IMPORTANT NOTE: The Southern California Multiple Listing Service just incorporated all of the data from four other area regional MLS systems. In the short term there will be some duplication in the MLS data. Surprisingly, there were 600 listings in Orange County that were added to the system, representing 5% of the active inventory. So, initially, the data that I provide will be slightly skewed.If you are a buyer, the bottom of the erosion in pricing in Orange County, especially in the lower ranges, is drawing near and will most likely occur by mid-2009. If you are a buyer, when you isolate the perfect property that matches your family’s requirements, purchase the home knowing that you made the decision that is in the best interest of your family. The Orange County housing market hit a bottom in demand during the fourth quarter of 2007 through the first quarter of 2008. That bottom in demand resulted in a rapid decline in pricing, especially for homes priced below $500,000. There is still price erosion in the lower ranges, especially in areas that are hit harder with distressed proeprties; HOWEVER, it is NOT at the rate that was realized during the bottom of demand. With policies designed to restore the housing market and a new administration in the White House looking to not only thaw financial markets but to help the homeowners in distress, our government is going to do whatever it takes to turn the economy around. We will start 2009 with much higher demand compared to the beginning of this year. Many discretionary homeowners not in distress will continue to opt to not place their homes on the market, allowing for the inventrory to drop. As supply shrinks and demand rises, as it will do again in the Spring market, from the end of January through May, prices wil stabilize. It is simple supply and demand, Econ 101. This will hold especially true for the lower ranges, from $650,000 and below, where financing is readily available through FHA and conventional loan programs. The conventional loan limit is going to drop (unless the government makes a change prior to December 31st) from $729,750 to $625,500, so we can expect most demand to be confined below the $650,000 mark. Until the financial markets thaw, non-conventional loans, borrowers with special needs or jumbo loans above the $625,500 level, will continue to be much more difficult to obtain and will continue to hold back demand. So, buyers looking below $650,000 can take the plunge knowing that pricing will stabilize. If you are a buyer and need short term housing, less than a few years, do NOT buy. But, if you are a buyer who plans on raising a family and staying in a home beyond just a couple of years, buy knowing that the real estate market will return and it will return with a vengeance. Many experts have stated that the days of double digit appreciation are in the past. I could not disagree more. Our current economy is moved by what I term the “herd mentality” and the age of “too much information.” With newspapers, television, MSNBC, CNBC, CNN, FOXNews, the proliferation of Internet sites, blogs dedicated to the continued bust of housing and the economy, housing reports on the front page of Yahoo, text alerts, email alerts, RSS feeds, etcetera, there is just too much information available to make a decision. Thus, in the past couple of years we have witnessed giant swings in the stock market, oil prices and housing. For the most part, the majority of consumers are trending to jump in unison. There will be more residential housing units that sell next year compared to this year, so the probability that we hit bottom in pricing next year is great. In 2010, we will most likely appreciate a bit, while many consumers wait to hear the news that the bottom was already reached. Remember, nobody is ringing a bell to indicate when we hit bottom; instead, economists and analysts will be able to inform the public at large that a bottom was reached many months later, after it occurs. In 2011, with all of the pent up demand and the realization that Orange County is undervalued, a wave of demand will be unleashed on the market and we will return to rapid appreciation. If I were a buyer, I would prefer being on the side of the equation where I had complete control over my destiny and within a buyer’s market, today’s market.
