Just Listed...

Turnkey single level offers sit down ocean and Catalina views. This home has three bedrooms and two baths. Bright kitchen with breakfast counter and built-in china cabinet. Living room offers cozy fireplace and vaulted ceilings. Newer interior/exterior paint, heater and vinyl fencing.

$749,900

9 Cartagena, San Clemente

http://www.pierbowl.com

Orange County Housing Report: Lower Ranges Hot, Upper Ranges Not

The government has been hard at work attempting to jump start demand. The good news is that it is really working for all homes priced below $750,000, but little has been done to help homes found above $750,000. Homes above $750,000 represent 30% of the active inventory but only 12% of demand. What’s the problem? Unfortunately, Orange County has a lot of high cost homes that just are not falling under the scope of the immediate government fixes. Thus far, the Unites States Treasury, the Federal Reserve and Congress have stepped in and poured billions of dollars into the conventional lending system. In March of this year, conventional and FHA loan limits were changed in high cost areas, like Orange County, rising from $417,000 to $729,750. They took over Fannie Mae and Freddie Mac, the two private agencies responsible for purchasing conventional loans from all of the lenders that originate these loans. And, just a few weeks ago, since Wall Street and investors were no longer buying “pools” of loans from Fannie Mae and Freddie Mac, the government announced that they would step in and invest in these pools to the tune of $500 billion. So, the government has utilized just about everything it has in its bag of tricks to keep the financial system flowing for conventional and FHA lending products. These fixes unfortunately do not touch the jumbo lending arena, loans found above $729,750. Besides extremely tough lender requirements and at least 20% down, buyers seeking a jumbo loan are facing interest rates that are about 3% higher than conventional interest rates. Conventional rates are now hovering around 5% versus jumbo rates at 8%. That’s a significant difference. Prior to the current financial crisis, the difference between conventional and jumbo rates was about a quarter of 1%. Thus, demand in the upper ranges has been dramatically affected. Since the government is not backing up institutions that make loans outside of the conventional loan limits, jumbo loans, student loans, construction loans, investor loans, etc., lending institutions are making it much tougher to qualify and are charging a lot more for them. Without the government stepping into this area of lending, the products are “riskier” and lenders must charge extra for this risk. The current “frozen financial market” could have been avoided, and the severity of the current recession as well, if the government would have stepped in sooner. The programs pulled from their bag of tricks should have each been implemented about 6-months earlier. The “subprime meltdown” in March of 2007 turned into the “financial crunch” in August of 2007 as lending virtually came to a grinding halt. In September of 2007 Bernanke, the Federal Reserve Chairman, suggested that the conventional lending and FHA lending limits should be changed immediately and not wait 6-months for the crisis to grow worse. He knew that the government needed to be aggressive and proactive and not reactionary like it tends to be with just about every other crisis. Unfortunately, the government waited 6-months. Other government programs have followed a similar fate; thus, the “financial crunch” turned into the “frozen financial market” a few months ago. Investors were no longer willing to purchase the safest investment financial investments, loans backed by Freddie Mac and Fannie Mae. The government stepped in to purchase these pools of loans, something that should have been done much earlier in the year. Fortunately, 70% of the Orange County housing market has been aided by the government’s efforts. And, there is more aid to come. The government is not going to let up until they turn around housing. Look for programs aimed at abating foreclosures, lowering interest rates further (for conventional and FHA loans) and tax incentives for buyers.

So, how do the numbers look? Let’s count our blessing first and take a close look at total pending homes in Orange County compared to last year. Currently, total pending sales is at 3,890 versus 1,659 one year ago today. That’s a difference of 2,231 pending sales, or 134% greater. The difference is nothing short of staggering. With the beginning of the financial crunch last year, demand and the total pending count suffered immensely and so did prices. Values of homes plummeted as supplies were high and demand was low. Values are still dropping in most areas today, but not at the clip that they were last year. Demand, the number of new pending deals within the prior month, dropped by 235 homes in the past month to 2,322. A drop in demand is part of the normal Orange County housing cycle through the end of the year. Last year at this time, demand was at 1,148, 51% less than today. Two years ago it was at 1,839, 21% less than today. Three years ago, demand was at 2,175, 6% less than today. The last two reports mark the first time that demand exceeded levels reached three years ago, that’s 2005. Since demand is higher today compared to the prior three years, it is expected that we are in for healthier demand in 2009. All of the ingredients are there: lower interest rates, lower inventories, better values, more affordable housing, and more government programs geared towards stabilizing housing to come. In the last month, the active listing inventory has fallen by 870 homes to 12,388, its lowest point of the year. Cyclically, the inventory drops from September through the end of the year, but this is the first time since 2004 (prior to the current downturn) that a low in inventory was reached in the month of December. From 2005

through 2007, the inventory did drop, but each year ended with more inventory than it started with. Until this year, the inventory was methodically growing and reaching new highs. Last year the inventory was at 16,128 homes, 3,740 additional homes compared to today, 30% higher. Two years ago the inventory was at 12,661, 273 additional homes compared to today. Today’s expected market time is now at 5.34 months compared to 5.18 months four weeks ago. There has been a drop in demand, but equally, there has been a significant drop in the active inventory; thus, the expected market time has virtually remained the same. Last year the expected market time was at 14.05 month and 6.88 months two year ago. The distressed inventory, foreclosures and short sales, has dropped by 276 homes in the past two weeks to 5,519 homes, its largest drop of the year. Distressed homes currently make up 44.6% of the total active inventory and 66% of current demand. 78% of all distressed homes are found below $500,000 and 92% are found below $750,000.

So, if you are a seller, how should you approach the market? Regardless of the time of year, in a depreciating market, the time to sell is NOW. A homeowner that has to sell should not wait for the Spring market, cyclically the best time of year to sell with the highest demand. Currently prices are dropping about 1% per month. To wait a few months is risking losing additional equity. With increased demand, many markets and lower ranges may reach a bottom in pricing in mid-2009, but we expect to reach only equilibrium with no real change in price. There will still be additional foreclosures and short sales to compete with throughout 2009. These additional distressed homes will keep a lid on any potential appreciation. As a homeowner, if you have the ability to stay in your home for years to come, you will do fine. As we approach a market bottom, this in NOT the time to sell and rent. As stated earlier, in many areas and price ranges, most depreciation has already taken place. It would be better to stay within your home as your value will eventually rise again and restore much of the lost equity. The bottom line, it just takes time. Now, if you must sell, keep in mind that there is a lot of competition and a lot of the competition MUST sell due to mortgage unaffordability, job loss, foreclosure, divorce, relocation, etc. Sellers that MUST sell are motivated. As a seller, carefully arrive at price, be certain that your home is in great condition and choose the absolute best, experienced, professional agent that will help you navigate in this challenging market. As a seller, these are the only factors that you have control over. Approach this market with care. Don’t waste your time by overpricing your home and chasing the market down in price. Make sure that your home is in top showing condition to leave the most favorable impression for all potential buyers that walk through your door. And, turn to the expert with a proven track record in representing your real estate needs in this market. This is not the market to just leave the sale of your home to chance by working with the family member or friend or the “area expert.”

If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Orange County Housing Report: The Government Will Fuel Demand

Now that the financial markets are frozen, the Federal Reserve has stepped in and will buy mortgage-backed securities to the tune of $500 billion. Almost immediately, rates dropped by about a half of a percent. As a result, more and more buyers will take advantage of rates and GOBBLE up homes right here in Orange County. Since the economy has put on the brakes as a direct result of the financial crunch and housing market, the government is poised to step in and do just about whatever it takes to get the economy back on track. The fundamental key to fixing the economy is to fix the lending crisis. We have moved from a subprime meltdown, March 2007, to a financial crunch, August 2007, to a completely frozen financial system, October 2008. The problem is that there are very few investors willing to purchase “pools of loans” on the secondary market. The financial system depends upon this. Even though current “pools” have real quality loans where borrowers actually have to qualify for the loan, nobody is stepping up to invest. The problem is that these investment pools had been rated by a few different companies and their rating systems were inaccurate and flawed. So, investors do not know who to trust at this point, and nobody has properly invested in the secondary markets. This is one crisis that is just not willing to work itself out without government support. With the government stepping in to purchase the mortgage-backed securities, suddenly rates dropped to the lowest level of the year. This is perfect timing if you are a buyer about to purchase. This is the first of many steps that the Federal Reserve, the U.S. Treasury and Congress will take to get our economy back on track. President-elect Obama has surrounded himself with a lot of talent in the past couple of weeks to address the current economy. America voted for change, and that is exactly what America is going to get. We can expect there to be sweeping changes reminiscent of Franklin D. Roosevelt. There will be programs to abate foreclosures and unemployment. There will be programs to encourage buyers to purchase in today’s housing market. So, change is in the air and Orange County housing will be a direct beneficiary. This may take a several months to totally trickle down to housing, but some of the programs, like what the Federal Reserve did earlier this week, will have an immediate noticeable impact. Let’s put a half point rate drop in proper perspective. Dropping from 6% to 5.5%, a buyer would save $158.55 per month, or $1,902.60 per year, with a $500,000 loan. Put in another way, the payment for a $500,000 loan at 6% is the same as the payment for a $528,000 loan at 5.5%. So, a buyer that had been looking at a loan of $500,000 could either pocket the savings or look at spending about $28,000 more with no effective change in their mortgage payment.

