Good Afternoon!
With a strong economy and low unemployment for a backdrop, even with tremendous pressure on pricing, values are barely dropping because Sellers are reluctant to drop their prices. Sure, there has been some give in values, but it is based upon price range and area. For the most part, higher price ranges have been more immune to the fallout of the subprime mess that reared its ugly head at the beginning of March. Lower price ranges, areas with lower average incomes and areas saturated with condominiums have been hit harder due to the subprime effect. These areas had a higher percentage of subprime loans originated over the past several years. For example, condominiums between $250,000 and $500,000 are currently experiencing a 9.48 month market, extremely slow. That range accounts for 55% of the entire condominium active listing inventory. There are also some pockets within the market that are saturated with listings where too many similar properties are on the market at the same time. This too is a circumstance where the pressure on pricing has been greater. But, there are other areas and ranges that are doing better than the rest of the market as a whole. For example, detached homes between $750,000 and $1 million are encountering a 6.46 month market. The market time for homes between $1 million and $1.5 million dropped from 8.22 months two weeks ago to 7.63 months today. These two ranges account for more than a third of the detached home active inventory. Compare those ranges to homes from $500,000 to $750,000, 45% of the detached active inventory, currently at 8.62 months. It is pretty safe to state that the lower end of the market is slower than the upper end. A lot of this can be attributed to a change in the lending requirements in the past few months with subprime lending virtually gone. Also, interest rates have been on the rise in recent weeks, increasing by more than a quarter percent. As the overall economy continues along its upbeat path, concern for inflation rises and so do interest rates. A great gauge for the direction of rates is to watch Wall Street. There’s a strange phenomena where as Wall Street climbs, rates rise. So, as stocks have been on the rise recently, so have rates. In turn, buyers qualify for less.
What can we expect in the coming months? The best way to describe the current market is that buyers and sellers are “sticky.” Even though conversations around the coffee pot throughout our many offices detail how showings are up and open house activity is up, there has not been much of a change in demand. Many buyers are stuck on the fence and are waiting for others to jump off first. Sellers, on the other hand, have been extremely reluctant to reduce their asking prices. With the overall strong economic backdrop, the current downturn in housing has been much different than the most recent, protracted downturn in the 1990’s. That downturn not only had its share of foreclosures, it had many homeowners in financial turmoil with job losses, the closing of military bases and the relocation of many businesses out of Orange County and California altogether. Many sellers were motivated financially to drop their price and get their homes sold or risk losing their homes to the bank. Prices dropped much faster than today. Most of today’s sellers lack the financial pressure and motivation to drop their prices to procure a swift sale. With all of that said, we can expect more of the same for the coming months. The Summer market, now through August, will be marked by steady demand similar to what we are currently experiencing, hovering around the 1,900 to 2,000 home mark. The active inventory will peak soon as homeowners realize that the “prime” selling season is waning. The Autumn market, the end of August through Halloween, will be marked by a drop in the inventory as more and more sellers throw in the towel and a slight drop in demand. During the Holiday market, Halloween through the first couple weeks of the New Year, an even larger number of sellers will throw in the towel, the active inventory will continue to drop and demand will soften to its lowest levels of the year.
How should a seller approach the market? Currently, there are too many fishing poles in the water in an under-stocked lake. Only the sellers with the best bait, price, condition, and appeal, will be able to reel in a buyer. The fish are picky and very well educated. This is not the time to test the waters with an unrealistic price or a property in poor condition. Those homeowners should keep their fishing poles in the garage. There are now 16,872 homes on the market and 1,985 new escrows within the prior 30 days. Based upon current demand, 14,887 sellers will not be successful over the course of the next month. That's only a 12% chance of achieving success in a month with more competition coming on the market every day. With that in mind, to be successful in this market, sellers must really pack their patience, price their homes according to the market value, have their homes in top showing condition and be prepared to make changes along the way. Pricing according to what a seller would like to net from the sale of their home is a recipe for disaster. Instead, sellers should scrutinize the most recent comparable sales and all escrow activity. They should also be on the look out for aggressive sellers who price their homes below the most recent sales or escrows. Top showing condition is addressing all cosmetic repairs (paint, carpet, dilapidated roof, broken tiles, etc.) and utilizing the marketing tips from the new home building industry’s model home tours and apply them to residential resale. Model homes appeal to all of your senses. Sellers can turn on all the lights, keep their homes spotless from top to bottom, play soothing music in the background, offer bottled water and fresh baked cookies, box up all clutter, set the dining room table, etc. Potential buyers will tour the home feeling comfortable and able to visualize moving in.
How should a Buyer approach the market? It’s all about having choices. Since the overall economy is strong and recent economic numbers have pointed towards upward pressure on inflation, it does not look like Bernanke and the Federal Reserve are going to touch interest rates anytime soon. So, buyers should not expect any relief in interest rates. Instead, they should reflect on the fact that just a couple of years ago buyers were running over each other for a shot at purchasing a home, sacrificing their “wish lists” in the process. Today, buyers can afford to look around and isolate the homes that best fits their families’ parameters. But, once they have found the “right” home for their family, a buyer should not hesitate in bringing in an offer. More often than not, they will have isolated a nice home that could lure other potential buyers. Buyers risk losing the home to another buyer the longer they wait and will be back to the drawing board hoping that something better comes along. Buyers should NOT attempt to time the “bottom” of the market. Experts and economists are still quarrelling over the timing of the bottom and most will get it wrong. Afterwards they will all be able to tell you the precise date and time, but that will do a buyer little good because the date will have already passed and the market will have already moved in a different direction. If the experts can’t predict the bottom, the average buyer is certainly going to have an even tougher time making this prediction. Buyers can rest assured that HISTORICALLY, Southern California has been an excellent long term investment besides an envious place to live. Buyers should also keep in mind that homes are selling, on average, at 97% list to sales price. I am constantly told of the many lowball offers that buyers have written which amount to nothing more than wasted time and wasted paper.
Steven ThomasRE/MAX Real Estate Services President"Outstanding Agents! Outstanding Results!"
Are you thinking of buying or selling in Orange County? For more information visit our website at www.PierBowl.com. Or call us at 949-370-2652.
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