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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