So, how do the numbers look? It is too soon to see the impact of the change in rates on demand. This change comes in the midst of the Holiday market, the slowest season for Orange County housing. The impact may not be felt until the end of January, the beginning of the Spring market. Current demand, the number of new pending sales within the prior month, dropped by 111 homes in the past two weeks to 2,446. Last year at this time, though, there were only 1,243 pending sales, 49% fewer. Two years ago there were 531 fewer pending sales, a 22% difference. The total active inventory is now at 12,947 homes after dropping by 311 homes in the prior two weeks. Last year there were 3,822 additional homes on the market and 625 additional homes two years ago. The expected market time is currently at 5.29 months, a small increase from 5.18 months two weeks ago. Last year the expected market time was at 13.49 months and 7.09 months two years ago. There are now 5,795 distressed homes on the market, foreclosures and short sales, a drop of 6 homes in two weeks. Last year there were 3,525 distressed homes on the market, 2,270 fewer. The difference is that the today’s distressed inventory has been at a plateau since June. Last year at this time the distressed inventory was rapidly increasing. In November 2007 alone, the distressed inventory increased by more than 500 homes. 78% of all distressed homes are below $500,000, compared to 63% a year ago. 93% of all distressed properties are found below $750,000, the same as 2007. The distressed inventory represents 45% of the total active inventory and 66% of demand versus 21% and 26% respectively one year ago. Back in June of this year the distressed inventory represented 40% of the active inventory and 49% of demand. There were actually 103 additional distressed homes on the market and 123 additional distressed homes embedded within demand. The big difference currently is that we are in the throes of the Holiday market and there are fewer discretionary home sellers, sellers with equity in their homes, on the market. Discretionary sellers don’t have to sell. They have a choice and would rather enjoy the holidays.

So, if you are a buyer, how should you approach this market? My educated bet is that the government’s comprehensive attention to the economy, financing, foreclosures and housing will have a significant impact on the Orange County housing market. Factoring in Obama’s New Deal after he takes his oath of office in January and factoring in the delay in implementation, I am actually going to call a bottom in the market at around June 2009. It could come even sooner, time will tell. I am certain the doomsayers, a.k.a. the “bloggers,” will eat me alive, but the fundamental ingredients are all there: robust activity in homes below $500,000, lower interest rates, home affordability at levels not seen in years, more government programs to come. The below $500,000 range is significant as it represents 70% of the active inventory. Also, it is important to note that the lower ranges always lead in a housing market recovery. Home prices have already completed a majority of their movement. From August 2007 through February 2008, prices dropped between 3 to 5% per month. Now, they are on pace to drop between ½% to 1%, but will stop and plateau in about six months. So, if you are a buyer willing and able to stay in your home for the next several years, be assured that your investment in your home will more than pay off. Many discount the notion that we will ever return to rapid appreciation, but in markets like today, prices often drop below the “true” bottom as “would be” buyers hesitate and sit the market out until they are assured that the “water is perfect.” Yes, I am saying that current pricing is below where pricing really should be. This will be proven out in a couple of years from now after everybody is properly informed that the market bottomed out a while ago. Economists and experts alike can never tell you precisely when a bottom is occurring; instead, after there is months of data, they will establish that a bottom occurred somewhere in the past. For the first year after a bottom is called, buyers will be skeptical and sit the market out, waiting for the “herd.” After many buyers enter the market, the new “herd mentality” of our economy will ignite a wave of buying that will drive demand through the roof and we will realize rapid appreciation once again. The naysayers can chime in again and point to charts, experts and economists that state the opposite, but nobody is picking up on the newest element of our current economy, the “herd mentality.” If you need proof, take a look at Wall Street over the past month and a half. The swings up and down are unprecedented. There is no rush right now, but if I were a buyer, I would isolate the perfect home for my family right now. Do not be afraid to the pull the trigger. Even if prices drop a few percentage points more, know that in the long run you will do fine. Orange County housing is an excellent long term investment and much better than stocks and bonds. Be very aware that in arriving at price, the average sales to list price ratio for all of Orange County is 97% and for foreclosures it is 101%. If you are contemplating writing an offer at 90% of the asking price, be assured that the data is not in your favor and that the chance that your are wasting everybody’s time and paper is rather significant.

So, if you are a seller, how should you approach the market? Unfortunately I have already heard of sellers willing to wait for the government to step in to fix the housing market. As a seller, if you have to sell within the next 18 to 24 months, you are not sitting in as good of a position as buyers. Sellers that have the ability to sit on the sidelines longer will be fine. So, even though we are in the midst of a Holiday market, if you have to sell, price your home according to the market value, or slightly below, and have your home ready to show each and every day, from day 1 to day 101. As a seller you never know when the buyer of your home is going to walk through your door, so be ready. In arriving at price, be acutely aware of your location and condition. Are there power lines nearby? Can you hear street traffic from your home? Is your home in perfect move-in condition? Remember, with so many homes on the market, competition is fierce and if two homes are identical, but one has a better location, that is the home that will always sell first. As a seller, carefully choose the agent that is going to represent you in the sale of your home. It’s not about price; it’s about experience and knowledge to help navigate through the challenging housing market. It is not brand that will sell your home. It is not the “area expert” that will sell your home. It is not the licensed friend or family member that will sell your home. To be successful in this market, you need an actual expert in real estate. Somebody that knows the local market inside and out with data, a proven track record and experience. This is the market where the agent interview is the most important element in selling your home. So, interview carefully and do not jump to a quick decision. I personally know of an individual who went with the “subdivision” expert over the “market “expert to save in commission dollars. He sold the home with the subdivision expert after 14 months on the market and $250,000 in price reductions. Had he paid a few thousand dollars more and hired the market expert, he would have netted an additional $140,000. The moral to the story: if you are a buyer or seller, hire an expert to best represent your family.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Orange County Housing Report: Buying Season is Upon Us

IMPORTANT NOTE: The Southern California Multiple Listing Service just incorporated all of the data from four other area regional MLS systems. In the short term there will be some duplication in the MLS data. Surprisingly, there were 600 listings in Orange County that were added to the system, representing 5% of the active inventory. So, initially, the data that I provide will be slightly skewed.If you are a buyer, the bottom of the erosion in pricing in Orange County, especially in the lower ranges, is drawing near and will most likely occur by mid-2009. If you are a buyer, when you isolate the perfect property that matches your family’s requirements, purchase the home knowing that you made the decision that is in the best interest of your family. The Orange County housing market hit a bottom in demand during the fourth quarter of 2007 through the first quarter of 2008. That bottom in demand resulted in a rapid decline in pricing, especially for homes priced below $500,000. There is still price erosion in the lower ranges, especially in areas that are hit harder with distressed proeprties; HOWEVER, it is NOT at the rate that was realized during the bottom of demand. With policies designed to restore the housing market and a new administration in the White House looking to not only thaw financial markets but to help the homeowners in distress, our government is going to do whatever it takes to turn the economy around. We will start 2009 with much higher demand compared to the beginning of this year. Many discretionary homeowners not in distress will continue to opt to not place their homes on the market, allowing for the inventrory to drop. As supply shrinks and demand rises, as it will do again in the Spring market, from the end of January through May, prices wil stabilize. It is simple supply and demand, Econ 101. This will hold especially true for the lower ranges, from $650,000 and below, where financing is readily available through FHA and conventional loan programs. The conventional loan limit is going to drop (unless the government makes a change prior to December 31st) from $729,750 to $625,500, so we can expect most demand to be confined below the $650,000 mark. Until the financial markets thaw, non-conventional loans, borrowers with special needs or jumbo loans above the $625,500 level, will continue to be much more difficult to obtain and will continue to hold back demand. So, buyers looking below $650,000 can take the plunge knowing that pricing will stabilize. If you are a buyer and need short term housing, less than a few years, do NOT buy. But, if you are a buyer who plans on raising a family and staying in a home beyond just a couple of years, buy knowing that the real estate market will return and it will return with a vengeance. Many experts have stated that the days of double digit appreciation are in the past. I could not disagree more. Our current economy is moved by what I term the “herd mentality” and the age of “too much information.” With newspapers, television, MSNBC, CNBC, CNN, FOXNews, the proliferation of Internet sites, blogs dedicated to the continued bust of housing and the economy, housing reports on the front page of Yahoo, text alerts, email alerts, RSS feeds, etcetera, there is just too much information available to make a decision. Thus, in the past couple of years we have witnessed giant swings in the stock market, oil prices and housing. For the most part, the majority of consumers are trending to jump in unison. There will be more residential housing units that sell next year compared to this year, so the probability that we hit bottom in pricing next year is great. In 2010, we will most likely appreciate a bit, while many consumers wait to hear the news that the bottom was already reached. Remember, nobody is ringing a bell to indicate when we hit bottom; instead, economists and analysts will be able to inform the public at large that a bottom was reached many months later, after it occurs. In 2011, with all of the pent up demand and the realization that Orange County is undervalued, a wave of demand will be unleashed on the market and we will return to rapid appreciation. If I were a buyer, I would prefer being on the side of the equation where I had complete control over my destiny and within a buyer’s market, today’s market.

