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