So, how do the numbers look? The current active inentory grew by 468 homes and now totals 13,258. This is historically when the inventory drops, but the change in the MLS skews the numbers. Demand, the number of new pending deals within the previous month, increased by 94 homes to 2,557. The expected market time in Orange County was almost unchanged, dropping from 5.19 months to 5.18 months. Last year at this time there were 3,975 additional homes on the market, a 23% difference, and demand was off by 1,262 homes, a 97% difference. The expected market time was 13.31 months. In 2006 there were 907 additional homes on the market, a 6% difference, and demand was off by 570 pending homes, a 29% difference. The expected market time was at 7.13 months. The distressed inventory, the total number of foreclosures and short sales on the market, grew by 302 homes. Most of this too was due to the change in the MLS. It is more interesting to compare year over year distressed numbers. With the exception of Talega (down 24%) and Portola Hills (down 24%), every area in Orange County realized a year over year increase in the number of distressed properties on the market. Here’s the top 10 biggest movers and shakers:
Current Last Year Year Over Year Change % of Current Active Inventory
Newport Coast 19 0 Infinite 9.3%
Laguna Woods 17 2 750% 4.0%
Newport Beach 56 9 522% 9.8%
Laguna Beach 25 7 257% 7.4%
La Habra 150 52 188% 61.2%
Dana Point 56 22 155% 20.3%
Fullerton 253 101 150% 50.2%
Corona Del Mar 7 3 133% 3.9%
San Clemente 128 57 125% 27.1%
Coto De Caza 38 17 124% 26.6%
These numbers help illustrate that the higher end markets are no longer immune to foreclosures and short sales, even though they remain a small percentage of the current active inventory within those areas. For buyers looking for a “deal” in purhasing a foreclosure, in October, the sales price to list price ratio was 101%. This means, on average, foreclosures sell for over the asking price. In October, the sales price to list price ratio for short sales was 97%. This means that there was a little bit of flexibilty in selling short sales. In the trenches I am hearing that almost every agent has a handful of buyers waiting for the next great “deal” to come along and many have to write offers well below the asking price, wasting everybody’s time in the process. Also, it is important to note that 84% of all distressed properties can be found at or below $500,000, and 95% are found below $750,000. So, buyers looking for a distressed deal above $750,000 can expect a bit more competition because there are simply fewer within those ranges.
We already discussed how to approach the market as a buyer, what about sellers? We are within the Holiday market where consumers divert their attention to holiday parties, a big Thanksgiving feast, gift giving and receiving, and toasting to a New Year. After the New Year’s resolutions wear thin, towards the end of January, the market begins to transition to the Spring Market, where more homes come on the market and demand starts to rise. Until then, sellers need to know that this is historically the slowest time of the year. Ironically, it will turn out that this Holiday market will actually be better than the first several months of this year and has already surpassed the last couple of years in terms of year over year comparisons. Nonetheless, sellers need to know that the market is slowing and that there is tremendous competition from sellers who cannot pull their homes off the market until their homes are sold, foreclosures, short sales and relocations. If you are a seller and can hold onto your home for the next few years, then stay put and wait for prices to rebound. Down the road, they will. If you are a move up seller, than this is a great time to make your move. When homes do appreciate again, the nominal impact on the higher ranges is much greater. For example, if homes appreciate 5%, 5% of $500,000 is $25,000, versus 5% of 750,000 which is $37,500, a $12,500 difference. Carefully pricing a home is fundamental to achieving success in selling in today’s market. Sellers need to be acutely aware of their location and condition in arriving at their asking price. Sellers should also prepare their homes to sell and be certain that their homes are in showing condition each and every day, regardless of the amount of time it takes to sell their home.
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/
Monday, November 17, 2008
Monday, November 3, 2008
Orange County Housing Report: Demand Slows with Holiday Market
October 30, 2008
The Holiday Market, from Halloween through the first couple of weeks of the New Year, starts now as demand begins to slow; HOWEVER, current demand is almost double last year at this time. With the election upon us, the stock market bouncing all over the place along with interest rates, and all loans outside of FHA and conventional frozen from the effects of the financial crunch, it is no wonder that demand has dropped recently. Current demand, the number of pending homes within the past month, dropped by 210 homes in the past two weeks to 2,463. Still much improved compared to the 1,241 pending sale mark in 2007 or 2,011 in 2006. The additional demand is only in the lower ranges,though, where the majority of all distressed sales exist. Distressed sales are the fuel that is igniting the first time home buyers market and inviting investors (only those with a lot of cash) back to the housing market. Last year at this time there were 6,095 active listings below $500,000 and demand at 477 pending sales. Today, there are 6,450 active listings below $500,000 and demand at 1,736, that’s a 263% improvement year over year. 67% of the current active inventory below $500,000 is either a foreclosure or short sale and 85% of ALL distressed sales are found within this range as well. In exploring prior downturns, it is always the lower ranges that heat up first and fuel an eventual recovery. One can only imagine how much better demand would be if interest rates weren’t bouncing around and loans outside of conventional and FHA did not require unrealistic FICO scores and much higher interest rates. In the jumbo loan arena, loans above $729,750, demand is very low, even lower than one year ago in the midst of the beginning of the financial crunch. For example, for the range of homes between $750,000 to $1 million, demand is at 140 homes today, 23% lower than the 181 mark last year and 58% lower than the 332 mark two years ago. Every range above $1 million is either similar or even worse. This has everything to do with the frozen financial markets; all products that do not have some sort of government backing are mired in conditions and restrictions where only the cream of the crop with a lot of cash on hand need apply. Since fewer distressed sales are within the higher ranges, discretionary sellers with equity are simply avoiding competing in the housing market under the current conditions. There are only 1,364 active listings between $750,000 and $1 million, 41% fewer than the 2,306 level last year and 49% fewer than the the 2,663 level in 2006. The market has changed and discretionary sellers with equity are wisely avoiding the market if at all possible. We can expect more of the same until all of the government legislation and manipulation past, present and future start to thaw the frozen financial system. Signs of thawing are lower rates for ALL financial products, the resumption of lending for jumbo loans, commercial loans and all forms of credit, and the return of demand in homes priced above $750,000.