So, how do the numbers look? The current active inentory grew by 468 homes and now totals 13,258. This is historically when the inventory drops, but the change in the MLS skews the numbers. Demand, the number of new pending deals within the previous month, increased by 94 homes to 2,557. The expected market time in Orange County was almost unchanged, dropping from 5.19 months to 5.18 months. Last year at this time there were 3,975 additional homes on the market, a 23% difference, and demand was off by 1,262 homes, a 97% difference. The expected market time was 13.31 months. In 2006 there were 907 additional homes on the market, a 6% difference, and demand was off by 570 pending homes, a 29% difference. The expected market time was at 7.13 months. The distressed inventory, the total number of foreclosures and short sales on the market, grew by 302 homes. Most of this too was due to the change in the MLS. It is more interesting to compare year over year distressed numbers. With the exception of Talega (down 24%) and Portola Hills (down 24%), every area in Orange County realized a year over year increase in the number of distressed properties on the market. Here’s the top 10 biggest movers and shakers:

Current Last Year Year Over Year Change % of Current Active Inventory
Newport Coast 19 0 Infinite 9.3%
Laguna Woods 17 2 750% 4.0%
Newport Beach 56 9 522% 9.8%
Laguna Beach 25 7 257% 7.4%
La Habra 150 52 188% 61.2%
Dana Point 56 22 155% 20.3%
Fullerton 253 101 150% 50.2%
Corona Del Mar 7 3 133% 3.9%
San Clemente 128 57 125% 27.1%
Coto De Caza 38 17 124% 26.6%

These numbers help illustrate that the higher end markets are no longer immune to foreclosures and short sales, even though they remain a small percentage of the current active inventory within those areas. For buyers looking for a “deal” in purhasing a foreclosure, in October, the sales price to list price ratio was 101%. This means, on average, foreclosures sell for over the asking price. In October, the sales price to list price ratio for short sales was 97%. This means that there was a little bit of flexibilty in selling short sales. In the trenches I am hearing that almost every agent has a handful of buyers waiting for the next great “deal” to come along and many have to write offers well below the asking price, wasting everybody’s time in the process. Also, it is important to note that 84% of all distressed properties can be found at or below $500,000, and 95% are found below $750,000. So, buyers looking for a distressed deal above $750,000 can expect a bit more competition because there are simply fewer within those ranges.

We already discussed how to approach the market as a buyer, what about sellers? We are within the Holiday market where consumers divert their attention to holiday parties, a big Thanksgiving feast, gift giving and receiving, and toasting to a New Year. After the New Year’s resolutions wear thin, towards the end of January, the market begins to transition to the Spring Market, where more homes come on the market and demand starts to rise. Until then, sellers need to know that this is historically the slowest time of the year. Ironically, it will turn out that this Holiday market will actually be better than the first several months of this year and has already surpassed the last couple of years in terms of year over year comparisons. Nonetheless, sellers need to know that the market is slowing and that there is tremendous competition from sellers who cannot pull their homes off the market until their homes are sold, foreclosures, short sales and relocations. If you are a seller and can hold onto your home for the next few years, then stay put and wait for prices to rebound. Down the road, they will. If you are a move up seller, than this is a great time to make your move. When homes do appreciate again, the nominal impact on the higher ranges is much greater. For example, if homes appreciate 5%, 5% of $500,000 is $25,000, versus 5% of 750,000 which is $37,500, a $12,500 difference. Carefully pricing a home is fundamental to achieving success in selling in today’s market. Sellers need to be acutely aware of their location and condition in arriving at their asking price. Sellers should also prepare their homes to sell and be certain that their homes are in showing condition each and every day, regardless of the amount of time it takes to sell their home.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Orange County Housing Report: Demand Slows with Holiday Market

October 30, 2008
The Holiday Market, from Halloween through the first couple of weeks of the New Year, starts now as demand begins to slow; HOWEVER, current demand is almost double last year at this time. With the election upon us, the stock market bouncing all over the place along with interest rates, and all loans outside of FHA and conventional frozen from the effects of the financial crunch, it is no wonder that demand has dropped recently. Current demand, the number of pending homes within the past month, dropped by 210 homes in the past two weeks to 2,463. Still much improved compared to the 1,241 pending sale mark in 2007 or 2,011 in 2006. The additional demand is only in the lower ranges,though, where the majority of all distressed sales exist. Distressed sales are the fuel that is igniting the first time home buyers market and inviting investors (only those with a lot of cash) back to the housing market. Last year at this time there were 6,095 active listings below $500,000 and demand at 477 pending sales. Today, there are 6,450 active listings below $500,000 and demand at 1,736, that’s a 263% improvement year over year. 67% of the current active inventory below $500,000 is either a foreclosure or short sale and 85% of ALL distressed sales are found within this range as well. In exploring prior downturns, it is always the lower ranges that heat up first and fuel an eventual recovery. One can only imagine how much better demand would be if interest rates weren’t bouncing around and loans outside of conventional and FHA did not require unrealistic FICO scores and much higher interest rates. In the jumbo loan arena, loans above $729,750, demand is very low, even lower than one year ago in the midst of the beginning of the financial crunch. For example, for the range of homes between $750,000 to $1 million, demand is at 140 homes today, 23% lower than the 181 mark last year and 58% lower than the 332 mark two years ago. Every range above $1 million is either similar or even worse. This has everything to do with the frozen financial markets; all products that do not have some sort of government backing are mired in conditions and restrictions where only the cream of the crop with a lot of cash on hand need apply. Since fewer distressed sales are within the higher ranges, discretionary sellers with equity are simply avoiding competing in the housing market under the current conditions. There are only 1,364 active listings between $750,000 and $1 million, 41% fewer than the 2,306 level last year and 49% fewer than the the 2,663 level in 2006. The market has changed and discretionary sellers with equity are wisely avoiding the market if at all possible. We can expect more of the same until all of the government legislation and manipulation past, present and future start to thaw the frozen financial system. Signs of thawing are lower rates for ALL financial products, the resumption of lending for jumbo loans, commercial loans and all forms of credit, and the return of demand in homes priced above $750,000.

So, how do the numbers look? The current active inventory increased by 68 homes in the past two weeks to 12,790. Last year there were 4,664 additional homes on the market, totaling 17,454. Two years ago there were 2,473 additional homes on the market, totaling 15,253. With a decrease in demand and a slight increase in the active inventory, the expected market time increased from 4.76 months to 5.19 months. 5.19 months is still much better than an expected market time of 14.06 months last year and 7.59 months in 2006. The TOTAL pending count is currently at 3,960 pending sales. The TOTAL pending count is 137% higher compared to the 1,671 level last year. Distressed homes, foreclosures and short sales, increased slightly from 42.9% of the inventory two weeks ago to 43.0%. The total number increased by 46 homes, bringing the total to 5,499. 46% of all distressed home activity is confined within just eight areas (ranked from highest concentration to lowest):

· 939 in Santa Ana (79.2% of the 1,186 listings)
· 658 in Anaheim (76.9% of the 856 listings)
· 321 in Garden Grove (72.1% of the 445 listings)
· 137 in Rancho Santa Margarita (70.6% of the 194 listings)
· 159 in Lake Forest (69.4% of the 229 listings)
· 38 in Foothill Ranch (69.1% of the 55 listings)
· 129 in Buena Park (60.8% of the 212 listings)
· 128 in La Habra (59.3% of the 216 listings)
· Totaling 2,509 of the 5,499 in all of Orange County

With the exception of La Habra (an expected market time of 4.6 months) all of these areas have expected market times at 3.32 months or lower, a SELLER’s market. For all of Orange County, foreclosures make up just 10% of the distressed market inventory and have an expected market time of 1.22 months, a deep seller’s market. Short sales make up the remaining 90% of the distressed inventory and have a skewed expected market time of 6.92 months, what would normally be a buyer’s market. However, ask any buyer actively looking for a home in the current marketplace and most short sales have an agreed upon contract between a buyer and seller and yet the home is still actively marketed. This is due to the fact that there really is not a pending sale until the lender (or lenders) in a short sale agrees to decrease the outstanding loan balance in order for the sale to take place. Short sales are “subject to the lender’s acceptance” because the seller owes more than the home is worth and they necessitate the lender forgiving some of the loan balance. So, even though a short sale may be on the market as an active listing, there is a high probability that a consummated contract has already been submitted to a lender. Thus, demand, a willing and able buyer, is actually much stronger than the current 6.92 month mark suggests.

How should sellers approach the current market? We are moving into the Holiday market where we can expect demand to drop further with plenty of competition sticking around. Distressed properties have no alternative and will remain on the market no matter what. So, if you are a homeowner contemplating placing your home on the market, be prepared for a lot of competition and fewer buyers in the marketplace. As a homeowner with equity, the absolute best bet is to hold onto your home for the next few years and allow for the market to eventually stabilize and reverse course. Homeownership has historically always been a super long term investment. To sell at the bottom is not wise unless a homeowner is moving up to a higher range. The Spring market, typically marked with the strongest demand of the year, does not begin until the end of January, 2009. But, make no mistake, values are not going to be appreciating from now until then and they will not be appreciating anytime next year as well. Instead, we will eventually reach equilibrium in the market where prices will just hold steady, most likely towards the end of Spring. Carefully pricing a home is fundamental to achieving success in selling in today’s market. Sellers need to be acutely aware of their location and condition in arriving at their asking price. A seller does not have control over their location, and the location needs to be carefully factored into the price. Sellers do have control over their condition and amenities. Sellers should also prepare their homes to sell and be certain that their homes are in showing condition each and every day, regardless of the amount of time it takes to sell their home. You never know when the buyer that wants to buy your home will walk through your door.

