Orange County Housing Report: Giving Thanks
November 24, 2010
Good Afternoon!
It is the time of the year to reflect and give thanks. Regarding the Orange County housing market, there’s still a lot to be thankful for.
Thanksgiving Reflection: Even though the housing market is extremely frustrating, there is plenty to be thankful for.
I am thankful that lenders are approving short sales and that they are closing.
That’s right. I am thankful that lender approval is eventually bestowed upon some short sales, enabling homeowners to escape the nightmare process of selling their underwater homes. I think everybody can agree, including the lenders, that they are still falling way below the bar in terms of making a decision in a reasonable amount of time. There is tremendous room for improvement. The average number of monthly closed short sales this year is 574. Yet, there are 3,045 pending short sales. Most short sales take months for an answer. And, the more complex the short sale, second liens, unpaid homeowner association dues, unpaid property taxes, and mortgage insurance companies, the longer and more challenging it is to successfully close the sale. Yet, I am thankful that some short sales are closing. Lenders are allowing upside down homeowners in dire straits to move on. In turn, they obtain a home typically in better condition and save a lot more money compared to the alternative, foreclosure.
I am thankful that real estate agents are still selling homes despite the tremendous obstacles and frustrations in this market.
Despite misguided public perception, real estate agents in today’s market work ten times harder than any modern era real estate cycle and are paid much less compared to the boom years. Throw on top of that no change in the agent population locally here in Orange County despite the downturn. Here are some of the obstacles they face: tremendous competition, extremely tight credit, short sales that take forever to close, frustrated buyers, sellers in unfortunate situations, and unrealistic expectations of buyers and sellers. Yes, this market has been extremely frustrating, but real estate agents continue to pick themselves up and take great care of their buyers and sellers.
I am thankful that unrealistic sellers are finally figuring it out: if they don’t drop the price, they must pull their home off the market and stop wasting everybody’s time.
The listing inventory blossomed this year, growing from 7,165 homes at the beginning of the year until it peaked in mid-September at 11,892 homes. That’s an increase of 4,727 homes, or 65%. Since peaking, the listing inventory has shed 1,056 homes, or 9%. Unfortunately many homeowners were extremely unrealistic in their expectations of the housing market. They heard about year over year increases in the median sales price, buyers competing to buy homes, multiple offers, and sales price at or above their asking prices. They did not realize that buyers in the most competitive markets were only willing to pay a few thousand dollars above the last asking price, NOT thousands upon thousands of dollars more. Buyers are spreadsheet buyers, meaning they will pour over comparable and pending sales data to arrive at a comfortable price. So, many homeowners placed their homes on the market overpriced and waited and waited with no results. Most homes on the market had to decrease their prices to achieve success. For those unwilling to reduce their asking prices, pulling their homes off of the market is the only other alternative. Distressed properties are keeping a lid on any appreciation. There are still many homeowners that remain on the market at unrealistic levels; however, I am thankful that many of them will be continuing to pull their homes off as the Holiday market progresses.
I am thankful that the market is theoretically a seller’s market, based upon the expected market time.
For a seller’s market, the expected market time must be less than five months. At its best this year, the expected market time dropped to 2.53 months in mid-May. It is currently at 4.02 months, still a seller’s market. But, with so many distressed listings, there is very little appreciation, if any. As long as Orange County’s expected market time indicates a seller’s market, prices will not depreciate. And, it looks as if 2011 is poised to be a seller’s market as well, great news for values.
Active Listing Inventory: The listing inventory continued to drop, shedding 3% in just two weeks.
The active listing inventory continued its decent, dropping 589 homes over the last month, now totaling 10,836. That’s a 5% drop in just four weeks. Many unrealistically priced sellers are starting to realize that throwing in the towel is their best option. Last year at this time there were 3,181 fewer homes on the active inventory compared to today.
Friday, November 26, 2010
Wednesday, October 6, 2010
The Listing Inventory Has Peaked
Orange County Housing Report: The Listing Inventory Has Peaked
September 30, 2010
Good Afternoon!
With a hint of Halloween on the horizon, it is officially the Autumn market. As is typical for this time of year, the active listing inventory is now dropping.
Active Listing Inventory: For the first time this year, the listing inventory dropped.
Up until this week, the inventory has been growing unabated. Even with increased demand at the beginning of the year, the inventory still grew. The inventory is not dropping because of an increase in demand. Instead, more and more sellers have finally come to the correct conclusion that the Spring and Summer markets are behind us and we are going into a slower season to sell. 2010 will be remembered for the absence of the discretionary seller. Too many homeowners read into the fact that demand was strong with multiple offers and homes selling above their list prices. There were reports of year over year increases in the median sales price and homes selling very quickly. Many homeowners have been waiting years to sell with a turn in the market. So, home after home came on the market at unrealistic prices and ultimately just sat on the market. Foreclosures were not immune to the phenomena as banks were overpricing many of their homes as well. Prior to 2010, during the housing downturn everybody approached the housing market carefully with complete discretion. This year has been a lesson to many homeowners as they have had to pick between reducing their prices to realistic levels or pulling their homes off the market completely. The drop in the active listing inventory is due to more sellers coming to the conclusion that it is time to throw in the towel. There were 11,892 homes on the market two weeks ago, the height of 2010. Today, there are 88 fewer homes on the market. Last year there were 3,887 fewer homes on the market, a result of discretionary homeowners.
Demand: For the first time in six weeks, demand increased.
Typically for this time of year demand drops. Not this year. Instead, demand, the number of new pending deals over the past month, increased by 2%, adding an additional 66 homes compared to two weeks ago, now totaling 2,756 pending sales. With the end of the first time home buyer tax credit back at the end of April, demand dropped considerably after the expiration. Many real estate analysts believe that first time homebuyers demand was pulled forward to March and April as they rushed to cash in on the $8,000 credit. They further believed that demand would begin to recover during the Autumn market as new first time home buyers finally entered the market. This could be the beginning of a surge in first time homebuyer activity. All of the ingredients are there: low prices, historically low interest rates, more realistic sellers. Last year at this time demand was at 3,270 pending sales. But, last year’s demand was stimulated by an earlier first time home buyer tax credit that was set to expire in November 2009.
Lack of Focus on Rates: Unbelievably, interest rates fail to motivate buyers to buy.
