Orange County Housing Report: A Normal Summer Cycle

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/