So, how do the numbers look? The current active inventory increased by 68 homes in the past two weeks to 12,790. Last year there were 4,664 additional homes on the market, totaling 17,454. Two years ago there were 2,473 additional homes on the market, totaling 15,253. With a decrease in demand and a slight increase in the active inventory, the expected market time increased from 4.76 months to 5.19 months. 5.19 months is still much better than an expected market time of 14.06 months last year and 7.59 months in 2006. The TOTAL pending count is currently at 3,960 pending sales. The TOTAL pending count is 137% higher compared to the 1,671 level last year. Distressed homes, foreclosures and short sales, increased slightly from 42.9% of the inventory two weeks ago to 43.0%. The total number increased by 46 homes, bringing the total to 5,499. 46% of all distressed home activity is confined within just eight areas (ranked from highest concentration to lowest):
· 939 in Santa Ana (79.2% of the 1,186 listings)
· 658 in Anaheim (76.9% of the 856 listings)
· 321 in Garden Grove (72.1% of the 445 listings)
· 137 in Rancho Santa Margarita (70.6% of the 194 listings)
· 159 in Lake Forest (69.4% of the 229 listings)
· 38 in Foothill Ranch (69.1% of the 55 listings)
· 129 in Buena Park (60.8% of the 212 listings)
· 128 in La Habra (59.3% of the 216 listings)
· Totaling 2,509 of the 5,499 in all of Orange County
With the exception of La Habra (an expected market time of 4.6 months) all of these areas have expected market times at 3.32 months or lower, a SELLER’s market. For all of Orange County, foreclosures make up just 10% of the distressed market inventory and have an expected market time of 1.22 months, a deep seller’s market. Short sales make up the remaining 90% of the distressed inventory and have a skewed expected market time of 6.92 months, what would normally be a buyer’s market. However, ask any buyer actively looking for a home in the current marketplace and most short sales have an agreed upon contract between a buyer and seller and yet the home is still actively marketed. This is due to the fact that there really is not a pending sale until the lender (or lenders) in a short sale agrees to decrease the outstanding loan balance in order for the sale to take place. Short sales are “subject to the lender’s acceptance” because the seller owes more than the home is worth and they necessitate the lender forgiving some of the loan balance. So, even though a short sale may be on the market as an active listing, there is a high probability that a consummated contract has already been submitted to a lender. Thus, demand, a willing and able buyer, is actually much stronger than the current 6.92 month mark suggests.
How should sellers approach the current market? We are moving into the Holiday market where we can expect demand to drop further with plenty of competition sticking around. Distressed properties have no alternative and will remain on the market no matter what. So, if you are a homeowner contemplating placing your home on the market, be prepared for a lot of competition and fewer buyers in the marketplace. As a homeowner with equity, the absolute best bet is to hold onto your home for the next few years and allow for the market to eventually stabilize and reverse course. Homeownership has historically always been a super long term investment. To sell at the bottom is not wise unless a homeowner is moving up to a higher range. The Spring market, typically marked with the strongest demand of the year, does not begin until the end of January, 2009. But, make no mistake, values are not going to be appreciating from now until then and they will not be appreciating anytime next year as well. Instead, we will eventually reach equilibrium in the market where prices will just hold steady, most likely towards the end of Spring. Carefully pricing a home is fundamental to achieving success in selling in today’s market. Sellers need to be acutely aware of their location and condition in arriving at their asking price. A seller does not have control over their location, and the location needs to be carefully factored into the price. Sellers do have control over their condition and amenities. Sellers should also prepare their homes to sell and be certain that their homes are in showing condition each and every day, regardless of the amount of time it takes to sell their home. You never know when the buyer that wants to buy your home will walk through your door.
