Market Time Report: Current Demand Double 2007 Levels

The year over year comparisons in Orange County housing demand are growing more unbelievable by the day. Current demand is 103% greater than one year ago at this time. Demand, the number of pending sales over the past month, increased by 51 homes in the past two weeks to 2,991. In the past month, demand has increased by 258 pending sales. In sharp contrast, one year ago demand was at 1,475 after dropping by 329 pending sales in just two weeks. That marked the absolute beginning of the credit crunch. We are still feeling the effects of the credit crunch today, especially in the upper ranges involving jumbo loans; however, the current severity pales in comparison to the initial six months of the crunch. From August 2007 through February 2008, demand trickled in as financial institutions, the Federal Reserve and all of Washington DC clamored to apply as many fixes as possible to jumpstart the financial system. The crunch is currently not as severe, but it will continue as the strain of record defaults and foreclosures weighs down financial institutions around the world. Even though the crunch is affecting the market, demand is much healthier today compared to 2007 and 2006. Current demand is not only 103% higher than 2007 levels, it is 27% higher than 2006. It is amazing that this is occurring within an environment that is handcuffed by extremely tight regulations and new lending standards. The disparity in Total Pending Sales, a statistic that I started tracking back in September of 2006 to show ALL pending activity and not just the past months activity (demand), is growing substantially. The current total pending sales count grew by 101 homes in the past two weeks to 4,349 pending sales, compared to 2,113 pending sales last year and a drop of 348 in two weeks. So, compared to last year, total pending sales are up 106%.

Distressed properties, foreclosures and short sales, have become a major player in today’s market. As distressed propertied continued to build after the beginning of the financial crunch, prices dropped significantly and restored affordability to the market not seen in several years. First time buyers were finally able to reenter the marketplace and many fence sitters are finally jumping in as well. We read and hear about the continued mass numbers of defaults and foreclosures, but the numbers of distressed listings actively on the market has reached a plateau and has even dropped in recent weeks. This is due to the enormous appetite for affordable homes, primarily found below the $500,000 mark. Distressed homes are now being placed into escrow as fast as they are coming on the market, allowing the distressed inventory to reach its current plateau. There are 5,865 distressed homes on the market, a drop of 85 in the past two weeks. 42% of the active market is a distressed property, unchanged from two weeks ago. This level is no different than the level reached at the end of May. Prior to May, the distressed inventory was growing unabated since July of last year. 21% of the current distressed inventory is foreclosures, totaling 1,232 homes. 79% of the distressed inventory is short sales, totaling 4,663. 78% of all distressed properties are found below $500,000 and 93% are below $750,000. The number of distressed properties in the upper ranges pales in comparison to the lower ranges. For those looking to find a great “deal” by offering to purchase a property far below the asking price of a distressed home, good luck. Your chances are much greater in winning the California lottery. Many have the attitude of nothing ventured, nothing gained, but the statistics just are not on their side. The sales to list price ratio, how close a home is sold compared to the asking price, is between 99% and 100% depending upon the price range. Most distressed homes receive multiple offers and many sell for higher than the asking price. Buyers need to keep in mind that prices have already dropped drastically; in essence, they are already getting a “deal.”

So, what does the rest of the data look like? The active listing inventory has shed 289 homes in the past two weeks and 687 over the past month and now totals 14,059, the lowest level since April 5, 2007. While in the initial stages of the financial crunch, back in December, I felt that the inventory could blossom to 20,000 homes. Instead, discretionary sellers who have equity in their homes decided, for the most part, to skip this market and not place their homes on the market and compete with the onslaught of distressed properties. Also, with a significant drop in pricing and an increase in affordability, demand has also eaten into any potential increase in the inventory. Last year at this time the inventory posted its second highest mark of the year of 17,881 homes, 3,822 additional homes, or 21% higher, compared to today.

Two years ago the inventory posted its highest mark for 2006 of 16,006, 1,947 additional homes, or 12% higher, compared to today. The expected market time for Orange County dropped from 4.88 months two weeks ago to 4.70 months today. The expected market time in 2007 had blossomed to double digits for the first time, 12.12 months, and would remain in double digits until February of this year. Two years ago the expected market time was at 6.79 months. It is easy to conclude that even with the giant negative spotlight on the financial markets and distressed properties, the Orange County housing market is at a much healthier place compared to the past couple of years and is on the road to an eventual recovery.
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/