How should a buyer approach the current market? Buyers can either take heed of the following warning or learn their own lessons through the school of hard knocks: there is tremendous competition in the lower ranges, especially regarding distressed properties. Understand that the sales to list price ratio is very close to 100% for distressed properties. I have heard countless stories of buyers writing offers at 10% to 20% off of the list price, only to be burned by another buyer (or buyers) willing to pay at or close to the list price. For lower ranges and the distressed inventory, multiple offers are the norm. After competing and losing in their effort to secure a home, many buyers are turning to non-distressed sellers with equity in their homes. Buyers may pay a little bit more, but there is less hassle and, in most cases, the condition is distinctly much better. Buyers looking for a short term purchase should just rent. If a buyer plans on staying in a home for several years, then it is a great time to buy. Low rates, lower prices, improved affordability , and with the lower ranges showing definitive signs of an eventual recovery, it is a great time to buy and hold. Eventually the market will turn and you will have purchased at a much slower, opportune time.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Orange County Housing Report: Brisk Activity Despite the Financial Crunch

October 16, 2008
Despite stock market gyrations and all eyes on the international financial crunch, current demand is still much stronger than the last two years. Demand, the number of new pending deals within the prior 30 days, would be even stronger right now had interest rates not bumped up significantly over the past week. Since higher interest rates are the last thing our government desires, they will continue to exercise all of their powers to stabilize the financial system until it starts showing signs of recovery. The first major sign is going to be lower interest rates, much lower. I don’t ever recall government intervention in the financial system like we are experiencing today. Starting on September 7th, a little over a month ago, the federal government took over both Fannie Mae and Freddie Mac. From that point forward, our government has been working feverishly on thawing out the frozen financial markets. Unfortunately, the financial crunch started in August of 2007; so, they are a little bit late to the party. Yes, they tinkered a little bit over the past year, but it just was not enough to thaw the financial system. Their tardiness has everything to do with the severity of the current financial crunch. The system will mend, it just will take longer than if they had made their sweeping changes six months ago. Some argue that the government should do nothing and let the markets correct on their own. They logically blame investment houses who invested with no caution, banks willing to loan anybody with a pulse and buyers willing to purchase homes utilizing loans that they simply could not afford after their adjustable rates reset. However, even with minor tinkering over the past year, both the United States and INTERNATIONAL financial markets have come to a virtual standstill. So, letting the markets work themselves out is not the remedy to the current situation in order to avert a major international disaster. The time to act was a year ago when the crunch was in its infancy. The government has always been reactionary in nature; and, now that the crisis has grown to an unprecedented level, everybody is now ready to do whatever it takes to turn our economic engine around. So, the recent acceleration in government action is not only expected, it is only the beginning of sweeping changes to thaw the financial markets.

So, how do the numbers look? Demand dropped by 174 homes in the past two weeks to 2,673 pending sales. For proper perspective, there were only 1,175 pending deals a year ago, 1,498 fewer. The big difference over the past year is that pricing has finally dropped to an affordable level where first time home buyers and investors have reemerged. One can only imagine how much stronger demand would be if financing was more readily available. Two years ago demand was at 2,011 pending deals, 662 fewer than today. The current active inventory dropped by another 218 homes in the past two weeks to 12,722. There were an additional 5,037 homes a year ago, totaling 17,759. Two years ago the inventory was at 15,263 homes, 2,541 additional homes compared to today. The expected market time increased slightly from 4.55 months two weeks ago to 4.76 months today. In comparison to the past two years, the expected market time is at a much healthier level. Last year the expected market time was at 15.11 months and two years ago it was at 7.59 months. Demand is much hotter in the lower ranges, detached homes and condominiums below $750,000. Below $500,000, 50% of the active inventory and 69% of demand, the expected market time is at 3.43 months. Between $500,000 and $750,000, 19% of the active inventory and 19% of demand, the expected market time is at 4.83 months. From there, it jumps to 5.27 months from $750,000 to $1 million. After that it jumps to double digits, a deep seller’s market. Above $750,000, demand is much lower due to the effects of the financial crunch. In order to secure a jumbo loan, currently all loans above $729,750, buyers need to have a healthy down payment, almost perfect credit, the ability to document everything and the willingness to accept a much higher interest rate compared to conventional buyers.

Distressed homes, foreclosures and short sales, dropped from 43.3% of the inventory two weeks ago to 42.9%. The total number dropped by 144 homes, bringing the total to 5,453. The distressed inventory peaked on August 7th at 5,950 homes and has dropped slowly ever since. The biggest contributing factors are the fact that the number of subprime resets has been steadily dropping coupled with a low unemployment rate. There is a lot of buzz centered on the “next wave” of resets, Alt-A adjustable. But, this group is a bit different since there are fewer of them and the government has been working on programs to help homeowners refinance their homes and continue making payments (homeowners are penalized for selling early and must share in any appreciation with the FHA). So, more distressed homes will continue to come on the market throughout the rest of the year and into 2009, yet the number will continue to slowly diminish over time. As the government programs unfold and the financial markets thaw, demand will continue to rise and stabilize the Orange County housing market long term.

How should sellers approach the current market? It is extremely apparent that discretionary homeowners who have equity in their homes are acutely aware of the current market conditions and place their homes on the market with full knowledge that competition is brisk. Lenders are in absolute control of the market. They may account for 42.9% of the inventory, but they also account for 64.2% of demand. That means that only 35.8% of demand is devoted to homeowners with equity. More and more non-distressed homeowners are opting to pull their homes off the market since the Spring and Summer markets are now in the past. If you are a non-distressed homeowner contemplating placing your home on the market, exercise extreme caution. Move up sellers tend to do better than move down sellers. After markets recover, hypothetically, if homes appreciate 5%, higher ranges realize a larger gain in terms of net dollars. 5% of $500,000 is $25,000; 5% of $800,000 is $40,000. In today’s market, homes that back up to busy streets, or back up to power lines, or are in poor showing condition, take a major hit in terms of value. If a buyer has the choice between two similar homes, one that backs to a busy street and one that does not, they are only willing to look at the home that backs to a busy street if the price is substantially less. In an appreciating market with no competition and very little available, a home that backs to a busy street will fetch a much higher price. So, sellers need to be acutely aware of their location and condition in arriving at their asking price. A seller does not have control over their location, but they do have control over their condition and amenities. Sellers should also prepare their homes to sell and be certain that their homes are in showing condition each and every day, regardless of the amount of time it takes to sell their home. You never know when the buyer that wants to buy your home will walk through your door.

How should a buyer approach the current market? It is hard to imagine, but the lower ranges in many cities are actually experiencing stiff competition. That holds true for most foreclosures and short sales. Foreclosures are currently experiencing an expected market time of 1.22 months, a major sellers market. Multiple offers are the norm and most sell at their list price or for even more. Short sales, homeowners with outstanding loans that total more than their current market value, are much different since most are on the market as active listings even thought they have already consummated an acceptable written offer between a buyer and seller. The reason they are still actively marketed: they are awaiting the lender’s written approval to allow the seller to pay off less than the loan amount. This process can take anywhere from days to months. Buyers quickly realize that lower prices result in increased competition. After competing and losing in their effort to secure a home, many buyers are turning to non-distressed sellers with equity in their homes. Buyers end up purchasing a home that is in better condition and they typically do not have to compete to purchase. Buyers looking for a short term purchase should steer clear of the current market. This is the perfect time to purchase for buyers that plan on being in their home for a minimum of several years. Even if housing values drop in the short term, Orange County housing values have proven to be an excellent long term investment. So, buyers should isolate the perfect house for their family and make it their “home” with full knowledge that in time, their “investment” will appreciate.

If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Orange County Housing Report: Inventory Drops Below 13,000

The Orange County active listing inventory dropped to its lowest point in 18 months, dipping below the 13,000 mark. Typically, the Autumn market begins to drop after reaching a peak during the Summer, but not this year. The current active inventory in Orange County has dropped by 642 homes in the past month. Last year at this time the active inventory was at 17,759 homes, 4,819 additional homes, or 27% higher. Two years ago it was at 15,482 homes, an additional 2,542, or 16% higher. We started the year at 14,724 homes, 1,784 more than today. The active listing inventory has been dropping since July and it picked up steam in August. In mid-April, the inventory peaked at 15,566, 2616 additional homes compared to today. The inventory has dropped 17% in that time. During the same timeframe in 2006 and 2007 the inventory actually increased by 37% and 20% respectively. This can be attributed to stronger demand and discretionary homeowners. Demand has surged with an appreciable drop in home pricing, especially in the lower ranges where there are more distressed properties and much more first time home buyer activity. Affordability has been reintroduced to the Orange County housing market. This is simple Economics 101, as prices fall, demand rises and the number of sales increases as a result. As the United States government fixes the financial system and money starts to flow again, we can expect rates to drop considerably, including in the Jumbo loan arena, homes above $700,000. Falling rates lowers monthly payments, which is similar to falling prices. We can expect demand to increase and the number of sales to increase as well. This may be six months from today, so right now is probably the most opportunistic time to be a buyer. I recall back in 1995 many were still predicting a continued slide to values reached in the 1980’s. I am hearing the same drum beat again, this time calling for prices to fall to mid-1990’s levels. I would be careful if I was a consumer on the sidelines waiting for a much more appreciable drop. Prices took their biggest drop from August of 2007 through March of this year. There is so much demand in the lower ranges and in many areas that pricing is a little stickier, much different than the freefall I just described. Another contributing factor to the drop in the inventory is the fact that homeowners understand the current market situation and, for the most part, homeowners with equity are steering clear of the market, opting to not compete with the distressed inventory. The discretionary sellers that do enter the market do so with the understanding that the process may take a while. Now that the Spring and Summer markets are behind us, many sellers have decided to pull their homes off the market and sit on the sidelines until Spring of next year. The discretionary seller in today’s market is a harsh contrast to the majority of unrealistic sellers with high expectations of the Spring and Summer of 2006 and 2007. It takes the right mindset to be successful in competing with so many distressed homes. There is plenty to consider in selling today: location, upgrades, condition, the ability to answer quickly (unlike foreclosures and short sales), the local market and pricing, carefully considering the difference between a distressed sale and a non-distressed situation. Now more than ever, it is absolutely essential for sellers, and buyers, to enlist the help of an experienced, proven REALTOR® to navigate through this market with a successful outcome.

So how do the rest of the numbers look? Demand, the number of new pending sales within the prior 30 days, dropped by 127 homes in the past two weeks, but matched the level reached two weeks ago at 2,847. HOWEVER, the disparity between this year and the last two years continues to grow, indicating that the current market is healthier and more robust in comparison. And, demand has almost eclipsed 2005 levels! Demand is 156% stronger than last year (152% two weeks ago) and 43% stronger than two years ago (34% two weeks ago). In 2007, demand was only at 1,113 pending sales, 1,734 fewer than today. In 2006, demand was at 1,991, 856 fewer than today. In 2005, demand was at 2,868, 21 additional pending sales, less than three-quarters of 1% difference. This is a very good sign for the Orange County real estate market as a whole.
With both inventory and demand dropping, the expected market time increased slightly from 4.43 to 4.55 months. Still, the current market time is another unbelievable contrast to the 14.97 months mark established at the beginning of this year. Last year the expected market time was at 15.96 months and two years ago it was at 7.78 months. This is a reflection of a healthier market in comparison to prior years due to better pricing, higher demand and discretionary homeowners.

