The headline seems to say it all, "Fastest Rise in L.A./O.C. Home Prices Since '06." According to the Orange County Register, "Homes price [sic] in Los Angeles and Orange counties rose at an 7.8% annual rate in April, according to the latest S&P/Case-Shiller real estate report. That’s the largest rate of increase in the index since August 2006. On a month-to-month basis, too, the index was up — plus 0.68% vs. March. That’s the 9th gain in 11 months — and ends a back-to-back losing streak seen in February and March." Everyone wants to see the economy recover, so this seems like great news. The problem? The home price increase is artificial and unsustainable.
The price increase is artificial because the higher prices resulted from sellers taking advantage of federal tax incentives that have now ended. From the Register, "The quick analysis by economist at IHS Global Insight: 'The tax credit pumped up demand through April, and led to a surge in new and existing home sales, and a ramping up in housing starts. With the credit now behind us, the housing numbers are taking a beating.'" Last week we wrote about the 33% drop in new home buying; this too was attributed to the cessation of the federal tax incentives. Without the tax incentives, buyers do not feel like home buying presents a good deal for them. As the buying cools down, the home prices will drop.
The price increase is unsustainable because banks are facing a new wave of foreclosures. When banks foreclose on a home, it negatively affects the pricing of homes in an entire neighborhood. Currently, banks are trying to avoid the trouble of foreclosure and are working with companies, such as our own Fitzpatrick and Prince Real Estate and Rasmussen Law firm, to negotiate short sales. However, these too depress home prices.
So what does this mean for you? If you're a buyer, don't react to the news of rising home prices by shortchanging yourself on the home of your dreams. Great opportunities are out there for home buyers, you simply need knowledgeable, experienced people to help you find those opportunities. If you're a seller facing difficulty paying your mortgage, short sales present you with an opportunity to get out of a bad situation without the significant damage that a foreclosure does to your record. Give us a call: (800) 829 5158.