How should a buyer approach the current market? Buyers can either take heed of the following warning or learn their own lessons through the school of hard knocks: there is tremendous competition in the lower ranges, especially regarding distressed properties. Understand that the sales to list price ratio is very close to 100% for distressed properties. I have heard countless stories of buyers writing offers at 10% to 20% off of the list price, only to be burned by another buyer (or buyers) willing to pay at or close to the list price. For lower ranges and the distressed inventory, multiple offers are the norm. After competing and losing in their effort to secure a home, many buyers are turning to non-distressed sellers with equity in their homes. Buyers may pay a little bit more, but there is less hassle and, in most cases, the condition is distinctly much better. Buyers looking for a short term purchase should just rent. If a buyer plans on staying in a home for several years, then it is a great time to buy. Low rates, lower prices, improved affordability , and with the lower ranges showing definitive signs of an eventual recovery, it is a great time to buy and hold. Eventually the market will turn and you will have purchased at a much slower, opportune time.
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/
The Holiday Market, from Halloween through the first couple of weeks of the New Year, starts now as demand begins to slow; HOWEVER, current demand is almost double last year at this time. With the election upon us, the stock market bouncing all over the place along with interest rates, and all loans outside of FHA and conventional frozen from the effects of the financial crunch, it is no wonder that demand has dropped recently. Current demand, the number of pending homes within the past month, dropped by 210 homes in the past two weeks to 2,463. Still much improved compared to the 1,241 pending sale mark in 2007 or 2,011 in 2006. The additional demand is only in the lower ranges,though, where the majority of all distressed sales exist. Distressed sales are the fuel that is igniting the first time home buyers market and inviting investors (only those with a lot of cash) back to the housing market. Last year at this time there were 6,095 active listings below $500,000 and demand at 477 pending sales. Today, there are 6,450 active listings below $500,000 and demand at 1,736, that’s a 263% improvement year over year. 67% of the current active inventory below $500,000 is either a foreclosure or short sale and 85% of ALL distressed sales are found within this range as well. In exploring prior downturns, it is always the lower ranges that heat up first and fuel an eventual recovery. One can only imagine how much better demand would be if interest rates weren’t bouncing around and loans outside of conventional and FHA did not require unrealistic FICO scores and much higher interest rates. In the jumbo loan arena, loans above $729,750, demand is very low, even lower than one year ago in the midst of the beginning of the financial crunch. For example, for the range of homes between $750,000 to $1 million, demand is at 140 homes today, 23% lower than the 181 mark last year and 58% lower than the 332 mark two years ago. Every range above $1 million is either similar or even worse. This has everything to do with the frozen financial markets; all products that do not have some sort of government backing are mired in conditions and restrictions where only the cream of the crop with a lot of cash on hand need apply. Since fewer distressed sales are within the higher ranges, discretionary sellers with equity are simply avoiding competing in the housing market under the current conditions. There are only 1,364 active listings between $750,000 and $1 million, 41% fewer than the 2,306 level last year and 49% fewer than the the 2,663 level in 2006. The market has changed and discretionary sellers with equity are wisely avoiding the market if at all possible. We can expect more of the same until all of the government legislation and manipulation past, present and future start to thaw the frozen financial system. Signs of thawing are lower rates for ALL financial products, the resumption of lending for jumbo loans, commercial loans and all forms of credit, and the return of demand in homes priced above $750,000.
So, how do the numbers look? The current active inventory increased by 68 homes in the past two weeks to 12,790. Last year there were 4,664 additional homes on the market, totaling 17,454. Two years ago there were 2,473 additional homes on the market, totaling 15,253. With a decrease in demand and a slight increase in the active inventory, the expected market time increased from 4.76 months to 5.19 months. 5.19 months is still much better than an expected market time of 14.06 months last year and 7.59 months in 2006. The TOTAL pending count is currently at 3,960 pending sales. The TOTAL pending count is 137% higher compared to the 1,671 level last year. Distressed homes, foreclosures and short sales, increased slightly from 42.9% of the inventory two weeks ago to 43.0%. The total number increased by 46 homes, bringing the total to 5,499. 46% of all distressed home activity is confined within just eight areas (ranked from highest concentration to lowest):
· 939 in Santa Ana (79.2% of the 1,186 listings)
· 658 in Anaheim (76.9% of the 856 listings)
· 321 in Garden Grove (72.1% of the 445 listings)
· 137 in Rancho Santa Margarita (70.6% of the 194 listings)
· 159 in Lake Forest (69.4% of the 229 listings)
· 38 in Foothill Ranch (69.1% of the 55 listings)
· 129 in Buena Park (60.8% of the 212 listings)
· 128 in La Habra (59.3% of the 216 listings)
· Totaling 2,509 of the 5,499 in all of Orange County
With the exception of La Habra (an expected market time of 4.6 months) all of these areas have expected market times at 3.32 months or lower, a SELLER’s market. For all of Orange County, foreclosures make up just 10% of the distressed market inventory and have an expected market time of 1.22 months, a deep seller’s market. Short sales make up the remaining 90% of the distressed inventory and have a skewed expected market time of 6.92 months, what would normally be a buyer’s market. However, ask any buyer actively looking for a home in the current marketplace and most short sales have an agreed upon contract between a buyer and seller and yet the home is still actively marketed. This is due to the fact that there really is not a pending sale until the lender (or lenders) in a short sale agrees to decrease the outstanding loan balance in order for the sale to take place. Short sales are “subject to the lender’s acceptance” because the seller owes more than the home is worth and they necessitate the lender forgiving some of the loan balance. So, even though a short sale may be on the market as an active listing, there is a high probability that a consummated contract has already been submitted to a lender. Thus, demand, a willing and able buyer, is actually much stronger than the current 6.92 month mark suggests.
How should sellers approach the current market? We are moving into the Holiday market where we can expect demand to drop further with plenty of competition sticking around. Distressed properties have no alternative and will remain on the market no matter what. So, if you are a homeowner contemplating placing your home on the market, be prepared for a lot of competition and fewer buyers in the marketplace. As a homeowner with equity, the absolute best bet is to hold onto your home for the next few years and allow for the market to eventually stabilize and reverse course. Homeownership has historically always been a super long term investment. To sell at the bottom is not wise unless a homeowner is moving up to a higher range. The Spring market, typically marked with the strongest demand of the year, does not begin until the end of January, 2009. But, make no mistake, values are not going to be appreciating from now until then and they will not be appreciating anytime next year as well. Instead, we will eventually reach equilibrium in the market where prices will just hold steady, most likely towards the end of Spring. Carefully pricing a home is fundamental to achieving success in selling in today’s market. Sellers need to be acutely aware of their location and condition in arriving at their asking price. A seller does not have control over their location, and the location needs to be carefully factored into the price. Sellers do have control over their condition and amenities. Sellers should also prepare their homes to sell and be certain that their homes are in showing condition each and every day, regardless of the amount of time it takes to sell their home. You never know when the buyer that wants to buy your home will walk through your door.
How should a buyer approach the current market? Buyers can either take heed of the following warning or learn their own lessons through the school of hard knocks: there is tremendous competition in the lower ranges, especially regarding distressed properties. Understand that the sales to list price ratio is very close to 100% for distressed properties. I have heard countless stories of buyers writing offers at 10% to 20% off of the list price, only to be burned by another buyer (or buyers) willing to pay at or close to the list price. For lower ranges and the distressed inventory, multiple offers are the norm. After competing and losing in their effort to secure a home, many buyers are turning to non-distressed sellers with equity in their homes. Buyers may pay a little bit more, but there is less hassle and, in most cases, the condition is distinctly much better. Buyers looking for a short term purchase should just rent. If a buyer plans on staying in a home for several years, then it is a great time to buy. Low rates, lower prices, improved affordability , and with the lower ranges showing definitive signs of an eventual recovery, it is a great time to buy and hold. Eventually the market will turn and you will have purchased at a much slower, opportune time.
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/
Subscribe to:
Posts (Atom)