The disparity in Total Pending Sales, a statistic that I started tracking back in September of 2006 to show ALL pending activity and not just the past months activity (demand), from last year to this year continues to grow unabated. The disparity has grown to 170% greater than last year. Today it stands at 4,276 total pending sales. Last year the total pending count was at 1,581, a difference of 2,695. This is yet another unbelievable contrast to just one year ago.

Even though the distressed inventory has been dropping, it has not dropped as swiftly as the discretionary seller inventory; thus, the percentage of distressed homes on the market has actually increased over the past month. A month ago there were 5,744 distressed homes on the market, foreclosures and short sales, representing 42.3% of the market. Today there are 5,597 distressed homes, 147 fewer than four weeks ago, representing 43.3% of the overall active inventory. Any drop in the distressed inventory is a welcome sign for the Orange County housing market because it establishes that even as more distressed homes come on the market, they are actually going off the market faster. We can expect the distressed market to be a major player in the marketplace throughout the rest of this year and 2009 as well. For the rest of the year, demand will continue to drop slightly as will the active listing inventory. After the Autumn market and Holiday market, from Halloween through the first couple of weeks of the New year, housing demand has the potential of taking a larger bite out of the distressed inventory and could, ultimately, finally stabilize the market. I am not referring to the heydays of a few years ago with rapid appreciation; instead, I am referring to more of an equilibrium, where demand meets the supply and prices no longer drop. An equilibrium calls for a stabilization of pricing with very little change in one direction or another. If you are a buyer looking for a distressed home to purchase, please know that you have a lot of company. Distressed homes in great condition and a great location attract many buyers and generate multiple offers. Be prepared to compete.

If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

http://www.alteraproperties.com/

Market Time Report: Demand is Up

Demand has broken away from the normal Autumn cycle and is up for the start of the season. Typically, demand, the number of new pending sales within the prior 30 days, starts a slow decline at the beginning of the Autumn market, but not this time. Demand marched to the beat of its own drum and did not follow the normal real estate cycles for the first half of this year, growing unabated. Then, in June, demand started to track the normal cycle, falling in July slightly and then increasing throughout August. If demand was to follow a normal Autumn cycle, it would have dropped slightly. However, demand increased by 127 homes in the prior two weeks and now totals 2,974 pending sales. Not only is demand far surpassing the prior two years, but it is swiftly approaching 2005 numbers. Demand is 152% stronger than last year and 34% stronger than two years ago. Last year at this time there were only 1,180 pending sales, 1,794 fewer than today. Two years ago there were 2,208 pending sales, 766 fewer than today. In 2005 there were 3,058 pending sales, 84 additional compared to today, a 1.7% difference. This change in the demand cycle was totally unexpected. It remains to be seen just how long this unconventional pattern will continue; nonetheless, it is a very good sign for the Orange County real estate market as a whole.

The active listing inventory has broken from all cyclical patterns for the entire year. After a slight initial increase in the inventory for the first couple of weeks of the year, it remained at a plateau for the first half of 2008. June and July was marked by a slow descent in the inventory. But, ever since the beginning of August, the inventory has been rapidly dropping, shaving a total of 1,572 homes since July 25th. In the past month alone, the inventory has dropped by 885 homes. Today the active inventory stands at 13,174 homes compared to 14,059 a month ago, a 6.3% drop. Last year at this time the active inventory actually increased by 17 homes within the prior four week period. Two years ago it dropped by 334 and three years ago it actually climbed by 830 homes, the beginning of the real estate slowdown. So far in 2008 the active inventory dropped from 14,944 at the beginning of the year to 13,174 homes today, an 11.8% decrease.

With demand increasing and the active inventory dropping, the expected market time has actually dropped to its lowest point of the year, 4.43 months. The market is in much better shape compared to the beginning of the year when the expected market time was at 14.97 months. Back then demand was at 998 pending sales and the inventory was at 14,944 homes. Last year at this time, the beginning of the financial crunch, the expected market time had blossomed to 15.17 months, 242% longer than today. Two years ago, the expected market time was 7.10 months, 60% greater than today. This market is so different compared to the past couple of years. This can be attributed to the distressed market and financial crunch pressuring pricing to the point where Orange County homes became more affordable and attracted many first time home buyers and, now, investors. As home prices align closer to rents, investors are starting to enter the market again. The stronger market can also be attributed to non-distressed home owners utilizing their discretion and ultimately deciding to not compete and sit this current market out. Slowly but surely more home owners are staying put and are realizing that their homes are not just an asset to be flipped every two to three years. Their address is “home,” a place to raise a family and create memories that will last a lifetime. Homes should be bought and sold with the understanding that, first, a home is a place to raise a family and, second, a great LONG TERM investment. That will very likely be a lasting legacy of this current downturn.

The disparity in Total Pending Sales, a statistic that I started tracking back in September of 2006 to show ALL pending activity and not just the past months activity (demand), from last year to this year continues to grow unabated. A month ago today’s total pending sale count was 105% greater in comparison to 2007. The disparity has grown since to 157% greater than last year. Today it stands at 4,393 total pending sales, the highest point of the year, surpassing the previous high of 4,363 established on June 26th. Last year the total pending count was at 1,710, a difference of 2,683. So, the current market may be filled with its set of challenges, but they pale in comparison to where the market was a year ago.

Distressed properties, foreclosures and short sales, make up a major portion of today’s Orange County real estate market. With the inventory dropping due to homes placed into escrow and many discretionary sellers pulling their homes off of the market, the percentage of distressed homes on the market has grown a little bit over the past month. A month ago distressed homes made up 41.7% of the overall active inventory versus 42.9% today. However, the total number of distressed homes on the market has actually dropped in that same time period by 215 homes, from 5,865 to 5,650. Current demand is exhausting the continuous stream of new distressed homes that are placed on the market and even driving it down a little bit. The expected market time for foreclosed homes is at 1.18 months, a seller’s market. So, if you are a buyer looking for a “deal,” do not expect a foreclosure to sell for much less than the asking price. There is so much demand for foreclosures that most are securing multiple offers, and many are actually sold above the asking price. Short sales are a little bit of a different story with an expected market time of 6.2 months, but don’t let that number fool you. Many short sales that are a part of the active listing inventory have actually secured many offers, they have an agreed upon contract between the buyer and seller, and the accepted contract has been submitted to the lender(s) for “lender approval.” These listings are waiting for the formal “lender approval” before starting the escrow process and pulling the home off the market with a pending status. So, the 6.2 month expected market for short sales is definitely inflated and should be at or below about the three month mark.

Where do we go from here? Back in July I told everybody to expect to hear more regarding resurrecting the Resolution Trust Corporation (RTC) to help stabilize the current housing dilemma. Well, two month later and they are now formulating something very similar to the RTC. The RTC was formed in 1989 to "bail out" the rapidly deteriorating financial market due to the insolvency of savings and loan associations. Today, a similar agency would purchase bad debt of distressed, owner-occupied homes at a discount from the debt holder and restructure the loan for the owner in areas hit hard by foreclosure activity. This in turn would ultimately stabilize the current financial crunch. This will not flip the switch to a better market overnight, but it will get us back on track over the course of time. It will ultimately restart the financial engine that drives our economy and repair the ailing housing market.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

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Market Time Report: Expected Market Time Remains Under 5 months

September 4, 2008
With year over year demand 136% higher than in 2007 and 28% higher than 2006, it is no wonder that the expected market time is at a much healthier level. For the first half of 2008 demand increased unabated. Since mid-June, demand has followed the normal seasonal cycles. Demand first dropped to a summer low at the beginning of July and then increased until reaching the Summer market peak two weeks ago. “Back to school” marks the beginning of the Autumn market and a slow drop in demand. Demand dropped by 144 homes in the prior two weeks and 93 homes in four weeks, now totaling 2,847 pending sales. That is much better than last year at this time. Still in the beginning stages of the financial crunch that started the month before, demand dropped by 269 homes in just two weeks and 598 homes in a month. Demand dropped to historical lows and totaled only 1,206 pending sales, a difference of 1,641 compared to today. Two years ago, demand dropped by 141 homes in the prior two weeks and totaled 2,216 pending sales, 631 fewer than today. So, in regards to demand, we are currently on much better footing compared to the prior two years.

The active listing inventory has broken from all traditional cycles due to discretionary homeowners steering clear of the current market, choosing to not compete with lenders, who control 42% of the market through foreclosures and short sales. Typically, the active listing inventory climbs throughout the Summer, as many homeowners place their homes on the market to take advantage of the Summer selling season, often mistaken as the best time of the year to market a home (it is actually the Spring market). In 2007, the active listing inventory grew from 11,643 homes at the beginning of the year to 17,760 homes this time last year, a 53% increase. In 2006, the active listing inventory grew from 7,635 homes at the beginning of the year to 15,767 homes this time two years ago. In 2008, the active inventory dropped from 14,944 at the beginning of the year to 13,582 homes today, a 9% decrease. And, most of the drop has actually come recently, with a decrease of 3.4% in two weeks and 5.3% in the past four weeks.

So, even though demand has dropped a bit in the past two weeks, the subsequent drop in the active listing inventory has enabled the expected market time to remain virtually the same, increasing only slightly from 4.70 months to 4.77. Four weeks ago the expected market time was at 4.88 months. So, not a lot has changed in respect to market time. Last year at this time, the expected market time had burgeoned in a four week span from 9.76 months to 14.73. Two years ago, the expected market time was 7.12 months. In regards to expected market time, once again we are on much better footing compared to the prior two years.



