Current Orange County housing demand not only obliterates 2007 levels, but it now has surpassed 2006 levels as well. Demand has reached a mark not seen in 24 months. Thus far this year, it has charted a course that is not at all cyclical and has improved unabated. The most rational reason for this break in tradition is pent up demand, specifically, pent up first time home buyer demand. It is important to reiterate from prior reports: locally, statewide and nationally, everybody seems to be fixated on SOLD data versus what is going on right NOW within the housing market, PENDING data. Why you may ask? Because SOLD data is so readily available and is actually public record. PENDING data is much harder to gauge and very few consistently report it because the data is not publicly available. The SOLD data set’s biggest flaw is that it tells a story about the real estate market about two months ago. I compare it to looking in your rearview mirror. It does a great job of letting you know where you have been, but it is not a very good gauge in letting you know what is just around the corner. I would not want to drive my car solely looking through the rearview mirror. Sold data is helpful in comparing where we have been compared to prior months or years, but is NOT a leading indicator that points to where we are going from here. PENDING data, on the other hand, gives us the ability to navigate looking out the front windshield. There may be curves and mountains to climb or descend down the road, but at least I can tell you where I am going right NOW. A lot can change in two months too. For example, current demand, the number of homes placed into escrow within the prior month, is at 2,720 homes versus 2,285 two months ago, a 19% improvement. The prior two month period experienced a 46% improvement. Current sold home levels surpassed 2007 levels for the first time starting just two weeks ago, whereas demand beat year over year levels a little over two months ago. So, expect the media to report that June SOLD data surpassed 2007 levels in the middle of July.
The storyline really has not changed much this year: demand is continuing to grow; the active inventory has changed very little this year; and expected market time has dropped like a rock. The current active inventory dropped by 187 homes in the past two weeks to 15,270 homes. Thus far, the 2008 height in the active inventory was achieved on March 20th, 15,617 homes. The inventory was at 14,944 homes on January 11th. Not much of a change. In comparison, last year’s inventory grew from 11,643 homes in the middle of January to 16,500 a year ago from today, a 42% increase compared to a 2% increase this year. Current demand is at 2,720 escrows versus 1,862 escrows last year and 2,618 escrows two years ago. Thus far this year demand has improved by 173%. The current expected market time is presently at 5.61 months versus 8.86 months just one year ago and 5.16 months two years ago. Market time has not yet surpassed 2006 levels because the active inventory was at 13,502 homes two years ago. However, the active inventory was rapidly growing two years ago and reached the 15,000 mark at the beginning of July. If current demand continues to improve and the inventory remains steady or drops, the expected market time will continue to improve.
What other trends can be discerned from the current data? First things first, a lion’s share of demand is relegated to the lower end. Demand in the lower ranges, below $500,000, is up 203% compared to last year and the listing inventory in this range is up just 66%. For homes between $500,000 and $750,000, demand is down by only 8% and the inventory is down by 47% compared to last year. In the upper ranges, from $750,000 and above, demand is off by 27% compared to last year and the inventory is down by 21%. This shift in demand has everything to do with the continued problems stemming from the financial crunch in obtaining financing above $729,750, the current conventional loan limit. It also has a lot to do with the current wave of first time home buyer activity fueled by the distressed properties, a significant drop in prices and an increase in affordability. This shift in demand has changed the mix of SOLD data significantly. This shows up in the overly hyped “median sales price.” The median value is when you line up a list of all of the SOLD values from least to greatest and then take the exact middle value, which becomes the often reported “median sales price.” Yes, prices have come down, probably more along the scale of 12% year over year for the county as a whole, BUT they have not come down 20.5% year over year as reported in April’s median sales price. There is a much better, more sophisticated calculation undertaken by the Office of Federal Housing Enterprise Oversight, OFHEO, which tracks repeat sales. Unfortunately the OFHEO takes a back seat to the median sales price. After the first quarter of 2008, they have the drop in pricing pegged at 11.16%. The OFHEO scrutinizes recent conventional loan activity; thus, some argue that if it included the upper range, that the drop would be even larger because of the lingering effects of the financial crunch. I disagree. The upper ranges are dropping in value; however, most of the distressed activity has been isolated to the lower ranges. Only 7% of the 5,909 current distressed homes on the market, foreclosures and short sales, can be found above $750,000. There are only 431 out of the 4,907 homes currently on the market above $750,000 that are distressed. Prior to the significant entry of distressed properties last year, there was a tug of war between buyers and sellers and values were really not decreasing by much. Once you throw in homeowners and banks that absolutely, unequivocally have to sell, price becomes the motivating factor to procure a sale. Currently, 62.4% of all homes below $500,000 are either a foreclosure or short sale. Don’t jump to any conclusions that prices will continue to drop like a rock in this range. This is the range that has witnessed the sharpest increase in demand. Demand within this range has grown from 917 homes just three months ago to 1,579, a 28% increase, while the inventory has only grown by 8%. From the beginning of the year, demand has jumped 305% for homes below $500,000 and the inventory has only grown by 19%. The expected market time has actually dropped to 4.6 months for this range, a slight seller’s market reading. Let’s not get ahead of ourselves, the nature of distressed properties puts pressure on pricing because of the enormous quantity in the current market. Thus, expect prices to continue to drop, just not at the same rate the prior nine months.
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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