Where’s the news reports regarding historically low rates and their tremendous impact on the monthly payment and a buyer’s ability to purchase? Talking about interest must not sell newspapers or magazines. The media and general public are just not interested in the subject. Talking about the median price going up or down 1% turns heads, but talking about an increase in interest rates of 1% doesn’t. However, a 1% jump in interest rates has a much larger impact on affordability and a monthly payment. Interest rates were 1% higher one year ago and are currently at levels never seen before. These low levels will NOT last. They WILL go up. For a $500,000 loan, if rates go up 1% and return to last year’s level, the monthly payment will go up by $300 per month. That’s $3,600 per year or $18,000 in 5 years. Somebody should make a story out of that. Instead, the $8,000 first time home buyer tax credit has sizzle and everybody talks about it. $18,000 in anybody’s pocket is a lot more than $8,000 and is not isolated to just first time home buyers. The government has poured so much money into the economy. When this occurs, the historical impact is eventually increased inflation. So, as soon as the economy starts to improve, the Federal Reserve will pump up interest rates to help curb inflation. When that happens, expect interest rates to jump at least one percent. ATTENTION BUYERS: DO NOT TAKE THESE INTEREST RATES FOR GRANTED, THEY WILL NOT LAST FOREVER. In 1980, rates were around 18%. In 1990, they were around 10%. In 2000, they were at 8%. Rates are currently below 4.5%. If rates eventually increased to 8%, the $500,000 mortgage would be almost $1,200 per month more. Quite simply these interest rates should motivate buyers to buy. Those buyers that cash in and buy now will be remembered as the lucky ones who were able to take advantage of the market downturn.
Foreclosures and Short Sales: The distressed inventory remained basically unchanged.
The active distressed inventory grew by only 13 homes over the past two weeks and now totals 4,039 total foreclosures and short sales. The distressed inventory now represents 34% of the current active inventory. Last year at this time, there were 2,319 distressed homes on the market, 1,720 fewer than today. The number of foreclosures within the active listing inventory dropped by 10 homes in the past two weeks from 708 to 698. The expected market time for foreclosures is 1.96 months, still an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 23 homes over the past two weeks and now total 3,341. The expected market time for short sales is 3.28 months, much slower than 1.53 months posted last April.
Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.
September 30, 2010
Good Afternoon!
With a hint of Halloween on the horizon, it is officially the Autumn market. As is typical for this time of year, the active listing inventory is now dropping.
Active Listing Inventory: For the first time this year, the listing inventory dropped.
Up until this week, the inventory has been growing unabated. Even with increased demand at the beginning of the year, the inventory still grew. The inventory is not dropping because of an increase in demand. Instead, more and more sellers have finally come to the correct conclusion that the Spring and Summer markets are behind us and we are going into a slower season to sell. 2010 will be remembered for the absence of the discretionary seller. Too many homeowners read into the fact that demand was strong with multiple offers and homes selling above their list prices. There were reports of year over year increases in the median sales price and homes selling very quickly. Many homeowners have been waiting years to sell with a turn in the market. So, home after home came on the market at unrealistic prices and ultimately just sat on the market. Foreclosures were not immune to the phenomena as banks were overpricing many of their homes as well. Prior to 2010, during the housing downturn everybody approached the housing market carefully with complete discretion. This year has been a lesson to many homeowners as they have had to pick between reducing their prices to realistic levels or pulling their homes off the market completely. The drop in the active listing inventory is due to more sellers coming to the conclusion that it is time to throw in the towel. There were 11,892 homes on the market two weeks ago, the height of 2010. Today, there are 88 fewer homes on the market. Last year there were 3,887 fewer homes on the market, a result of discretionary homeowners.
Demand: For the first time in six weeks, demand increased.
Typically for this time of year demand drops. Not this year. Instead, demand, the number of new pending deals over the past month, increased by 2%, adding an additional 66 homes compared to two weeks ago, now totaling 2,756 pending sales. With the end of the first time home buyer tax credit back at the end of April, demand dropped considerably after the expiration. Many real estate analysts believe that first time homebuyers demand was pulled forward to March and April as they rushed to cash in on the $8,000 credit. They further believed that demand would begin to recover during the Autumn market as new first time home buyers finally entered the market. This could be the beginning of a surge in first time homebuyer activity. All of the ingredients are there: low prices, historically low interest rates, more realistic sellers. Last year at this time demand was at 3,270 pending sales. But, last year’s demand was stimulated by an earlier first time home buyer tax credit that was set to expire in November 2009.
Lack of Focus on Rates: Unbelievably, interest rates fail to motivate buyers to buy.
Where’s the news reports regarding historically low rates and their tremendous impact on the monthly payment and a buyer’s ability to purchase? Talking about interest must not sell newspapers or magazines. The media and general public are just not interested in the subject. Talking about the median price going up or down 1% turns heads, but talking about an increase in interest rates of 1% doesn’t. However, a 1% jump in interest rates has a much larger impact on affordability and a monthly payment. Interest rates were 1% higher one year ago and are currently at levels never seen before. These low levels will NOT last. They WILL go up. For a $500,000 loan, if rates go up 1% and return to last year’s level, the monthly payment will go up by $300 per month. That’s $3,600 per year or $18,000 in 5 years. Somebody should make a story out of that. Instead, the $8,000 first time home buyer tax credit has sizzle and everybody talks about it. $18,000 in anybody’s pocket is a lot more than $8,000 and is not isolated to just first time home buyers. The government has poured so much money into the economy. When this occurs, the historical impact is eventually increased inflation. So, as soon as the economy starts to improve, the Federal Reserve will pump up interest rates to help curb inflation. When that happens, expect interest rates to jump at least one percent. ATTENTION BUYERS: DO NOT TAKE THESE INTEREST RATES FOR GRANTED, THEY WILL NOT LAST FOREVER. In 1980, rates were around 18%. In 1990, they were around 10%. In 2000, they were at 8%. Rates are currently below 4.5%. If rates eventually increased to 8%, the $500,000 mortgage would be almost $1,200 per month more. Quite simply these interest rates should motivate buyers to buy. Those buyers that cash in and buy now will be remembered as the lucky ones who were able to take advantage of the market downturn.
Foreclosures and Short Sales: The distressed inventory remained basically unchanged.