The disparity in Total Pending Sales, a statistic that I started tracking back in September of 2006 to show ALL pending activity and not just the past months activity (demand), is continuing to grow substantially. The current total pending sales count dropped by 129 homes in the past two weeks, but only dropped by 28 homes in the prior four weeks, now totaling 4,220 pending sales. In 2007 at this time, there were only 1,813 total pending sales last year and a drop of 300 in two weeks and 648 in four weeks. So, compared to last year, total pending sales are up 132%. Two weeks ago, the year over year comparison was at 106% and four weeks ago it was up by 72%. Total Pending Sales is yet another statistic that points to much better footing compared to the past.

As discussed earlier, distressed properties, foreclosures and short sales, make up a major portion of today’s Orange County real estate landscape. The distressed inventory exploded onto the market last year, growing unabated from July of last year through the end of May, 2008. On July 26, 2007, there were 792 distressed homes on the market, 5% of the total active inventory. The distressed inventory continuously grew through May 29, 2008, where it stood at 5,905 homes on the market, 39% of the total active inventory. Today, the distressed inventory stands at 5,744 homes, 42% of the total active inventory. The inventory has been at a plateau since the end of May and actually dropped over the past month. The distressed inventory dropped by 121 homes in two weeks and 206 homes in four weeks. This phenomenon can be attributed to stronger demand and discretionary homeowners opting to not compete. Current demand is exhausting the continuous stream of new distressed homes that are placed on the market. Where is all of this demand coming from? The rapid growth of distressed properties and very little demand from August of last year through February of this year significantly depreciated Orange County housing, especially in the lower ranges. With affordability back in the marketplace combined with low interest rates, a wave of first time home buyers, many priced out of the market for years, dove in. 78% of the active distressed home market is isolated below $500,000 and 93% can be found below $750,000. It is no wonder that there is so much demand below $500,000, representing 64% of all demand. In comparison, the range below $500,000 represents 49% of the total active inventory. Homes priced below $750,000 represent 69% of the active inventory and 86% of demand.

Where do we go from here? Our government is carefully monitoring both the housing and financial markets and is preparing to do whatever it takes to prevent a radical downturn. The United States Treasury is preparing to take over both Fannie Mae and Freddie Mac to stabilize the conventional lending market, currently all loans below $729,750 in Orange County (this will drop to $625,500 in high cost areas). Investors have turned their collective heads away from Fannie and Freddie, but with the United States taking over, the risk of them failing drops out of the equation completely. This ultimately will strongly encourage investors from around the world to once again invest in these secondary mortgage market entities, which will allow interest rates to drop to lower levels. In this scenario, consumers looking to purchase or refinance win. Housing demand wins. The government is not afraid to intervene. They will carefully plot a course to restore the credibility of the both the financial markets and the American Dream, homeownership.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Market Time Report: Current Demand Double 2007 Levels

The year over year comparisons in Orange County housing demand are growing more unbelievable by the day. Current demand is 103% greater than one year ago at this time. Demand, the number of pending sales over the past month, increased by 51 homes in the past two weeks to 2,991. In the past month, demand has increased by 258 pending sales. In sharp contrast, one year ago demand was at 1,475 after dropping by 329 pending sales in just two weeks. That marked the absolute beginning of the credit crunch. We are still feeling the effects of the credit crunch today, especially in the upper ranges involving jumbo loans; however, the current severity pales in comparison to the initial six months of the crunch. From August 2007 through February 2008, demand trickled in as financial institutions, the Federal Reserve and all of Washington DC clamored to apply as many fixes as possible to jumpstart the financial system. The crunch is currently not as severe, but it will continue as the strain of record defaults and foreclosures weighs down financial institutions around the world. Even though the crunch is affecting the market, demand is much healthier today compared to 2007 and 2006. Current demand is not only 103% higher than 2007 levels, it is 27% higher than 2006. It is amazing that this is occurring within an environment that is handcuffed by extremely tight regulations and new lending standards. The disparity in Total Pending Sales, a statistic that I started tracking back in September of 2006 to show ALL pending activity and not just the past months activity (demand), is growing substantially. The current total pending sales count grew by 101 homes in the past two weeks to 4,349 pending sales, compared to 2,113 pending sales last year and a drop of 348 in two weeks. So, compared to last year, total pending sales are up 106%.

Distressed properties, foreclosures and short sales, have become a major player in today’s market. As distressed propertied continued to build after the beginning of the financial crunch, prices dropped significantly and restored affordability to the market not seen in several years. First time buyers were finally able to reenter the marketplace and many fence sitters are finally jumping in as well. We read and hear about the continued mass numbers of defaults and foreclosures, but the numbers of distressed listings actively on the market has reached a plateau and has even dropped in recent weeks. This is due to the enormous appetite for affordable homes, primarily found below the $500,000 mark. Distressed homes are now being placed into escrow as fast as they are coming on the market, allowing the distressed inventory to reach its current plateau. There are 5,865 distressed homes on the market, a drop of 85 in the past two weeks. 42% of the active market is a distressed property, unchanged from two weeks ago. This level is no different than the level reached at the end of May. Prior to May, the distressed inventory was growing unabated since July of last year. 21% of the current distressed inventory is foreclosures, totaling 1,232 homes. 79% of the distressed inventory is short sales, totaling 4,663. 78% of all distressed properties are found below $500,000 and 93% are below $750,000. The number of distressed properties in the upper ranges pales in comparison to the lower ranges. For those looking to find a great “deal” by offering to purchase a property far below the asking price of a distressed home, good luck. Your chances are much greater in winning the California lottery. Many have the attitude of nothing ventured, nothing gained, but the statistics just are not on their side. The sales to list price ratio, how close a home is sold compared to the asking price, is between 99% and 100% depending upon the price range. Most distressed homes receive multiple offers and many sell for higher than the asking price. Buyers need to keep in mind that prices have already dropped drastically; in essence, they are already getting a “deal.”

So, what does the rest of the data look like? The active listing inventory has shed 289 homes in the past two weeks and 687 over the past month and now totals 14,059, the lowest level since April 5, 2007. While in the initial stages of the financial crunch, back in December, I felt that the inventory could blossom to 20,000 homes. Instead, discretionary sellers who have equity in their homes decided, for the most part, to skip this market and not place their homes on the market and compete with the onslaught of distressed properties. Also, with a significant drop in pricing and an increase in affordability, demand has also eaten into any potential increase in the inventory. Last year at this time the inventory posted its second highest mark of the year of 17,881 homes, 3,822 additional homes, or 21% higher, compared to today.

Two years ago the inventory posted its highest mark for 2006 of 16,006, 1,947 additional homes, or 12% higher, compared to today. The expected market time for Orange County dropped from 4.88 months two weeks ago to 4.70 months today. The expected market time in 2007 had blossomed to double digits for the first time, 12.12 months, and would remain in double digits until February of this year. Two years ago the expected market time was at 6.79 months. It is easy to conclude that even with the giant negative spotlight on the financial markets and distressed properties, the Orange County housing market is at a much healthier place compared to the past couple of years and is on the road to an eventual recovery.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Market Time Report: Distressed Homes Ignites Demand

Fueled by the value and affordability of foreclosures and short sales, demand below $500,000 has swelled to its highest level of the year. Total Orange County demand now exceeds last year’s level by 63% and 2006’s level by 26%. Demand, the number of pending sales over the past month, increased by 197 in the past two weeks to 2,940. After unstoppable growth in the first half of 2008, demand is now following a typical summer cycle. For the first couple of weeks it diminished from June’s record highs and has continued to grow ever since. Typically, demand then starts to drop with the beginning of the Autumn market and the beginning of the school year. However, with the distressed inventory continuing to replenish, value and affordability may continue to provoke demand through the end of the year. Our agent reports from the streets indicate that fence sitters for the past couple of years, and even investors, are sensing a great opportunity to enter the market. 64% of demand, 1,892 pending sales, is found below $500,000, compared to 30%, 537 pending sales, one year ago. In looking at the chart, it is important to note that the beginning of the financial crunch took place in August 2007. As lenders tightened their requirements overnight, demand dropped by 18% in just two weeks and by 33% in a month. Demand dropped to a trickle and lasted six months. There will be no repeat this year. Value and affordability is a major difference in comparing 2008 to 2007, fueled by a major drop in prices due to that six month abyss. It will be interesting to see where Orange County demand travels from here. It may very well start doing its own thing just as it did at the beginning of the year, breaking from the traditional cycle of diminishing through the Autumn and Holiday markets and either sustaining its current levels or, shockingly, even increasing. Sprinkle value and affordability along with waiting on the fence for a few years and you have ingredients that will at the very least continue to spark demand. Time will tell.

So, what does the rest of the data look like? The active listing inventory has shed 398 homes in the past two weeks, bringing it to the lowest level of the year, 14,358. The inventory continues to buck the trend of growing through the Spring and Summer markets. Instead, it has remained just below the 15,000 mark for most of 2008 until its recent drop, bringing it closer to the 14,000 threshold. At the beginning of the year, with demand at such a historically low level, I pessimistically thought that there was a good chance that the inventory could swell to 20,000. However, two things occurred: demand increased unabated and discretionary, non-distressed homeowners remained off the market and nobody tested the waters like prior years. Unlike 2006 and 2007, absent this year was any foolish anticipation of a phenomenal Spring market. 14,358 homes on the market is still high, but it is a lot less pressure on pricing and demand compared to 20,000 homes. Last year at this time the inventory had blossomed to 17,611, 19% higher compared to today, or 3,263 additional homes. Two years ago, the inventory had grown to 15,875, 10% higher, or 1,527 additional homes. The expected market time for Orange County dropped from 5.38 months two weeks ago to 4.88 months today. The expected market time in 2007 was 9.76 months, almost double, and in 2006 it was at 6.81 months. The distressed home market, foreclosures and short sales, now accounts for 41% of the active inventory and 57% of demand. The distressed inventory grew by 56 additional homes in the past two weeks. An interesting statistic is the portion of distressed homes in the various ranges in comparison to a year ago. Last year 55% of all distressed homes were found below $500,000 and 92% were below $750,000. Today 78% of all distressed homes are located below $500,000 and 94% are below $750,000. It is easy to conclude that the distressed inventory is driving demand. As painful as the distressed inventory has been to pricing, that erosion in pricing has not only brought affordability and value back into the Orange County housing market, it has planted the seeds to an eventual housing recovery.

