Demand is not only dramatically surpassing 2007 levels, it is just shy of matching 2006 levels. The big difference in comparing current demand to demand over the past two years is that it has been improving unabated throughout 2008. This is so contrary to the constant stream of negative news regarding the housing market. That is due to the fact that the media is only provided with SOLD data, which is a snapshot of demand a couple of months ago. As a matter of fact, Dataquick, the company that provides the statistical SOLD and median price data to the media, is going to release the figures for April next week. Orange County housing demand did not exceed last year’s demand until the beginning of April, which will not reflect in the SOLD data until May’s data at the earliest. With that in mind, expect next week’s sold data to fall short of exceeding last year’s levels. The disparity will be closer than last month’s comparison, but it will still fall short. This is not due to escrows falling apart; it is because in March of this year there were fewer homes placed into escrow compared to March in 2007. So, it is a matter of time before the data that the media is supplied catches up to the story of today: demand is much stronger than last year. Demand, a snapshot of the prior 30 days of escrow activity, has continued its ascent by adding an additional 118 escrows in the past two weeks, bringing the current total to 2,658. Just last year demand was at 2,010 escrows, 648 fewer than today, off by 26%. Two years ago demand was at 2,741 escrows, 83 additional compared to today, or 3% more.
“Steady as she goes” is this best way to sum up the current active inventory. After the active inventory dropped by 604 homes on January 1, 2008, a normal, cyclical phenomena, from 15,328 to 14,724, since reaching 15,363 on January 30th, the inventory has only grown by an additional 94 homes, or six-tenths of one percent. That does not mean that only 94 homes have come on the market within in that time period; instead, it means there are almost an equal number of homes coming on the market as there are coming off. During the same period of time last year, the active inventory grew by 4,193 homes, or 35%. In 2006, it grew by 4,628, or 57%. The current active inventory is now at 15,457 homes, 20 additional homes compared to two weeks ago. Last year, there were 631 additional homes and climbing at a steady rate. Two years ago there were 2,761 fewer homes on the market; however, if it continues along its current, persistent trajectory, the inventory will be less than the 2006 mark by the end of July of this year.
With steadily increasing demand and a stable active inventory, the expected market time has continued its 2008 descent. Starting the year at 15.6 months, the market time has dropped significantly to 5.82 months today. This is the first drop below the six month mark in 14 months. Last year at this time the market time was at 8.0 months and two years ago it was at 4.63 months. As can be seen below, the expected market time is not following any trends of the prior two years other than the initial beginning of the year drop. If demand continues to improve and the inventory remains steady, the market time can continue to improve.
What other trends can be discerned from the current data? First, it is safe to say that the current market is much different than the past two years. There is tremendous activity for all homes below $500,000. This range now accounts for 47% of the current active inventory and 58% of demand. Last year, this range accounted for only 26% of both the active inventory and demand. Foreclosures only account for 7% of the current active inventory, totaling only 1,082, but they account for 25% of current demand. The expected market time for foreclosures has dropped to 1.61 months, a deep sellers market. Thus, it makes sense that foreclosures are not only fetching multiple offers, many are selling for above their asking prices. Short sales, where the homeowner owes more than the current market value of their home, total 29.7% of the current active market, 4,596 homes, but only 19% of demand. The expected market time is 8.94 months. HOWEVER, these statistics are extremely misleading as most buyers and all agents can attest to. A large portion of these active listings already have secured an acceptable offer, and in many cases, multiple offers, signed by both the buyer and seller and submitted to the bank, or banks, because they are “subject to lender approval.” Yet, they remain on the market as active listings. This is permissible as long as there is a signed “short sale agreement” that allows the seller to continue to actively market their home until formal lender approval occurs. The reports from the streets are that close to 50% of all short sale listings have mutually signed offers that are in the lenders hands for their approval process. This process can take anywhere from a few weeks to months. With 77% of all short sales below $500,000, demand is under stated. So, there is a boat load of activity in the lower ranges in Orange County. The bottom line is this: short sales and foreclosures have enabled housing prices to drop substantially since demand peaked in the first half of 2006. At the beginning of the current cycle there was a stalemate where buyers did not want to buy and sellers did not want to come off of their pricing perches. But, with the implosion of the subprime market and, subsequently, the financial market and lending liquidity, the housing landscape changed significantly. The housing boom had been underwritten by adjustable, subprime loans that began to rapidly reset in the second half of 2007. An unprecedented number of homeowners defaulted on their loans. This trend will continue until the end of 2008 when subprime loan resets will significantly diminish. Currently, 36.7% of the active inventory is either a foreclosure or short sale. Demand increased considerably as prices dropped to levels not seen in years. We are currently experiencing a wave of first time home buyer activity. Almost every Realtor® is working with a first time home buyer. Two years ago nobody was working with a first time home buyer and parents were wondering if their children would ever be able to afford a home in Orange County. First time home buyers have been priced out of the market for years and now that affordability has greatly improved, demand has skyrocketed. The new FHA loan limit of $729,750, allowing buyers with some credit issues who can afford the payment to put as little as 3% down, has helped fuel demand in the lower ranges as well.
Where’s the demand in the upper ranges? Finally we are seeing a bit of relief from the affects of the financial market. The disparity between the old $417,000 conventional loan limit and the new $729,750 limit has dropped from three-quarters of a percent to one-eighth. That is a major shift in financing which should increase demand up to the $800,000 level. The disparity between the old conventional loan limit and the new super jumbo loan limit, loans above $729,750, has improved from 1.5% down to 1%. These disparities should continue to improve as the year progresses, and should reach much more comfortable levels by the end of the Summer. So, demand in the upper ranges should slowly improve as liquidity is slowly restored this year. Also, there was a six month lag between the slowdown of the lower and upper ranges in 2007. It stands to reason that a similar lag would apply in the improvement in demand. Demand in the lower ranges really did not surge until the end of February. That would place an increase in demand for upper ranges at the end of August.
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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