Orange County Housing Report: Inventory Drops Below 13,000

The Orange County active listing inventory dropped to its lowest point in 18 months, dipping below the 13,000 mark. Typically, the Autumn market begins to drop after reaching a peak during the Summer, but not this year. The current active inventory in Orange County has dropped by 642 homes in the past month. Last year at this time the active inventory was at 17,759 homes, 4,819 additional homes, or 27% higher. Two years ago it was at 15,482 homes, an additional 2,542, or 16% higher. We started the year at 14,724 homes, 1,784 more than today. The active listing inventory has been dropping since July and it picked up steam in August. In mid-April, the inventory peaked at 15,566, 2616 additional homes compared to today. The inventory has dropped 17% in that time. During the same timeframe in 2006 and 2007 the inventory actually increased by 37% and 20% respectively. This can be attributed to stronger demand and discretionary homeowners. Demand has surged with an appreciable drop in home pricing, especially in the lower ranges where there are more distressed properties and much more first time home buyer activity. Affordability has been reintroduced to the Orange County housing market. This is simple Economics 101, as prices fall, demand rises and the number of sales increases as a result. As the United States government fixes the financial system and money starts to flow again, we can expect rates to drop considerably, including in the Jumbo loan arena, homes above $700,000. Falling rates lowers monthly payments, which is similar to falling prices. We can expect demand to increase and the number of sales to increase as well. This may be six months from today, so right now is probably the most opportunistic time to be a buyer. I recall back in 1995 many were still predicting a continued slide to values reached in the 1980’s. I am hearing the same drum beat again, this time calling for prices to fall to mid-1990’s levels. I would be careful if I was a consumer on the sidelines waiting for a much more appreciable drop. Prices took their biggest drop from August of 2007 through March of this year. There is so much demand in the lower ranges and in many areas that pricing is a little stickier, much different than the freefall I just described. Another contributing factor to the drop in the inventory is the fact that homeowners understand the current market situation and, for the most part, homeowners with equity are steering clear of the market, opting to not compete with the distressed inventory. The discretionary sellers that do enter the market do so with the understanding that the process may take a while. Now that the Spring and Summer markets are behind us, many sellers have decided to pull their homes off the market and sit on the sidelines until Spring of next year. The discretionary seller in today’s market is a harsh contrast to the majority of unrealistic sellers with high expectations of the Spring and Summer of 2006 and 2007. It takes the right mindset to be successful in competing with so many distressed homes. There is plenty to consider in selling today: location, upgrades, condition, the ability to answer quickly (unlike foreclosures and short sales), the local market and pricing, carefully considering the difference between a distressed sale and a non-distressed situation. Now more than ever, it is absolutely essential for sellers, and buyers, to enlist the help of an experienced, proven REALTOR® to navigate through this market with a successful outcome.

So how do the rest of the numbers look? Demand, the number of new pending sales within the prior 30 days, dropped by 127 homes in the past two weeks, but matched the level reached two weeks ago at 2,847. HOWEVER, the disparity between this year and the last two years continues to grow, indicating that the current market is healthier and more robust in comparison. And, demand has almost eclipsed 2005 levels! Demand is 156% stronger than last year (152% two weeks ago) and 43% stronger than two years ago (34% two weeks ago). In 2007, demand was only at 1,113 pending sales, 1,734 fewer than today. In 2006, demand was at 1,991, 856 fewer than today. In 2005, demand was at 2,868, 21 additional pending sales, less than three-quarters of 1% difference. This is a very good sign for the Orange County real estate market as a whole.
With both inventory and demand dropping, the expected market time increased slightly from 4.43 to 4.55 months. Still, the current market time is another unbelievable contrast to the 14.97 months mark established at the beginning of this year. Last year the expected market time was at 15.96 months and two years ago it was at 7.78 months. This is a reflection of a healthier market in comparison to prior years due to better pricing, higher demand and discretionary homeowners.

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. The disparity has grown to 170% greater than last year. Today it stands at 4,276 total pending sales. Last year the total pending count was at 1,581, a difference of 2,695. This is yet another unbelievable contrast to just one year ago.

Even though the distressed inventory has been dropping, it has not dropped as swiftly as the discretionary seller inventory; thus, the percentage of distressed homes on the market has actually increased over the past month. A month ago there were 5,744 distressed homes on the market, foreclosures and short sales, representing 42.3% of the market. Today there are 5,597 distressed homes, 147 fewer than four weeks ago, representing 43.3% of the overall active inventory. Any drop in the distressed inventory is a welcome sign for the Orange County housing market because it establishes that even as more distressed homes come on the market, they are actually going off the market faster. We can expect the distressed market to be a major player in the marketplace throughout the rest of this year and 2009 as well. For the rest of the year, demand will continue to drop slightly as will the active listing inventory. After the Autumn market and Holiday market, from Halloween through the first couple of weeks of the New year, housing demand has the potential of taking a larger bite out of the distressed inventory and could, ultimately, finally stabilize the market. I am not referring to the heydays of a few years ago with rapid appreciation; instead, I am referring to more of an equilibrium, where demand meets the supply and prices no longer drop. An equilibrium calls for a stabilization of pricing with very little change in one direction or another. If you are a buyer looking for a distressed home to purchase, please know that you have a lot of company. Distressed homes in great condition and a great location attract many buyers and generate multiple offers. Be prepared to compete.

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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