Total Pending Sales, a statistic that I started tracking back in September of 2006 and revealed for the first time a month ago, are now at 4,248, a decrease of 22 homes. Remember, this statistic is different than demand, which shows the prior month’s activity. These are TOTAL pending sales, including those that have been pending for months. Compared to last year, total pending sales are up 73%. The year over year discrepancy continues to grow. Four weeks ago, total pending sales were up 61% compared to 2007. The markets are moving in opposite directions. Last year, total pending sales reached only 2,461, 1,787 fewer. Current sold homes not only surpass 2007 levels, it now eclipses 2006 levels as well. The number of sold homes has continued to grow unabated ever since March. The trend is almost identical to demand, the only difference, an apparent 60-day lag in the sold numbers compared to demand.

It is time, once again to clear up the misconception in the short sale market. Short sales occur when a seller can no longer afford their monthly obligations and their outstanding loan(s) exceed the current market value. The seller must be able to document that they truly have a hardship, that their total outgoing monthly bills exceed their monthly income and they do not have a large savings or other source of capital. When this occurs, the homeowner places their home on the market subject to lender approval. Thus, even though the buyer and seller may agree upon price and terms, the pending sale does not close until formal lender approval (and in many cases, more than one lender). HOWEVER, this is where the misconception occurs: a majority of short sales are on the market as active listings even though they already have received an offer, and often multiple offers, and have submitted a ratified contract to the lender(s). They remain as active until they obtain formal lender approval. This is due to a contract that is signed by both the buyer and seller that allows the seller to continue to market the home until lender approval. Unfortunately, this process can take anywere from weeks to months. The end result, buyers encounter homes that already have had tremendous activity and generated many offers. In most cases, short sales are just as popular as foreclosures due to their affordability and value. There are 1,249 active foreclosures on the market and demand for them is at 1,034, representing an expected market time of 1.21 months. In comparison, there are 4,701 short sales on the market. With reported demand for short sales at 656 pending sales, the expected market time is at 7.17 months. This is grossly understated because so many go unreported. Thus, it is hard to navigate among all of the active short sales. The bottom line, expect a lot of competition and activity when dealing with both foreclosures AND short sales.

If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Market Time Report: Demand 50% Stronger Compared to Last Year

The surge of first time home buyer activity has equated to tremendous demand in the lower end of the market. Demand surpassed last year’s level by 51% and 2006’s level by 23%. Demand, the number of pending sales over the past month, now totals 2,743, an increase of 61 over the prior two weeks. For the first half of 2008, demand ignored conventional trends, growing week after week, uninterrupted. That changed at the very end of June and beginning of July where demand is now following a normal summer cycle. Demand should continue to increase slightly through the rest of the summer and dip slightly in September, the beginning of the Autumn market. Last year at this time demand was at 1,822 pending sales, 921 fewer. Two years ago it was at 2,235, 508 fewer. This wave of first time home buyer activity has been fueled by the volume of the distressed home market, foreclosures and short sales (homeowners who have outstanding loans that total more than the current market value of their homes). The distressed home market accounts for 40% of the active inventory and 51% of demand. This market has afforded tremendous opportunities for buyers and has quickly eroded prices, increasing home affordability, and, ultimately, fueling the spike in demand this year. Total Pending Sales, a statistic that I started tracking back in September of 2006 and revealed for the first time in the last report, is now at 4,270, an increase of 78. Remember, this statistic is different than demand, which shows the prior month’s activity. These are TOTAL pending sales, including those that have been pending for months. Compared to last year, total pending sales are up 66%. That comparison was up 61% two weeks ago, so the disparity is growing. Last year, total pending sales reached only 2,575, 1,695 fewer. The bottom line: there are many distressed homes on the market and prices have dropped; however, demand is much, much healthier than last year.


I have read so many reports, forecasts, predictions and prognostications that it would make your head spin. They run the gamut, from the ridiculous, the next Great Depression, to the absurdly optimistic, that the market will improve in the second half of 2008 and accelerate in 2009. I have heard that prices may fall as low as the mid-1990’s, which is utterly ridiculous and ignores too many economic fundamentals. I think the real problem is that in the information age, there’s just too much information. If you Google news articles for “housing,” there are 187,126 articles within the last month. Fact: a majority of the subprime resets will have concluded by year’s end. Fact: prime adjustable resets will be next. Conventional wisdom tells us that this will not be nearly as devastating as subprime. In sifting through all of the information and data, and drawing from my quantitative economics and decision sciences background, I think we can expect more of the same. That means we can expect increased demand in the lower ranges due to affordability; increased pressure on pricing in the upper ranges due to the lack of financing, distressed properties staying at or close to their current plateau of under 6,000 active listings (currently 40% of the market), and discretionary homeowners with equity avoiding selling unless they absolutely must sell. We will most likely realize a normal, slight, cyclical drop in demand in the Autumn and an even further drop with all of the distractions of the Holiday market, from Halloween through the first couple weeks of the new year. In 2009, distressed properties will begin to drop from its plateau in the middle of the year, as the last of the subprime tsunami is absorbed. Yes, there will still be distressed properties from the prime and subprime sectors, just not at the rate that we have all become accustomed to seeing. 2009 will be the year we absorb the distressed properties. Right now, the problem is that the homes coming off the market due to increased demand in the lower ranges are constantly being replaced by a fresh, steady stream of distressed properties. As the tap of distressed properties is turned down at the beginning of 2009, demand will finally have an opportunity to erode the inventory and further stabilize the market. This is of course if there are no hidden surprises. For example, the naysayers are quick to point out that I thought the last Holiday market would be a great time to buy. However, I was stating that prior to the surprise beginning of the financial crunch in August of 2007. But I was not alone. Nobody accurately predicted that the entire international financial markets would become frozen overnight. But, the likelihood of another surprise of the magnitude of the financial crunch is very small. Many forecasts and predictions fail to take into account that Congress, the Federal Reserve, the White House, and financial institutions are doing everything in their power to reverse the trend in housing and stabilize the market. Oil, food and housing have become such a drag on the economy that EVERYBODY is going to do whatever it takes to bring stability. Congress is working on a bill right now that addresses a permanent change to the increased conventional and FHA loan limits, a first time home buyer credit, and foreclosure relief.

So, what does the rest of the data look like? The active inventory increased slightly in the prior two weeks by 45 homes, now totaling 14,746 homes. It continues to buck the trend to grow during the Summer market and has remained at its current level for all of 2008. Last year there were 2,850 additional homes on the market after adding 262 homes in two weeks. In 2006, there were 989 more homes on the market after adding 377 homes in two weeks. The current active inventory is obviously not following a normal cycle. The expected market time dropped slightly from 5.48 to 5.38 months. In comparison, last year the expected market time was 9.66 months and it was 7.04 months two years ago. The distressed home inventory, foreclosures and short sales, dropped by the largest amount in the past two weeks, 59 homes, and remained 40% of the overall active inventory. Remember, there is a lot of competition for distressed properties, with most fetching multiple offers, and there are still many selling for above their asking price. The current expected market time for foreclosures is 1.42 months. 21% of the distressed inventory is foreclosures. In comparison, 79% are short sales. The market time for short sales is 8.52 months. However, this is not really the “expected” market time since so many short sales remain on the market until they receive formal lender approval on the sale. One of our associates highlighted an offer that had been accepted by the seller and submitted to the lender for eight months before receiving lender approval. The home remained active on the market the entire eight months, even though they had a buyer and seller that agreed upon the contract. So, expect competition on short sales too.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

Market Time Report: June 2008 Closed Sales 11% Better than June 2007

The big story for the Orange County real estate market is that the pace of closed sales, especially the last couple of weeks, has been brisk. According to residential resale data, there were over 220 additional closed sales in Orange County, 11% stronger than last year. After starting the first few months with demand down by over 30% compared to 2007, the trend in a slow, continual increase in demand for the first six months finally translated to better sales in comparison to 2008 for the month of June. July is shaping up to continue that trend and we can expect more of the same for the remainder of the year. I can already hear the skeptics out there pointing to the coming Autumn market and Holiday market, from Halloween through the first couple of weeks of the New Year. Yes, the real estate market will experience a cyclical slowdown during that period of time, just nothing compared to 2007. In 2007, the market was plagued by the initial stages of the financial crunch, which began in August. That initial stage lasted six months until prices fell to a point where first time home buyer demand began to rise with an enormous improvement in home affordability. Since then, the market has only been aided by the increased conventional and FHA loan limits. Right now Congress is looking to create a temporary first-time home buyer tax credit, increase the conventional and FHA loan limits permanently and expand the FHA program to provide additional authority to refinance at-risk homeowners and help prevent foreclosures. Many turn their collective heads in disgust to any form of government bailout, but everybody is coming to the quick realization that dealing with falling house prices in conjunction with rising food and gasoline prices is not a healthy mix. Be assured, that our government and the Federal Reserve will do whatever is necessary, but with measured steps. Expect to hear more regarding resurrecting the Resolution Trust Corporation (RTC) to help stabilize the current housing dilemma. The RTC was formed in 1989 to "bail out" the rapidly deteriorating financial market due to the insolvency of savings and loan associations. Today, a similar agency could purchase bad debt of distressed, owner-occupied homes at a discount from the debt holder and restructure the loan for the owner in areas hit hard by foreclosure activity. This in turn would ultimately stabilize the current financial crunch.

So, what does the rest of the data look like? For the first half of the year, the market marched to the beat of its own drum, shirking cyclical twists and turns. Demand steadily increased, the active inventory remained the same and market time progressively dropped. Then, starting a couple of weeks ago, many buyers started to enjoy the summer, vacationed, went to the beach, and they took the Fourth of July holiday weekend off. Demand responded and reacquainted itself with a normal cycle. Today’s demand reading is cyclically the lowest point of the Summer selling season and consistently drops significantly from the snapshots of demand in June. The good news for the real estate market, the demand trend line shows an increase through the end of the Summer market and peaks at the end of August. Today’s demand, the number of homes placed into escrow within the prior month, is now at 2,682 homes, dropping 324 homes from two weeks ago, an 11% drop. As tempting as that drop is for the naysayers and headline editors to embrace, demand is still 51% better than last year and 26% better than 2006. The real story is that demand is now following a normal Summer market cycle. A normal cycle calls for a drop in today’s reading compared to June. I have been tracking Orange County housing demand, a snapshot of the prior 30-days activity, since June of 2004. I started tracking an additional statistic, Total Pending Sales, beginning in September of 2006. It is different than demand, which shows the prior month’s activity. These are ALL pending sales, including those that are pending for months. Yes, some of the pending sales fall out, but the higher the number, the more that become closed sales. At the beginning of the year, the total pending count was 34% less than the beginning of 2007. Today, the total pending count is at 4,192 compared to 2,606 last year at this time, that’s 61% higher. The bottom line, demand is much healthier today due to increased home affordability and the wave of first time home buyer activity.

The active inventory still refuses to follow a normal cycle. Cyclically, Sellers mistaken the Summer market as the best time to place their homes on the market, when in reality it is the Spring market. Thus, during the summer months, the inventory typically grows. In the last two weeks, the active inventory has dropped by 139 homes, bringing the total to 14,701, the lowest point of the year. Last year, there were 2,633 additional homes on the market. In 2006 there were 657 additional homes on the market. The expected market time increased from 4.98 months two weeks ago to 5.48 months today. The expected market time was at 9.73 months last year and 7.2 months two years ago. The distressed homes, foreclosures and short sales, grew by only 7 homes in the past two weeks and remains at 40% of the overall active inventory. For those looking for a distressed property “deal,” remember that lenders are in the driver’s seat and there is tremendous competition with multiple offers and homes fetching above their asking price. I was just informed of a large home in Ladera Ranch that was grossly underpriced as a foreclosure. After procuring a hoard of offers, the home is now a pending sale for a ridiculous amount over the asking price. In essence, the agent and lender created a “mini-auction” on their home with a successful outcome.If you are a seller, how do you compete? The secret to success is a great price and great condition. As a seller, the danger of overpricing is that as prices drop, there are only two options: chase the market and drop the price or pull your home off the market. To avoid chasing the market down in price, carefully arriving at the initial asking price is crucial. Lower price ranges are subject to increased competition from foreclosures and short sales. However, non-distressed home sellers have a way to differentiate from most distressed properties, condition. Most foreclosures and short sales are in poor to average condition. Under the circumstances, their motivation to keep a home in tip-top shape just is not present. Non-distressed, traditional home sellers have the ability to showcase their homes as the home in a neighborhood that stands out because it is in move-in condition. A home that is clean from top to bottom with lush green landscaping, a fresh coat of paint and even new or newer carpeting stands out. Distressed homes often have dead or no landscape and are in need of many cosmetic fixes. Most buyers require a major discount in price to compensate for the trouble to fix up a home. Sellers need to be in tune with the changing market conditions and strategically position their homes for success. For sellers in the higher ranges, above $750,000, demand has dropped compared to prior years because of the financial crunch. Financing is much harder to get in the upper ranges, cutting into demand. In these ranges, the keys to success are price, condition and a ton of patience.
If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/

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Market Time Report: The Inventory Drops Below 2006 & 2007 Levels

Thus far, the big surprise of 2008 is the fact that the inventory has not grown this year. In fact, over the past six weeks, the inventory has been dropping. The active inventory was at 14,944 homes on January 10, 2008, my first report of the year. In comparison, today, there are 104 fewer homes, or 14,840. So far in 2008, the peak in inventory was established on March 20th at 15,617 homes, 777 additional homes compared to today. Last year at this time we were contending with an inventory that had grown by 5,607 homes from the start of 2007, growing from 11,643 homes to 17,250. The 2007 peak was achieved on September 20th at 17,898 homes. The rate of growth was even more staggering for 2006, growing from 7,635 homes at the beginning of the year to 14,946 by the end of June, a 7,311 home increase. The big difference this year compared to the prior two years is the fact that the conventional, non-distressed, discretionary home seller simply refuses to compete with the distressed inventory completely controlled by lenders, foreclosures and short sales (short sales are homeowners who owe more than their homes are worth, requiring lender approval of any sale). In January, 3,858 of the 14,944 homes on the market were distressed properties, 26% of the inventory. Today, 5,946 of the 14,840 homes on the market are distressed properties, 40% of the inventory. The non-distressed, discretionary seller inventory has dropped from 11,086 to 8,894 homes, a 2,192, a 19% drop. That is significant and has allowed the seeds to an eventual recovery to begin to germinate.

The other big story is that demand is now far better than both the 2006 and 2007 levels. Demand dropped in the past two weeks by 54 homes to 3,006 pending sales within the prior month. That is the first time this year that demand conformed to its normal cycle, dropping at the end of June. Dating back to 2004, when I first started tracking Orange County housing market numbers, demand has always dropped from mid-June to the end of June. However, demand is much stronger compared to the last two years. Last year, demand was at 1,894 pending sales, 1,112 fewer than today, or 37% less. Two years ago, demand was at 2,362, 644 fewer than today, or 21% less. Where is this demand coming from? Essentially, the lower ranges, all homes below $500,000, where the pressure from distressed homes has been greatest and eroded prices to a level where affordability has radically improved. With lower interest rates and a significant drop in prices, a bit over 20% in the prior two years, a wave of first time home buyer activity has unfolded before our collective eyes. Let’s take a quick look at demand and inventory for the $0 to $500,000 range compared to the market in total over the past few years:

Year % of Total Demand % of Total Inventory
2008 59% 48%
2007 26% 27%
2006 27% 22%
2005 30% 22%

So, this phenomena is a new element to the Orange County housing market, fueled by distressed properties and a lot of first-time home buyer activity. The word out in the field is that investors are now making their way back in the office too because prices have dropped to the point where a property will “cash flow,” meaning that the monthly cost is more than covered by the rent that is received. I personally have not heard of properties that will “cash flow” in many years. So, affordability has allowed the seeds to an eventual recovery to begin to germinate too.
What other trends can be discerned from the current data? The expected market time increased slightly over the past two weeks from 4.86 to 4.94 months. For all homes below $1 million, the expected market time is better than the last two years. All homes below $750,000 are experiencing a market time at four months, compared to around nine months last year. For homes between $750,000 and $1 million, the market time is at 6.23 months compared to 7.24 months last year. Foreclosures and distressed homes make up 40% of the active inventory, but if somebody is just looking for a foreclosure deal and does not want to deal with the hoops, delays and red tape that come along with short sales, they are in for a lot of competition. The foreclosure active inventory has remained at similar levels since mid-February, growing from 1,040 homes to only 1,171 homes. The foreclosure inventory makes up only 8% of the total market and only 20% of the distressed inventory. AND, buyers are flocking to them in droves. The current expected market time for foreclosures is down to 1.32 months, a SUBSTANTIAL sellers market. Expect multiple offers and very strong sales to list price ratio, meaning they are selling for their asking prices. The list to sales price ratio for all foreclosures is 99%. For homes above $500,000 the ratio is 100%. Yes, some do sell below their asking prices, given the condition and area; but, many sell well above their asking prices. Also, you can expect that the higher the range, the fewer number of foreclosures. 86% of all foreclosures are below $500,000 and 97% are below $750,000. If you are looking for that foreclosure “deal” above $750,000, stand in line and expect a lot of competition. Short sales make up 32% of the active inventory and 80% of all distressed sales. WARNING, do not be fooled by the 7.2 month expected market time for short sales. This statistic is extremely deceiving. There is actually tremendous demand for short sales and a majority of all active short sales actually have an offer to purchase that has been accepted by the seller and submitted to the lender. Short sales are “subject to lender approval,” meaning they are not officially a pending sale and officially pulled off the market until formal lender approval. So, about roughly half of the 4,789 currently active short sales have offers submitted to a lender for approval. This process can take anywhere from weeks to months to receive formal lender approval. And, even though the buyer and seller have executed an agreement, that alone does not guarantee that the lender is just going to rubber stamp an approval. The lender will want to be certain that the buyer, seller and property all qualify. The lender will make sure that the buyer is properly approved and able to close on the short sale. The lender will also make sure that the seller is truly a “hardship” case and does not have a savings account, a 401k nor owns other homes. Last, the lender will make sure that the property was not placed on the market at an artificially low level just to attract offers to purchase. In that case, they would be better off foreclosing and marketing the property themselves. Keep in mind that a majority of our market is controlled by lenders who are not emotionally involved and will approach these homes as assets and not homes. They work in the Asset Management Department and have computer programs and spreadsheets that control their decisions.

If you are considering buying or selling a home in South Orange County, call on the experts! Dianna and Brian McGarvin 949-370-2652 or visit our website at http://www.pierbowl.com/