Yesterday, driving home from the office, I caught a quick interview on KNX1070 radio that stated there were only 800 active listings for San Fernando Valley.

800 seemed like a lot of homes for sale, until I realized the Valley has more than 1.75 million people.  So I did a quick look this morning in our area to see what Ventura and Oxnard look like, compared to a couple of years ago.

Today Ventura has 80 single family homes for sale including just one bank owned home (REO) and only four short sales.  In 2010 Ventura had a range of 150 to just over 200.

Oxnard has 102 total single family homes for sale which include four REO homes and 2 short sale homes. In 2010 Oxnard had an inventory range from 142 to 219.

There’s been a sharp falloff in short sales and foreclosures this year leading to shrinking inventory levels. There are still many short sale deals in the pipeline (backup/contingent deals and pendings), but once those deals close escrow in the next few months there simply won’t be a lot of those deals out there to hold down the market.

The major obstacle to buyers (other than low inventory) are the appraisals. Appraisals look backwards in time (solds) whereas the market is forward looking. There are now substantial gaps between the offered price and the appraisal and buyers must make up that difference in cash.

The KNX1070 interviewer yesterday stated “Don’t offer the listed price – you’ll have to offer more” if you want to get the home.

Leslie just listed this beautiful home in Oxnard close to St. John’s hospital and had an open house yesterday – crazy number of people came through.

It’s now 24 hours later and Leslie has 14 offers – all over asking price. A Realtor called this morning who didn’t make the open house and asked if she could show the home (no lockbox) and I said “No”…

I laughed and said “That wasn’t nice of me was it”! I told her about all the activity and she understood. Why? There’s very limited inventory now – too many buyers (and investors) and not enough homes for sale, especially in the under $400k market.

It’s discouraging for home buyers (vice investors) and a roller coaster ride of emotions as they submit offer after offer that aren’t accepted. But I encourage them to stay in the game because the market place always changes and their time will come and they’ll end up with that perfect home.

Last Thursday’s Los Angeles Times business section article started out:

“Real estate website Zillow has a provocative data point for every renter thinking about buying these days: That move pays off after just three years on average nationwide.”

The Times said that it’s 3.2 years for us in Ventura County.

That’s another sign or reason why so many investors are snapping up real estate today.

I was somewhat amused this morning looking at our Sunday LA Times and seeing the blaring headline – “Bidding wars are back in tight market”.

Previous blogs and a comment I made in our June newsletter about an investor’s all cash offer (not successful) last week has already alluded to the fierce competition for homes – especially correctly priced entry level homes and condos.

So what does it all mean?

For buyers – it means investors are seeing exceptional, generational, value in residential real estate. Rents are strong, the economy will ultimately heal itself (despite Washington) and they anticipate superior appreciation in the coming years – vice investing in stocks (equity) or bonds (debt).

For sellers – it means there are good, strong buyers waiting to make an offer on your home – as long as it is priced at 2012 prices – not 2007 prices.

Grab a pencil and let’s see where the housing cost numbers are today as you consider whether to continue to rent – or make the leap into home ownership.

Understand this is only number crunching and doesn’t consider other crucial decisions – like, are you willing to commit to one home for a period of time? Renters can give 30 days notice and move on.

So I’ve arbitrarily picked out 2 scenarios – 1) buying a $200,000 condominium in the very popular Todd Ranch condos complex in Ventura and 2) buying a “typical” $400,000 single family house.

Both examples use FHA financing with a 3 1/2 % down payment, 3.75% at today’s interest rate (good credit, etc), and a 30 years fixed rate.

Here’s how the numbers play out:

A Todd Ranch condo:

Mortgage payment – $894
Mortgage insurance – $201
Taxes – $190
HOA – $325
Total = $1,620 per month

Rents in Todd Ranch? About $1,650 – $1,750 depending on size and loacation.

Note this analysis doesn’t take into account tax benefits. You’ll deduct the property taxes and interest on your tax returns for an extra “pop” to your income. But don’t buy a home just because you get some tax benefits – that’s merely icing on the cake.

Buying a $400,000 single family house:

Mortgage payment – $1,788
Mortgage insurance – $402
Taxes – $380
Insurance – $63 (homeowners insurance premiums can vary depending on several factors)
Total = $2,633

Rents for a single family home vary substantially, but will probably be in the low $2,000 range to mid $2,000+ range.

The key takeaway here – for investors, it used to be a rule of thumb you needed a 50% down payment to break even on cash flow. Today, a minimal down payment of 3 1/2% about breaks even.  Now you know why investors are snapping up real estate! Just food for thought…