August 20, 2009
As summer winds down, not much has changed in the past two weeks in terms of the Orange County real estate market. The active inventory continued its drop since March of this year by shedding an additional 150 homes, bringing the total number of homes on the active market to 8,531, a 2% drop. It is hard to believe that just two years ago the inventory had swollen to 17,881, more than double today’s count. The active market has been dropping because there is tremendous demand in the lower ranges. The expected market time has dropped from 2.50 months two weeks ago to 2.43 months. That means that the average home in Orange County is expected to change to a pending status in less than 2.5 months. In my last report two weeks ago I referred to the market as a seller’s market within the lower ranges. I had radio and newspaper reporters calling me because I stated that we are in a seller’s market, sort of. As I pointed out in the last report, even though we are experiencing a seller’s market, meaning buyers can expect a lot of competition and sellers that price their homes appropriately will sell their homes quickly with multiple offers to choose from, prices are NOT appreciating. Why not? Because we are currently experiencing a lender controlled seller’s market. Short sales, which are subject to lender approval, and foreclosures, which are lender owned properties, currently have a monopoly on the market. Typically distressed properties are not placed on the market higher than the last comparable sale. And, 54% of active listings below $500,000 are distressed properties. Besides distressed homes fueling demand in the lower ranges, the ability to obtain financing under the conventional loan limit of $729,750 also pumps up demand. Everything above that limit is considered a jumbo loan where tighter financing requirements and higher interest rates keep a lid on demand within the upper ranges. Until the requirements ease, the upper ranges will continue to experience a sluggish market. The higher the price range, the slower the market. Just take a look at homes priced above $4 million. There are 407 homes on the market with demand, the number of new pending sales within the last month, at only 8 homes. At that pace, it would take a very long time to exhaust the current inventory. Compare that to homes priced from $250,000 to $500,000, where there are 2,031 homes on the market and demand is at 1,522. At the current pace, it would take only 1.3 months to exhaust the current supply. Yes, the market is hot in the lower ranges and buyers that just enter the market are consistently dumbfounded with all of the competition and the need to write offer after offer. No, values are not on the rise, even with incredible demand. Buyers just don’t yet want to pay more than the last buyer that did one month ago. Values are also not falling within the lower ranges like they have in the past as well, there’s just too much competition. The average sales to list price ratio for homes priced below $500,000 is 100%, meaning that sellers (and many of them are lenders) are obtaining their full asking prices.
So, how do the rest of the numbers look? Orange County total demand is currently at 3,506, an increase of 35 pending sales within the last two weeks. Last year demand was at 2,991. Cyclically, demand is hottest in June, drops in July, and resurges a bit in August. This year is no exception. From here, we enter the Autumn market where kids go back to school and demand tends to slowly drift downward. It will slow to its lowest levels of the year during the Holiday market, from Halloween through the first few weeks of the New Year.
How do the distressed numbers look? For the first time this year, the total number of distressed homes on the active market did not drop. It did not go up either. Instead, the distressed inventory remained unchanged over the past two weeks at 2,559. From here, as we enter into the slower seasons of the year, we can probably expect an increase in the distressed inventory. How much will it grow is anybody’s guess. All year we have been hearing about foreclosures moratoriums, moratoriums ending and a wave of foreclosures to come. However, the word on the street is that every agent has pockets filled with buyers waiting for new inventory to hit the market. So, there will still be plenty of demand even with an increase in foreclosure activity. Buyers should remember that interest rates are still at very low levels and that there is not going to be a lot more depreciation in the lower ranges. Higher rates are very likely to follow any sense of stabilization in the economy or if inflation gets out of hand. As rates rise, affordability drops. This fact is often ignored in the home buying process. We started off this decade with rates at 8%. Even if values dropped an additional 15%, at an 8% interest rate the payment would actually be more than purchasing at today’s values and interest rate. The total number of foreclosures on the active market has increased by 20 homes within the last two weeks and now totals 319. Demand for foreclosures is robust at 515 pending sales and the expected market time is only 0.62 months, still sizzling. The total number of short sales on the active market dropped by 20 homes to 2,240, with demand at 1,190 and an expected market time of 1.88 months.
