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/
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment