Orange County Housing Report: Buying Season is Upon Us

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/