Market Time Report: Demand is Up

Demand has broken away from the normal Autumn cycle and is up for the start of the season. Typically, demand, the number of new pending sales within the prior 30 days, starts a slow decline at the beginning of the Autumn market, but not this time. Demand marched to the beat of its own drum and did not follow the normal real estate cycles for the first half of this year, growing unabated. Then, in June, demand started to track the normal cycle, falling in July slightly and then increasing throughout August. If demand was to follow a normal Autumn cycle, it would have dropped slightly. However, demand increased by 127 homes in the prior two weeks and now totals 2,974 pending sales. Not only is demand far surpassing the prior two years, but it is swiftly approaching 2005 numbers. Demand is 152% stronger than last year and 34% stronger than two years ago. Last year at this time there were only 1,180 pending sales, 1,794 fewer than today. Two years ago there were 2,208 pending sales, 766 fewer than today. In 2005 there were 3,058 pending sales, 84 additional compared to today, a 1.7% difference. This change in the demand cycle was totally unexpected. It remains to be seen just how long this unconventional pattern will continue; nonetheless, it is a very good sign for the Orange County real estate market as a whole.

The active listing inventory has broken from all cyclical patterns for the entire year. After a slight initial increase in the inventory for the first couple of weeks of the year, it remained at a plateau for the first half of 2008. June and July was marked by a slow descent in the inventory. But, ever since the beginning of August, the inventory has been rapidly dropping, shaving a total of 1,572 homes since July 25th. In the past month alone, the inventory has dropped by 885 homes. Today the active inventory stands at 13,174 homes compared to 14,059 a month ago, a 6.3% drop. Last year at this time the active inventory actually increased by 17 homes within the prior four week period. Two years ago it dropped by 334 and three years ago it actually climbed by 830 homes, the beginning of the real estate slowdown. So far in 2008 the active inventory dropped from 14,944 at the beginning of the year to 13,174 homes today, an 11.8% decrease.

With demand increasing and the active inventory dropping, the expected market time has actually dropped to its lowest point of the year, 4.43 months. The market is in much better shape compared to the beginning of the year when the expected market time was at 14.97 months. Back then demand was at 998 pending sales and the inventory was at 14,944 homes. Last year at this time, the beginning of the financial crunch, the expected market time had blossomed to 15.17 months, 242% longer than today. Two years ago, the expected market time was 7.10 months, 60% greater than today. This market is so different compared to the past couple of years. This can be attributed to the distressed market and financial crunch pressuring pricing to the point where Orange County homes became more affordable and attracted many first time home buyers and, now, investors. As home prices align closer to rents, investors are starting to enter the market again. The stronger market can also be attributed to non-distressed home owners utilizing their discretion and ultimately deciding to not compete and sit this current market out. Slowly but surely more home owners are staying put and are realizing that their homes are not just an asset to be flipped every two to three years. Their address is “home,” a place to raise a family and create memories that will last a lifetime. Homes should be bought and sold with the understanding that, first, a home is a place to raise a family and, second, a great LONG TERM investment. That will very likely be a lasting legacy of this current downturn.

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), from last year to this year continues to grow unabated. A month ago today’s total pending sale count was 105% greater in comparison to 2007. The disparity has grown since to 157% greater than last year. Today it stands at 4,393 total pending sales, the highest point of the year, surpassing the previous high of 4,363 established on June 26th. Last year the total pending count was at 1,710, a difference of 2,683. So, the current market may be filled with its set of challenges, but they pale in comparison to where the market was a year ago.

Distressed properties, foreclosures and short sales, make up a major portion of today’s Orange County real estate market. With the inventory dropping due to homes placed into escrow and many discretionary sellers pulling their homes off of the market, the percentage of distressed homes on the market has grown a little bit over the past month. A month ago distressed homes made up 41.7% of the overall active inventory versus 42.9% today. However, the total number of distressed homes on the market has actually dropped in that same time period by 215 homes, from 5,865 to 5,650. Current demand is exhausting the continuous stream of new distressed homes that are placed on the market and even driving it down a little bit. The expected market time for foreclosed homes is at 1.18 months, a seller’s market. So, if you are a buyer looking for a “deal,” do not expect a foreclosure to sell for much less than the asking price. There is so much demand for foreclosures that most are securing multiple offers, and many are actually sold above the asking price. Short sales are a little bit of a different story with an expected market time of 6.2 months, but don’t let that number fool you. Many short sales that are a part of the active listing inventory have actually secured many offers, they have an agreed upon contract between the buyer and seller, and the accepted contract has been submitted to the lender(s) for “lender approval.” These listings are waiting for the formal “lender approval” before starting the escrow process and pulling the home off the market with a pending status. So, the 6.2 month expected market for short sales is definitely inflated and should be at or below about the three month mark.

Where do we go from here? Back in July I told everybody to expect to hear more regarding resurrecting the Resolution Trust Corporation (RTC) to help stabilize the current housing dilemma. Well, two month later and they are now formulating something very similar to the RTC. 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 would 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. This will not flip the switch to a better market overnight, but it will get us back on track over the course of time. It will ultimately restart the financial engine that drives our economy and repair the ailing housing market.
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/