this activity on the contract side, new listings are down from earlier in the year with only 3,754 new listings on the market. There were almost as many contracts written as new listing becoming available. Combine that with expired and withdrawn listings and the over inventory declined by 1,071 to 19,123 from 20,194. The home sales continue come in just over 100 days on the market overall. In addition to the over drop in active inventory, I am also seeing a decline in REO’s and other distressed properties.

A big thank you to Graham Squier with Integra Mortgage. He has gone above and beyond in my opinion in getting loan approval for a buyer purchasing one of my listings. It should not have been this hard to get the loan, but the banks are making it tough going these days with an extremely conservative approach to lending.

Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist

If you are planning a real estate purchase here in Orlando make sure you plan for plenty of time for you lender to close the loan. Every lender I know is asking their Realtor partners to write contracts with 45 days to close. I have spoken with agents in other markets that are not experiencing this, so ask your agent what is going on in your market. Here in Orlando the norm has become 45 days. That does not mean that there are not deals closing quicker, anything is possible. I am just passing along what I am dealing with personally, and what other agents and lenders are sharing with me. It just takes longer to get the loans closed.

There are a couple of reasons for this slow down. First, the lenders have had layoffs too. There are just fewer people to process the loans. The other issue that is overwhelming the loan processing departments is re-financing activities. Virtually every loan officer I have ever spoken with says that purchase money loans take priority over re-finance loans, but at some point they have to close them too. The exceptionally low rates that we have had for several months now have stimulated a lot of re-financing activity. Sales are also way up from where they were last year. Combine the higher sales activity with the increased re-financing activity and fewer people to process the loans and you get a longer escrow. The second issue that is already effecting closings is the implentation of the new HVCC appraisal guidelines. This just went into effect May 1st, and it is already causing additional delays. There are communication problems as well as increased issues with appraisals.

Add these delays to the issues created by negotiating contracts for short sales and bank owned properties and the time to purchase could easily reach two to three months. This will become very important to those of you looking to take advantage of the first time home buyer tax credit.

Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist

I have been saying for a while that interest rates have been held artificially low by the Fed. They have been buying up mortgage backed securities to keep the secondary mortgage market liquid. By supporting the back end of the market, mortgage funds have remained more readily available and therefore less expensive. Less expensive money means lower interest rates. They have also lowered the Fed rate basically to zero%. Just a quick lesson, zero is the lowest you make an interest rate. While the Fed rate does not directly impact mortgage rates it does effect yield curves which result in effects on all interest rates.

While all of this is geared to stimulate the economy it also has spurred some increases in real estate purchases. Both of these things can help turn the recession around, but as that happens there is always a fear of inflation just around the corner. Well, that fear is becoming more of a reality as there are more signs that the end is near. The end of the recession that is. Jobs usually turn around several months after things start to improve, because employers don’t want to move to quickly. They want to be sure that they really have the sales to support hiring new staff.

I have been speaking with lenders about what is going on right now. The general feeling is that the current spike in rates has more to do with refinancing activity rather than a trend in the rates. The thought is that the rates will probably come back down somewhat through the fall. Keep in mind the Fed is expected to stop the purchase of mortgage backed securities in December. By then the economy should be headed back in the right direction, so expect interest rates to begin a true upward trend by then.

Some of the lowest rates I have seen were 4.875% and today they are quoting 6.325%. To put that in perspective: the principle and interest for a $100,000 loan at 4.875% is $529.21 at 6.325% the payment is $620.60 a $91.40 difference.  That is a 15% reduction in purchasing power. In other words, at 6.325% to get a P&I around $529 the loan amount has to be about $85,000.

Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist

This has been a crazy day to end a crazy week. There is a lot of good news though for Orlando real estate. First the sales for May were outstanding at 1,866 with a median sales price of $130,000. Of those sales 1,091 were labeled as distressed including short sales and bank owned properties. That is about 58.5% of the sales which is consistent with what I have been seeing for almost nine months.  Of the distressed properties 802 were actually bank owned, so short sales are still way below REO’s for closed sales. Pending sales is a different story. Of the 6,662 pending contracts 4,551 or 68.3% are distressed. Only 1,400 are REO’s, so the short sales are more than 2 to one in the pending category compared to the bank owned properties.

The active inventory continues to drop with only 18,946 properties listed for sale by Orlando Realtors. There were 20,194 properties on the market at the end of April. So there has been a 1,248 or 6.2% drop in inventory in one month. Of the homes on the market 7,246 or 38.2% are considered distressed properties with only 1,122 being bank owned. The bank owned properties have been declining steadily since the beginning of the year. First, the moratorium was keeping new REO’s from hitting the market. Now, it appears that there are a few things keeping the banks from foreclosing. The stimulus package is helping to encourage banks to work mortgages out with home owners. The other side of that is the banks working out more short sales. I think that one of the biggest issues effecting the number of REO’s on the market is just the process. It appears only so many foreclosures can get done, and when they hit the market they are getting bought pretty quickly in many cases. In other words, I think they are not foreclosing as fast as they are selling. The main reason for this is pricing. The median price over all was $130,000, while the median price of all distressed properties was $102,000 and REO’s was $82,000.

Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist