Market Time Report: Expected Market Time Remains Under 5 months

September 4, 2008
With year over year demand 136% higher than in 2007 and 28% higher than 2006, it is no wonder that the expected market time is at a much healthier level. For the first half of 2008 demand increased unabated. Since mid-June, demand has followed the normal seasonal cycles. Demand first dropped to a summer low at the beginning of July and then increased until reaching the Summer market peak two weeks ago. “Back to school” marks the beginning of the Autumn market and a slow drop in demand. Demand dropped by 144 homes in the prior two weeks and 93 homes in four weeks, now totaling 2,847 pending sales. That is much better than last year at this time. Still in the beginning stages of the financial crunch that started the month before, demand dropped by 269 homes in just two weeks and 598 homes in a month. Demand dropped to historical lows and totaled only 1,206 pending sales, a difference of 1,641 compared to today. Two years ago, demand dropped by 141 homes in the prior two weeks and totaled 2,216 pending sales, 631 fewer than today. So, in regards to demand, we are currently on much better footing compared to the prior two years.

The active listing inventory has broken from all traditional cycles due to discretionary homeowners steering clear of the current market, choosing to not compete with lenders, who control 42% of the market through foreclosures and short sales. Typically, the active listing inventory climbs throughout the Summer, as many homeowners place their homes on the market to take advantage of the Summer selling season, often mistaken as the best time of the year to market a home (it is actually the Spring market). In 2007, the active listing inventory grew from 11,643 homes at the beginning of the year to 17,760 homes this time last year, a 53% increase. In 2006, the active listing inventory grew from 7,635 homes at the beginning of the year to 15,767 homes this time two years ago. In 2008, the active inventory dropped from 14,944 at the beginning of the year to 13,582 homes today, a 9% decrease. And, most of the drop has actually come recently, with a decrease of 3.4% in two weeks and 5.3% in the past four weeks.

So, even though demand has dropped a bit in the past two weeks, the subsequent drop in the active listing inventory has enabled the expected market time to remain virtually the same, increasing only slightly from 4.70 months to 4.77. Four weeks ago the expected market time was at 4.88 months. So, not a lot has changed in respect to market time. Last year at this time, the expected market time had burgeoned in a four week span from 9.76 months to 14.73. Two years ago, the expected market time was 7.12 months. In regards to expected market time, once again we are on much better footing compared to the prior two years.



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 continuing to grow substantially. The current total pending sales count dropped by 129 homes in the past two weeks, but only dropped by 28 homes in the prior four weeks, now totaling 4,220 pending sales. In 2007 at this time, there were only 1,813 total pending sales last year and a drop of 300 in two weeks and 648 in four weeks. So, compared to last year, total pending sales are up 132%. Two weeks ago, the year over year comparison was at 106% and four weeks ago it was up by 72%. Total Pending Sales is yet another statistic that points to much better footing compared to the past.

As discussed earlier, distressed properties, foreclosures and short sales, make up a major portion of today’s Orange County real estate landscape. The distressed inventory exploded onto the market last year, growing unabated from July of last year through the end of May, 2008. On July 26, 2007, there were 792 distressed homes on the market, 5% of the total active inventory. The distressed inventory continuously grew through May 29, 2008, where it stood at 5,905 homes on the market, 39% of the total active inventory. Today, the distressed inventory stands at 5,744 homes, 42% of the total active inventory. The inventory has been at a plateau since the end of May and actually dropped over the past month. The distressed inventory dropped by 121 homes in two weeks and 206 homes in four weeks. This phenomenon can be attributed to stronger demand and discretionary homeowners opting to not compete. Current demand is exhausting the continuous stream of new distressed homes that are placed on the market. Where is all of this demand coming from? The rapid growth of distressed properties and very little demand from August of last year through February of this year significantly depreciated Orange County housing, especially in the lower ranges. With affordability back in the marketplace combined with low interest rates, a wave of first time home buyers, many priced out of the market for years, dove in. 78% of the active distressed home market is isolated below $500,000 and 93% can be found below $750,000. It is no wonder that there is so much demand below $500,000, representing 64% of all demand. In comparison, the range below $500,000 represents 49% of the total active inventory. Homes priced below $750,000 represent 69% of the active inventory and 86% of demand.

Where do we go from here? Our government is carefully monitoring both the housing and financial markets and is preparing to do whatever it takes to prevent a radical downturn. The United States Treasury is preparing to take over both Fannie Mae and Freddie Mac to stabilize the conventional lending market, currently all loans below $729,750 in Orange County (this will drop to $625,500 in high cost areas). Investors have turned their collective heads away from Fannie and Freddie, but with the United States taking over, the risk of them failing drops out of the equation completely. This ultimately will strongly encourage investors from around the world to once again invest in these secondary mortgage market entities, which will allow interest rates to drop to lower levels. In this scenario, consumers looking to purchase or refinance win. Housing demand wins. The government is not afraid to intervene. They will carefully plot a course to restore the credibility of the both the financial markets and the American Dream, homeownership.
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/