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, August 24, 2009
Monday, August 10, 2009
Orange County Housing Report: Demand is Up and Supply is Down
August 6, 2009
As is typical for this time of year, demand increased a bit at the beginning of August; however, the continuous drop in the active listing inventory is far from ordinary. Inventories have been dropping across the nation and Orange County is no exception. Since March of this year, the active inventory has been steadily dropping. The inventory has shed 2,925 homes since then, a 25% drop. Currently at 8,681 homes, that is far fewer than the 14,348 last year or 17,611 two years ago. So, what’s going on? Prices are down, interest rates are down, affordability is up and demand is up. All of these forces together have been pulling the inventory down. Throw in the fact that discretionary homeowners are only placing their homes on the market if they have to and are motivated to do what it takes to compete in this market. Demand, the number o f new pending sales within the past month, is currently at 3,481, an increase of 165 pending sales within the last two weeks. Last year demand was at 2,940. So, with an increase in demand and a lower inventory, the market has heated up. The expected market time for all of Orange County is currently at 2.5 months, technically a seller’s market. The lower the range, the hotter the market. All ranges below $1 million are pretty hot, but homes priced below $500,000 are sizzling. The expected market time for homes priced between $250,000 and $500,000 is currently at 1.30 months. For detached homes within that range, the expected market time is only 1.02 months. When the expected market time drops to such low levels, sellers are busy sorting through multiple offers and buyers are writing offer after offer with no luck. I have been asked many times why the market is not appreciating given all of the activity. The devil is in the details. Even though the distressed inventory has been dropping and now represents 29.5% of the current active inventory, 50% of current demand is distressed properties. With so many short sales and foreclosures driving demand, these distressed sellers are keeping a lid on any price appreciation. But, don’t misinterpret me. There may be a lid on appreciation, but in the hotter areas and price ranges there is also a lid on price depreciation. Values have fallen significantly since the start of this downturn, fueled by a consistent supply of distressed properties. So, current values have reached affordable levels where it makes sense again to own versus rent. First time home buyer activity has returned with a vengeance as well. Throw in the return of investor activity and it is no wonder that demand has increased this year.
How do the distressed numbers look? First off, the “next wave” of foreclosures that we have been hearing about since the beginning of the year still has not materialized. I have been hearing from industry experts and agents alike that the next wave is still coming. I am certain that they are right to a degree, that the distressed numbers will increase, just not at the great numbers that they are anticipating. The agents on the streets are telling me that they all have pockets full of buyers waiting for the right property to come onto the market and they all would love a “foreclosure deal.” This is where pent up demand really does exist. Any surge in foreclosures would be met with buyers in waiting. We can expect a lot of competition and continued multiple offers for some time to come. There are currently only 2,559 distressed homes on the market, a drop of 57 in the past two weeks. This is the lowest drop in the distressed inventory since February of this year. Could we be reaching a plateau before the overly predicted wave to come? Only time will tell. There are only 299 foreclosures currently on the active market with demand at 590, representing an expected market time of .51 months. That’s correct, two weeks. Foreclosures are so incredibly hot that they can generate 20 plus offers. Yet, only one gets the property. Demand is plentiful, there just is not enough supply. There are 2,260 short sales on the active market with demand at 1,145 and an expected market time of 1.97 months.
If you are a buyer, how should you respond to this market? First, please throw out the notion that there is no competition and that you can write an offer for thousands less than the asking price. The sales to list price ratio for homes priced below $500,000 is 100%. That means that, on average, homes are selling for their full asking price. For all homes in Orange County, the sales to list price ratio is 98%. Remember, homes have already dropped 30% or more in value. As a buyer, do NOT write an offer for 10% or more off of the asking price with a letter detailing that the housing market is currently in a declining market. These buyers feel that the ultimate sales price should reflect a future drop in values. That notion of purchasing is ludicrous. Industry experts and economists cannot accurately determine future prices and are constantly revising their estimates. The values are already highly discounted over the past few years. Arriving at the fair market value includes taking into consideration pending activity, recent sales (within the prior 90 days), property condition, seller motivation and circumstances, location, upgrades, lot size and amenities. To rely on Zillow.com or other online valuation tools is also absurd. These tools only take into consideration property size and sales price, ignoring all of the other factors that are used to arrive at price. There has been a lot of pressure on interest rates to move higher. Gone are the days of interest rates below 5%. As interest rates rise, affordability drops. In purchasing today, the monthly payment is approximately the same as a home purchased later with a drop of 10% in value and a 1% rise in interest rates. These historically low interest rates are not here to stay. How long they remain low is anybody’s guess. Last, buyers should only purchase in today’s market if and only if they plan on living in their home for years to come. In the long run, Orange County housing has proven to be an excellent long term investment. It is also a great place to call “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/
As is typical for this time of year, demand increased a bit at the beginning of August; however, the continuous drop in the active listing inventory is far from ordinary. Inventories have been dropping across the nation and Orange County is no exception. Since March of this year, the active inventory has been steadily dropping. The inventory has shed 2,925 homes since then, a 25% drop. Currently at 8,681 homes, that is far fewer than the 14,348 last year or 17,611 two years ago. So, what’s going on? Prices are down, interest rates are down, affordability is up and demand is up. All of these forces together have been pulling the inventory down. Throw in the fact that discretionary homeowners are only placing their homes on the market if they have to and are motivated to do what it takes to compete in this market. Demand, the number o f new pending sales within the past month, is currently at 3,481, an increase of 165 pending sales within the last two weeks. Last year demand was at 2,940. So, with an increase in demand and a lower inventory, the market has heated up. The expected market time for all of Orange County is currently at 2.5 months, technically a seller’s market. The lower the range, the hotter the market. All ranges below $1 million are pretty hot, but homes priced below $500,000 are sizzling. The expected market time for homes priced between $250,000 and $500,000 is currently at 1.30 months. For detached homes within that range, the expected market time is only 1.02 months. When the expected market time drops to such low levels, sellers are busy sorting through multiple offers and buyers are writing offer after offer with no luck. I have been asked many times why the market is not appreciating given all of the activity. The devil is in the details. Even though the distressed inventory has been dropping and now represents 29.5% of the current active inventory, 50% of current demand is distressed properties. With so many short sales and foreclosures driving demand, these distressed sellers are keeping a lid on any price appreciation. But, don’t misinterpret me. There may be a lid on appreciation, but in the hotter areas and price ranges there is also a lid on price depreciation. Values have fallen significantly since the start of this downturn, fueled by a consistent supply of distressed properties. So, current values have reached affordable levels where it makes sense again to own versus rent. First time home buyer activity has returned with a vengeance as well. Throw in the return of investor activity and it is no wonder that demand has increased this year.
How do the distressed numbers look? First off, the “next wave” of foreclosures that we have been hearing about since the beginning of the year still has not materialized. I have been hearing from industry experts and agents alike that the next wave is still coming. I am certain that they are right to a degree, that the distressed numbers will increase, just not at the great numbers that they are anticipating. The agents on the streets are telling me that they all have pockets full of buyers waiting for the right property to come onto the market and they all would love a “foreclosure deal.” This is where pent up demand really does exist. Any surge in foreclosures would be met with buyers in waiting. We can expect a lot of competition and continued multiple offers for some time to come. There are currently only 2,559 distressed homes on the market, a drop of 57 in the past two weeks. This is the lowest drop in the distressed inventory since February of this year. Could we be reaching a plateau before the overly predicted wave to come? Only time will tell. There are only 299 foreclosures currently on the active market with demand at 590, representing an expected market time of .51 months. That’s correct, two weeks. Foreclosures are so incredibly hot that they can generate 20 plus offers. Yet, only one gets the property. Demand is plentiful, there just is not enough supply. There are 2,260 short sales on the active market with demand at 1,145 and an expected market time of 1.97 months.
If you are a buyer, how should you respond to this market? First, please throw out the notion that there is no competition and that you can write an offer for thousands less than the asking price. The sales to list price ratio for homes priced below $500,000 is 100%. That means that, on average, homes are selling for their full asking price. For all homes in Orange County, the sales to list price ratio is 98%. Remember, homes have already dropped 30% or more in value. As a buyer, do NOT write an offer for 10% or more off of the asking price with a letter detailing that the housing market is currently in a declining market. These buyers feel that the ultimate sales price should reflect a future drop in values. That notion of purchasing is ludicrous. Industry experts and economists cannot accurately determine future prices and are constantly revising their estimates. The values are already highly discounted over the past few years. Arriving at the fair market value includes taking into consideration pending activity, recent sales (within the prior 90 days), property condition, seller motivation and circumstances, location, upgrades, lot size and amenities. To rely on Zillow.com or other online valuation tools is also absurd. These tools only take into consideration property size and sales price, ignoring all of the other factors that are used to arrive at price. There has been a lot of pressure on interest rates to move higher. Gone are the days of interest rates below 5%. As interest rates rise, affordability drops. In purchasing today, the monthly payment is approximately the same as a home purchased later with a drop of 10% in value and a 1% rise in interest rates. These historically low interest rates are not here to stay. How long they remain low is anybody’s guess. Last, buyers should only purchase in today’s market if and only if they plan on living in their home for years to come. In the long run, Orange County housing has proven to be an excellent long term investment. It is also a great place to call “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/
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