The active distressed inventory grew by only 13 homes over the past two weeks and now totals 4,039 total foreclosures and short sales. The distressed inventory now represents 34% of the current active inventory. Last year at this time, there were 2,319 distressed homes on the market, 1,720 fewer than today. The number of foreclosures within the active listing inventory dropped by 10 homes in the past two weeks from 708 to 698. The expected market time for foreclosures is 1.96 months, still an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 23 homes over the past two weeks and now total 3,341. The expected market time for short sales is 3.28 months, much slower than 1.53 months posted last April.
Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.
Monday, August 23, 2010
Orange County Housing report
Active Listing Inventory: The unabated growth has slowed but still hasn’t reached a peak
The Orange County inventory continued to grow over the past couple of weeks, adding an additional 236 homes and now totals 11,650. This is the highest level since December 2008. With school starting, many homeowners realize that the best time of year to sell has passed them by. As more and more sellers come to grips with the market realities, expect many of them to throw in the towel and pull their homes off the market. There are a lot of equity sellers on the market, nearly 7,900 or 68% of the active market. Many of these sellers will opt to sit out the Autumn and Holiday markets. Last year at this time there were only 8,531 homes on the market, 3,119 fewer than today.
Expected Market Time: The tale of two markets continues and the higher ranges are SLOW.
For homes priced below $1 million, the expected market time is 3.34 months. This range represents 80% of the active inventory and 93% of demand. For homes priced above $1 million, the expected market time is 10.48 months, the higher the range, the slower the expected market time. This range represents 20% of the active inventory, but only 7% of demand. The slowest range, homes priced above $4 million, has an expected market time of 26 months. The hottest market in Orange County is Talega with an expected market time of only 2.22 months. The slowest market in Orange County is Corona del Mar with an expected market time of 11.5 months and an average list price of $3.5 million. Last year at this time the expected market time was 2.43 months.
Housing Demand: Not much of a change in housing demand.
Demand, the number of new pending sales over the past month, increased by only 30 homes in the past two weeks, a 1% increase, and now totals 3,002. That is the first time that demand surpasses the 3,000 mark since the beginning of July. That is still 25% below the end of April peak that totaled 3,979. Last year at this time demand was at 3,506 pending sales, 504 more than today. From here, we can expect demand to slowly drop as we enter the next season of the Orange County housing market, the Autumn market, from the start of school through the pleas of “trick or treat.” From there, housing demand will cool further as we enter the Holiday market, from Halloween through the first couple of weeks of the New Year. There are a lot of distractions during the holidays and real estate typically is placed on the back burner.
Foreclosures and Short Sales: The distressed inventory continues to grow at a very rapid pace.
There really isn’t a “normal cycle” for predicting the level of the distressed inventory throughout the year. When homeowners owe more than their homes are worth and they can no longer afford their monthly payments, they place their homes on the market as short sales regardless of the time of year. Likewise, banks place foreclosures on the market after they have completed the foreclosure process and prepared the homes for sale. This process takes months to complete, so foreclosures are placed on the market regardless of the time of year. We are all acutely aware that there is a “shadow inventory” of homes that are not making their monthly payments and are either attempting to modify their loans, or are trying to sell their homes as short sales, or are staying put and doing nothing. According to various reports the “shadow inventory” totals between five and seven million homes. This shadow inventory has to be worked through, but is not going to occur as a tsunami of distressed properties to hit the market all at once. Instead, we are going to witness slow increases and drops over the next few years. This slow absorption will not pull down values like it did at the beginning of this downturn and it will keep a lid on any substantial appreciation. Once employment improves, the pathway to an eventual healthy and stable recovery will occur. The distressed inventory increased by 182 homes in the past two weeks, the largest increase since December of 2008, and now totals 3,757 homes. Foreclosures increased by only 6 homes in the past two weeks and now total 659. The expected market time for foreclosures is 1.82 months. There are an additional 176 short sales in the past two weeks and now total 3,098. The expected market time for short sales is 2.99 months.
The Orange County inventory continued to grow over the past couple of weeks, adding an additional 236 homes and now totals 11,650. This is the highest level since December 2008. With school starting, many homeowners realize that the best time of year to sell has passed them by. As more and more sellers come to grips with the market realities, expect many of them to throw in the towel and pull their homes off the market. There are a lot of equity sellers on the market, nearly 7,900 or 68% of the active market. Many of these sellers will opt to sit out the Autumn and Holiday markets. Last year at this time there were only 8,531 homes on the market, 3,119 fewer than today.
Expected Market Time: The tale of two markets continues and the higher ranges are SLOW.
For homes priced below $1 million, the expected market time is 3.34 months. This range represents 80% of the active inventory and 93% of demand. For homes priced above $1 million, the expected market time is 10.48 months, the higher the range, the slower the expected market time. This range represents 20% of the active inventory, but only 7% of demand. The slowest range, homes priced above $4 million, has an expected market time of 26 months. The hottest market in Orange County is Talega with an expected market time of only 2.22 months. The slowest market in Orange County is Corona del Mar with an expected market time of 11.5 months and an average list price of $3.5 million. Last year at this time the expected market time was 2.43 months.
Housing Demand: Not much of a change in housing demand.
Demand, the number of new pending sales over the past month, increased by only 30 homes in the past two weeks, a 1% increase, and now totals 3,002. That is the first time that demand surpasses the 3,000 mark since the beginning of July. That is still 25% below the end of April peak that totaled 3,979. Last year at this time demand was at 3,506 pending sales, 504 more than today. From here, we can expect demand to slowly drop as we enter the next season of the Orange County housing market, the Autumn market, from the start of school through the pleas of “trick or treat.” From there, housing demand will cool further as we enter the Holiday market, from Halloween through the first couple of weeks of the New Year. There are a lot of distractions during the holidays and real estate typically is placed on the back burner.
Foreclosures and Short Sales: The distressed inventory continues to grow at a very rapid pace.
There really isn’t a “normal cycle” for predicting the level of the distressed inventory throughout the year. When homeowners owe more than their homes are worth and they can no longer afford their monthly payments, they place their homes on the market as short sales regardless of the time of year. Likewise, banks place foreclosures on the market after they have completed the foreclosure process and prepared the homes for sale. This process takes months to complete, so foreclosures are placed on the market regardless of the time of year. We are all acutely aware that there is a “shadow inventory” of homes that are not making their monthly payments and are either attempting to modify their loans, or are trying to sell their homes as short sales, or are staying put and doing nothing. According to various reports the “shadow inventory” totals between five and seven million homes. This shadow inventory has to be worked through, but is not going to occur as a tsunami of distressed properties to hit the market all at once. Instead, we are going to witness slow increases and drops over the next few years. This slow absorption will not pull down values like it did at the beginning of this downturn and it will keep a lid on any substantial appreciation. Once employment improves, the pathway to an eventual healthy and stable recovery will occur. The distressed inventory increased by 182 homes in the past two weeks, the largest increase since December of 2008, and now totals 3,757 homes. Foreclosures increased by only 6 homes in the past two weeks and now total 659. The expected market time for foreclosures is 1.82 months. There are an additional 176 short sales in the past two weeks and now total 3,098. The expected market time for short sales is 2.99 months.
Sunday, June 27, 2010
Demand for housing is back to normal
Orange County Housing Report: Demand is Normal Again
June 24, 2010
Good Afternoon!
After dropping nearly 22%, Orange County housing demand is now in a normal summer cyclical pattern.
Housing Demand: Over the last 5 years the average drop in demand was 3.2%, this year it was only 2%.
Whatever the reason, the end of school, graduation, the start of summer, demand cyclically drops at this time of year. The only difference this time around is that demand had already dropped 20% due to the end of the Federal first time home buyer tax credit. When demand reached 3,979 pending sales on April 29th, the height for 2010, and the highest threshold in almost five years, there was a rush to purchase by first time home buyers. That segment accounted for 25% of Orange County’s housing activity. With so many of them pushing to purchase by a deadline, it left a void in demand for the six weeks that followed the expiration. It wasn’t until the past two weeks when the normal housing pattern for Orange County reemerged. Earlier in the year, the market followed a normal pattern as well, until March and April. Demand grew by 30% in those two months, and then subsequently, dropped almost 22% in May and June. Demand, the number of new pending sales over the prior month, decreased by 60 in the past two weeks and now totals 3,107. For the second report in a row, demand is less than the prior year with 522 fewer pending sales compared to 2009. From here, demand typically falls in the next two weeks and then climbs at the end of July. With the distraction of the Fourth of July weekend coming up, that sounds fairly accurate.
Active Listing Inventory: The inventory has continued to grow unabated since the beginning of the year.
Last year the inventory dropped by 36%. This year, however, the Orange County housing inventory has grown by 3,034 homes, a 43% increase. In the past two weeks, the inventory has grown by 345 homes, a 3% increase, and now totals 10,469. This is also the second report in a row where the inventory is higher than last year. Last year the inventory was at 9,188 homes, 1,274 fewer than today. The drop in demand is partially to blame for the increase in the inventory, but keep in mind that it was still increasing unabated when demand was at its highest level in years. We have also heard that the market is really hot in lower price ranges, which is true, just ask any buyer. However, all ranges have experienced an
increase in inventory, especially homes between $250,000 and $1 million. For homes priced between $500,000 and $750,000, the inventory has increased by 60%. The reason for the increase in inventory is because there are many homeowners who have held off on selling their home, pent up sellers, who have been waiting for the market to turn so that they could take advantage of the market and sell their home. Homeowners have heard about the hot market in the lower ranges with a lot of activity, multiple offers and homes selling for very close to their asking prices, and in many cases, above their asking prices. The problem is that many of these pent up homeowners are placing their homes on the market at unrealistic levels, thousands above the most recent comparable and pending sales. Buyers in today’s market have become “spreadsheet buyers,” pouring over the comparables and not wanting to pay much more than the last buyer. With demand hot, many are willing to pay a bit of a premium to purchase their dream home, but more along the lines of an extra $5,000, not $15,000 or more. As long as the overall economy’s health is in limbo and more distressed homes are hitting the market, buyers are unwilling to pay an extravagant premium to own a home. As a seller, it is imperative to carefully consider all recent comparable sales, taking into account location and amenities, and price accordingly. Then, listen carefully to how the market responds to your home and make any necessary adjustments.
Foreclosures and Short Sales: since October 1, 2009, the distressed inventory has grown by 37%.
The active distressed inventory has increased from 2,346 homes on October 1st and now totals 3,217, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,919 distressed homes on the market, representing 32% of the active inventory. The number of foreclosures within the active listing inventory increased by 29 homes in the past two weeks from 530 to 559. The expected market time for foreclosures is 1.52 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 108 homes over the past two weeks and now total 2,658. The expected market time for short sales is 2.28 months, still a HOT seller’s market.
Interest Rates: Interest rates are at a 60 year low and will NOT last.
Everybody is so focused on price and the current historically low interest rates have become an expected part of our real estate market. However, with all of the money that the Federal government has poured into our economy, there is a real threat of major inflation on the horizon. One of the only ways to counter the threat is to raise rates. Due to the lackluster economy, the Federal Reserve is currently stuck and unable to raise rates in the short run, but sooner or later they will be forced to make a change. Rates are predicted to increase to 6% over the course of the next year. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in a drop in home affordability from $590,000 to $540,000, a $50,000 drop. Buyers waiting for that “good buy” may find it next year, but at a price, with higher rates and a larger monthly payment.
June 24, 2010
Good Afternoon!
After dropping nearly 22%, Orange County housing demand is now in a normal summer cyclical pattern.
Housing Demand: Over the last 5 years the average drop in demand was 3.2%, this year it was only 2%.
Whatever the reason, the end of school, graduation, the start of summer, demand cyclically drops at this time of year. The only difference this time around is that demand had already dropped 20% due to the end of the Federal first time home buyer tax credit. When demand reached 3,979 pending sales on April 29th, the height for 2010, and the highest threshold in almost five years, there was a rush to purchase by first time home buyers. That segment accounted for 25% of Orange County’s housing activity. With so many of them pushing to purchase by a deadline, it left a void in demand for the six weeks that followed the expiration. It wasn’t until the past two weeks when the normal housing pattern for Orange County reemerged. Earlier in the year, the market followed a normal pattern as well, until March and April. Demand grew by 30% in those two months, and then subsequently, dropped almost 22% in May and June. Demand, the number of new pending sales over the prior month, decreased by 60 in the past two weeks and now totals 3,107. For the second report in a row, demand is less than the prior year with 522 fewer pending sales compared to 2009. From here, demand typically falls in the next two weeks and then climbs at the end of July. With the distraction of the Fourth of July weekend coming up, that sounds fairly accurate.
Active Listing Inventory: The inventory has continued to grow unabated since the beginning of the year.
Last year the inventory dropped by 36%. This year, however, the Orange County housing inventory has grown by 3,034 homes, a 43% increase. In the past two weeks, the inventory has grown by 345 homes, a 3% increase, and now totals 10,469. This is also the second report in a row where the inventory is higher than last year. Last year the inventory was at 9,188 homes, 1,274 fewer than today. The drop in demand is partially to blame for the increase in the inventory, but keep in mind that it was still increasing unabated when demand was at its highest level in years. We have also heard that the market is really hot in lower price ranges, which is true, just ask any buyer. However, all ranges have experienced an
increase in inventory, especially homes between $250,000 and $1 million. For homes priced between $500,000 and $750,000, the inventory has increased by 60%. The reason for the increase in inventory is because there are many homeowners who have held off on selling their home, pent up sellers, who have been waiting for the market to turn so that they could take advantage of the market and sell their home. Homeowners have heard about the hot market in the lower ranges with a lot of activity, multiple offers and homes selling for very close to their asking prices, and in many cases, above their asking prices. The problem is that many of these pent up homeowners are placing their homes on the market at unrealistic levels, thousands above the most recent comparable and pending sales. Buyers in today’s market have become “spreadsheet buyers,” pouring over the comparables and not wanting to pay much more than the last buyer. With demand hot, many are willing to pay a bit of a premium to purchase their dream home, but more along the lines of an extra $5,000, not $15,000 or more. As long as the overall economy’s health is in limbo and more distressed homes are hitting the market, buyers are unwilling to pay an extravagant premium to own a home. As a seller, it is imperative to carefully consider all recent comparable sales, taking into account location and amenities, and price accordingly. Then, listen carefully to how the market responds to your home and make any necessary adjustments.
Foreclosures and Short Sales: since October 1, 2009, the distressed inventory has grown by 37%.
The active distressed inventory has increased from 2,346 homes on October 1st and now totals 3,217, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,919 distressed homes on the market, representing 32% of the active inventory. The number of foreclosures within the active listing inventory increased by 29 homes in the past two weeks from 530 to 559. The expected market time for foreclosures is 1.52 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 108 homes over the past two weeks and now total 2,658. The expected market time for short sales is 2.28 months, still a HOT seller’s market.
Interest Rates: Interest rates are at a 60 year low and will NOT last.
Everybody is so focused on price and the current historically low interest rates have become an expected part of our real estate market. However, with all of the money that the Federal government has poured into our economy, there is a real threat of major inflation on the horizon. One of the only ways to counter the threat is to raise rates. Due to the lackluster economy, the Federal Reserve is currently stuck and unable to raise rates in the short run, but sooner or later they will be forced to make a change. Rates are predicted to increase to 6% over the course of the next year. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in a drop in home affordability from $590,000 to $540,000, a $50,000 drop. Buyers waiting for that “good buy” may find it next year, but at a price, with higher rates and a larger monthly payment.
Saturday, May 1, 2010
Economic Report April
Orange County Housing Report: End of Credit Won’t End Demand
April 29, 2010
Good Afternoon!
At the stroke of midnight on April 30th the Federal first time home buyer tax credit will end, but there is just too much demand for it to spell the end to demand. Everybody within the real estate trenches, blogs and media have been looking to the end of the tax credit like the infamous Y2K predictions of a little more than decade ago. Remember those days? I had a neighbor who bought a trash can from the local hardware store and filled it with bottled water and canned good
s claiming that the end of life as we knew it was upon us. Governments, banks, power companies, airports, traffic systems and more were all supposed to fail on the first day of the year 2000. Nothing really happened. For Orange County real estate, the end of the tax credit is not going to have much of an impact either. Don’t get me wrong; all of the government stimulus has definitely had a profound impact of the real estate market right in our very own backyard; however, it is time to move on. The program has to end sometime and it might as well be during the hottest time of the year, the Spring market. Yes, we have had buyers hurry to cash in on the credits, but there are enough first time home buyers that have been unsuccessful in purchasing thus far that will still be looking. The reports from the trenches are that these buyers are not about to do an about face and leave the market with their tales between their legs. More recently, many buyers saw the credit as a perk. The new California tax credit that starts this Monday is only going to last about a week due to the fact that only 17,500 first time home buyers in ALL of California will obtain the $10,000 credit (spread over three years) before the funds runs out. Yet, when California announced the credit about a month ago, demand was already hot. It did nothing to instigate more demand. The problem has been not enough supply in the lower ranges where first time home buyer activity is the greatest, not a lack of demand. Also, first time home buyer activity has been bumping along at about 25% of total activity. It is not going to drop significantly and there are plenty of non-first time home buyers in the marketplace as well.
Interest Rates: Rates are expected to rise which drops home affordability.
Buyers are motivated to purchase knowing that the expected rise in interest rates will ultimately make their payments go up. But, it is more than that. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in in home affordability from $590,000 to $540,000, a $50,000 drop. With the government no longer committing to purchasing pools of loans, which ended on March 31st, interest rates are expected to rise a full percent over the coming year.
Housing Demand: Demand has not seen these levels since June of 2005
Demand, the number of new pending sales over the prior month, increased by 231 homes over the prior two weeks and now totals 3,979, a 3% increase and the height thus far in 2010. Demand is 347 pending sales stronger than last year at this time and 1,439 stronger than two years ago. Demand should hit a plateau through the remainder of the Spring market.
Active Listing Inventory: The active inventory has continued its gradual climb and just reached levels not seen since June of last year.
Over the past two weeks, the inventory has increased by 231 homes to 9,351, a 2% increase. We started the year at 7,165 listings and have added 2,186 homes to the active inventory to date. Last year, the inventory continued to drop from mid-March to the New Year. The increase seems gradual, but when looked at since the beginning of the year, a 31% increase is pretty profound. Agents in the trenches are stating that there are more overpriced, unrealistic sellers placing their homes on the market. Prior to the start of the year I forecasted that the discretionary seller would return; however, if more and more homes are placed on the market at unrealistic values, the inventory will continue to rise. This rise in inventory could dampen demand. This is a trend that we will have to continue to watch. If you are a homeowner contemplating placing your home on the market much higher than the most recent comparable sales and pending activity, the current market will not support your line of thinking. Buyers are not willing to pay a sizeable sum extra for a home simply because there is more demand and more competition. There is just too much distress that remains in the market and the distressed market is keeping a lid on appreciation.
Expected Market Time: Every price range experienced a drop in the expected market time.
The expected market time for all of Orange County dropped slightly from 2.45 months two weeks ago to 2.35 months today. Yet, there still are two distinct markets: homes priced below $1 million, HOT, and homes priced above $1 million COLD. It is important to note that the lower the range, the HOTTER the market. For homes priced below $500,000, the hottest range, the expected market time is 1.6 months. Compare that to homes priced above $4 million where the expected market time is a frigid 29.5 months.
Distressed Inventory: The number of active foreclosures increased while the number of active short sales decreased.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by only 9 homes in the past two weeks and now total 2,790, or 29.8% of the current active inventory. Last year at this time, there were 3,724 distressed homes on the market, representing 35.9% of the active inventory. The number of foreclosures within the active listing inventory increased by 38 homes in the past two weeks from 416 to 454. The expected market time for foreclosures is 1.12 months, an extremely HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, which requires lender approval, decreased by 29 homes over the past two weeks and now total 2,336. The expected market time for short sales is 1.53 months, also a HOT seller’s market. Everybody’s looking for a deal, so there’s a lot of competition in purchasing foreclosures and short sales.
Have a wonderful weekend.
Sincerely,
Steven Thomas
Altera Real Estate
President
"Pride Begins at Home”
Office 949.389.7816
Cell 949.874.8221
www.AlteraProperties.com
Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.
April 29, 2010
Good Afternoon!
At the stroke of midnight on April 30th the Federal first time home buyer tax credit will end, but there is just too much demand for it to spell the end to demand. Everybody within the real estate trenches, blogs and media have been looking to the end of the tax credit like the infamous Y2K predictions of a little more than decade ago. Remember those days? I had a neighbor who bought a trash can from the local hardware store and filled it with bottled water and canned good
s claiming that the end of life as we knew it was upon us. Governments, banks, power companies, airports, traffic systems and more were all supposed to fail on the first day of the year 2000. Nothing really happened. For Orange County real estate, the end of the tax credit is not going to have much of an impact either. Don’t get me wrong; all of the government stimulus has definitely had a profound impact of the real estate market right in our very own backyard; however, it is time to move on. The program has to end sometime and it might as well be during the hottest time of the year, the Spring market. Yes, we have had buyers hurry to cash in on the credits, but there are enough first time home buyers that have been unsuccessful in purchasing thus far that will still be looking. The reports from the trenches are that these buyers are not about to do an about face and leave the market with their tales between their legs. More recently, many buyers saw the credit as a perk. The new California tax credit that starts this Monday is only going to last about a week due to the fact that only 17,500 first time home buyers in ALL of California will obtain the $10,000 credit (spread over three years) before the funds runs out. Yet, when California announced the credit about a month ago, demand was already hot. It did nothing to instigate more demand. The problem has been not enough supply in the lower ranges where first time home buyer activity is the greatest, not a lack of demand. Also, first time home buyer activity has been bumping along at about 25% of total activity. It is not going to drop significantly and there are plenty of non-first time home buyers in the marketplace as well.
Interest Rates: Rates are expected to rise which drops home affordability.
Buyers are motivated to purchase knowing that the expected rise in interest rates will ultimately make their payments go up. But, it is more than that. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in in home affordability from $590,000 to $540,000, a $50,000 drop. With the government no longer committing to purchasing pools of loans, which ended on March 31st, interest rates are expected to rise a full percent over the coming year.
Housing Demand: Demand has not seen these levels since June of 2005
Demand, the number of new pending sales over the prior month, increased by 231 homes over the prior two weeks and now totals 3,979, a 3% increase and the height thus far in 2010. Demand is 347 pending sales stronger than last year at this time and 1,439 stronger than two years ago. Demand should hit a plateau through the remainder of the Spring market.
Active Listing Inventory: The active inventory has continued its gradual climb and just reached levels not seen since June of last year.
Over the past two weeks, the inventory has increased by 231 homes to 9,351, a 2% increase. We started the year at 7,165 listings and have added 2,186 homes to the active inventory to date. Last year, the inventory continued to drop from mid-March to the New Year. The increase seems gradual, but when looked at since the beginning of the year, a 31% increase is pretty profound. Agents in the trenches are stating that there are more overpriced, unrealistic sellers placing their homes on the market. Prior to the start of the year I forecasted that the discretionary seller would return; however, if more and more homes are placed on the market at unrealistic values, the inventory will continue to rise. This rise in inventory could dampen demand. This is a trend that we will have to continue to watch. If you are a homeowner contemplating placing your home on the market much higher than the most recent comparable sales and pending activity, the current market will not support your line of thinking. Buyers are not willing to pay a sizeable sum extra for a home simply because there is more demand and more competition. There is just too much distress that remains in the market and the distressed market is keeping a lid on appreciation.
Expected Market Time: Every price range experienced a drop in the expected market time.
The expected market time for all of Orange County dropped slightly from 2.45 months two weeks ago to 2.35 months today. Yet, there still are two distinct markets: homes priced below $1 million, HOT, and homes priced above $1 million COLD. It is important to note that the lower the range, the HOTTER the market. For homes priced below $500,000, the hottest range, the expected market time is 1.6 months. Compare that to homes priced above $4 million where the expected market time is a frigid 29.5 months.
Distressed Inventory: The number of active foreclosures increased while the number of active short sales decreased.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by only 9 homes in the past two weeks and now total 2,790, or 29.8% of the current active inventory. Last year at this time, there were 3,724 distressed homes on the market, representing 35.9% of the active inventory. The number of foreclosures within the active listing inventory increased by 38 homes in the past two weeks from 416 to 454. The expected market time for foreclosures is 1.12 months, an extremely HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, which requires lender approval, decreased by 29 homes over the past two weeks and now total 2,336. The expected market time for short sales is 1.53 months, also a HOT seller’s market. Everybody’s looking for a deal, so there’s a lot of competition in purchasing foreclosures and short sales.
Have a wonderful weekend.
Sincerely,
Steven Thomas
Altera Real Estate
President
"Pride Begins at Home”
Office 949.389.7816
Cell 949.874.8221
www.AlteraProperties.com
Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.
Wednesday, March 10, 2010
Economic Report
OVERVIEW ~ As now seems the usual course for the markets, sentiment among investors turned from optimistic, over the week of Feb. 16 (Feb. 15 was a holiday) to Feb. 19, to pessimistic in the week that followed. At the start of the day on Monday, Feb. 22, the Dow Jones Industrial Average (DJIA) had risen to 10402.35. By the end of the week, the DJIA had declined to 10325.26. This is not a precipitous fall, but stock market indices remained somewhat sluggish over the entire week, brought down by disappointing economic indicators and worries about developments in Greece. Further, the week saw very large Treasury security auctions in which bidders pushed rates slightly higher than the Treasury had anticipated. Again, not a great deal higher, but enough to create worry, particularly over Monday’s and Wednesday’s auctions. The Freddie Mac average 30-year fixed-rate, meanwhile, rose from 4.93% the week prior to 5.05% on Thursday, Feb. 25. This signaled the possibility of an on-going uptrend among mortgage rates (though, as always, concerns that present events foretell future trends usually fall away as the mood among investors moves from negative to positive and back again).
FOLLOW-UP ~ Greece remained in the news, postponing its sales of 10-year notes for one to two weeks, much to the concern of international investors. Greece needs to borrow at least 54 billion this year to pay off existing notes and bonds; it has thus far raised 13 billion. About 22 billion of bonds mature in March and April, and so Greece is under the gun to find enough money to pay off the 22 billion. The country also currently faces the possibility that Standard & Poor’s, and possibly other rating agencies, will lower its rating for Greece, which could make it still harder for Greece to sell its notes.
Coming this spring as well, the Fed will stop helping keep mortgage rates low as its program of buying very large quantities of mortgage-backed securities (MBSs) comes to an end. Investors have had plenty of advance warning that this will happen, and it is therefore difficult to predict the reaction in the markets. More important, though, we can’t know to what extent this will leave the MBS markets vulnerable to an imbalance of growing supply and lower demand, elevating the rates required by investors.
FOCUS ~ The Federal Reserve Board Chairman, in testimony before Congress on Wednesday, Feb. 24, once again reassured the markets that the Fed would continue to help keep rates low for an “extended period.” His comments appeared to briefly help lift the stock index nearly a full percent, but investors remain skeptical, worried that interest rates may turn higher before the Fed Chairman currently predicts they will. The rate the Fed charges at its “discount window,” after all, was nudged higher last week. And purchases of MBSs will cease in March. What we can see here is an anxiety among investors which cannot be salved by the Fed chief (surely assuring continued market volatility) as rates and indices climb and fall unpredictably
FOLLOW-UP ~ Greece remained in the news, postponing its sales of 10-year notes for one to two weeks, much to the concern of international investors. Greece needs to borrow at least 54 billion this year to pay off existing notes and bonds; it has thus far raised 13 billion. About 22 billion of bonds mature in March and April, and so Greece is under the gun to find enough money to pay off the 22 billion. The country also currently faces the possibility that Standard & Poor’s, and possibly other rating agencies, will lower its rating for Greece, which could make it still harder for Greece to sell its notes.
Coming this spring as well, the Fed will stop helping keep mortgage rates low as its program of buying very large quantities of mortgage-backed securities (MBSs) comes to an end. Investors have had plenty of advance warning that this will happen, and it is therefore difficult to predict the reaction in the markets. More important, though, we can’t know to what extent this will leave the MBS markets vulnerable to an imbalance of growing supply and lower demand, elevating the rates required by investors.
FOCUS ~ The Federal Reserve Board Chairman, in testimony before Congress on Wednesday, Feb. 24, once again reassured the markets that the Fed would continue to help keep rates low for an “extended period.” His comments appeared to briefly help lift the stock index nearly a full percent, but investors remain skeptical, worried that interest rates may turn higher before the Fed Chairman currently predicts they will. The rate the Fed charges at its “discount window,” after all, was nudged higher last week. And purchases of MBSs will cease in March. What we can see here is an anxiety among investors which cannot be salved by the Fed chief (surely assuring continued market volatility) as rates and indices climb and fall unpredictably
Monday, February 22, 2010
SHORT SALES WILL CLOG THE SYSTEM IN 2010
Orange County Housing Report: Short Sales Clog the System
February 18, 2010
Good Afternoon!
Short sales, sales of homes for less than what is owed on the mortgage, are creating a backlog of pending sales that take FOREVER to close. 2010 is going to be the year of the short sale. With an enormous glut of foreclosures in 2008, the Federal government stepped in and in 2009 virtually strong armed big lenders to modify loans. The problem is that not everybody qualifies for a loan modification and many successful loan modifications default again on their loans down the road. Yet, there are still a tremendous number of homeowners in trouble. Both the government and banks are in agreement, that they don’t want to foreclose unless there is virtually no other alternative. And, there is a better alternative, short sales. There are many advantages to short sales for the homeowner; including, the ability to purchase again sooner. For the lender, they get to take advantage of pride in homeownership, the homes are not dilapidated and, unlike foreclosures, do not require thousands of dollars to fix nor do they have significant holding costs. So, at the end of November 2009, the US Treasury put together a short sale directive that outlines a new process that begins on April 5, 2010, for all Fannie Mae and Freddie Mac loans. In the interim, lenders have been scrambling to address the new program and modify their current processes that have been ineffective thus far. Currently, the short sale process is NOT working and has resulted in a deluge of pending sales that take forever to close. There are currently 6,706 outstanding pending sales in all of Orange County. Of those, 4,154, or 62%, are short sales. The problem is that almost 70% have been pending for over one month. Many have been pending for months. The reason these do not close within a short period of time is because they require lender approval. And, if there is a second loan, the process is even longer. Throw in the fact that many short sale homeowners have stopped paying their homeowner association dues, and they too have to sign off on the deal if they are obtaining less than what is owed. Often, the buyer of a pending short sale grows so frustrated that they cancel and look elsewhere. The short sale is then placed back on the market and is often placed right back into pending status in a short period of time, and the wait for lender approval continues. With short sales, the buyer, seller and offer must all qualify. The buyer must qualify for the new loan. The seller must qualify to obtain the short sale; there must truly be a hardship. Finally, the offer to purchase must be at or near fair market value. With demand so hot, lenders are taking a closer look at value and not willing to sell at a major discount. The current process for short sales is an absolute crapshoot. Real estate agents, buyers and sellers enter into a pending sale with no definitive timeline. Some lenders are better than others. Some second lenders are better than others. Some Realtors® are better than others. 2010 promises to be the year of the short sale. It is the year where a lot of the distressed backlog, often referred to as the “shadow inventory,” will finally be properly diminished in the form of short sales. Yes, there will still be foreclosures. Some short sales simply will not go together. Some homeowners will just walk away from their obligations. But, banks and the government have their sights set on going the short sale route. It is in everybody’s best interest. Buyers, sellers and agents have had their sights set on short sales for about a year and half now. If you are skeptical, just take a look at the following chart, the number of short sales versus foreclosures in Orange County:
As 2010 rolls along, the process is going to get better and better. It will not be perfect, but it will be better than it is right now. Short sales will finally result in more successful closed sales.
So, how do the rest of the numbers look? The active inventory increased over the past two weeks by 278 homes, or 4%, to 8,135. The active inventory last year was at 11,541, 3,406 additional homes compared to today. Two years ago it was at 15,392, 7,257 additional homes. Demand, the number of new pending sales over the prior 30-days, decreased by 4 to 3,244. There are 425 additional pending sales compared to last year and 1,424 compared to two years ago. Demand typically rises at a quicker pace in the middle of February, so we will have to see if this trend continues. Part of the problem is that there simply is not a lot of new inventory coming on the market. The biggest complaint from agents down in the trenches is that they need fresh inventory for the many buyers that they are working. The expected market time for all price ranges in Orange County increased slightly from 2.42 months two weeks ago to 2.51 months today. At the current pace, the overall market is a seller’s market without much appreciation at all. The number of distressed homes within the Orange County housing market is keeping a lid on appreciation. On the other hand, the higher end price ranges are experiencing a deep buyer’s market, the higher the price range, the deeper the buyer’s market. The hottest price range is homes priced between $250,000 and $500,000, with an expected market time of 1.75 months. Contrast that with homes priced above $4 million with an expected market time of 33.89 months. The active distressed home market, all short sales and foreclosures combined, increased by 54 homes to 2,705. The number of foreclosures within the active listing inventory increased in the past two weeks from 377 to 380, a gain of only three. The expected market time for foreclosures is a sizzling 0.95 months, a deep seller’s market. Foreclosures are HOT. The number of short sales within the active listing inventory increased by 54 and now totals 2,705. The expected market time for short sales is 1.68 months, also a deep seller’s market. There are a lot more short sales than foreclosures. In 2010, short sales will be KING.
Have a wonderful weekend.
February 18, 2010
Good Afternoon!
Short sales, sales of homes for less than what is owed on the mortgage, are creating a backlog of pending sales that take FOREVER to close. 2010 is going to be the year of the short sale. With an enormous glut of foreclosures in 2008, the Federal government stepped in and in 2009 virtually strong armed big lenders to modify loans. The problem is that not everybody qualifies for a loan modification and many successful loan modifications default again on their loans down the road. Yet, there are still a tremendous number of homeowners in trouble. Both the government and banks are in agreement, that they don’t want to foreclose unless there is virtually no other alternative. And, there is a better alternative, short sales. There are many advantages to short sales for the homeowner; including, the ability to purchase again sooner. For the lender, they get to take advantage of pride in homeownership, the homes are not dilapidated and, unlike foreclosures, do not require thousands of dollars to fix nor do they have significant holding costs. So, at the end of November 2009, the US Treasury put together a short sale directive that outlines a new process that begins on April 5, 2010, for all Fannie Mae and Freddie Mac loans. In the interim, lenders have been scrambling to address the new program and modify their current processes that have been ineffective thus far. Currently, the short sale process is NOT working and has resulted in a deluge of pending sales that take forever to close. There are currently 6,706 outstanding pending sales in all of Orange County. Of those, 4,154, or 62%, are short sales. The problem is that almost 70% have been pending for over one month. Many have been pending for months. The reason these do not close within a short period of time is because they require lender approval. And, if there is a second loan, the process is even longer. Throw in the fact that many short sale homeowners have stopped paying their homeowner association dues, and they too have to sign off on the deal if they are obtaining less than what is owed. Often, the buyer of a pending short sale grows so frustrated that they cancel and look elsewhere. The short sale is then placed back on the market and is often placed right back into pending status in a short period of time, and the wait for lender approval continues. With short sales, the buyer, seller and offer must all qualify. The buyer must qualify for the new loan. The seller must qualify to obtain the short sale; there must truly be a hardship. Finally, the offer to purchase must be at or near fair market value. With demand so hot, lenders are taking a closer look at value and not willing to sell at a major discount. The current process for short sales is an absolute crapshoot. Real estate agents, buyers and sellers enter into a pending sale with no definitive timeline. Some lenders are better than others. Some second lenders are better than others. Some Realtors® are better than others. 2010 promises to be the year of the short sale. It is the year where a lot of the distressed backlog, often referred to as the “shadow inventory,” will finally be properly diminished in the form of short sales. Yes, there will still be foreclosures. Some short sales simply will not go together. Some homeowners will just walk away from their obligations. But, banks and the government have their sights set on going the short sale route. It is in everybody’s best interest. Buyers, sellers and agents have had their sights set on short sales for about a year and half now. If you are skeptical, just take a look at the following chart, the number of short sales versus foreclosures in Orange County:
As 2010 rolls along, the process is going to get better and better. It will not be perfect, but it will be better than it is right now. Short sales will finally result in more successful closed sales.
So, how do the rest of the numbers look? The active inventory increased over the past two weeks by 278 homes, or 4%, to 8,135. The active inventory last year was at 11,541, 3,406 additional homes compared to today. Two years ago it was at 15,392, 7,257 additional homes. Demand, the number of new pending sales over the prior 30-days, decreased by 4 to 3,244. There are 425 additional pending sales compared to last year and 1,424 compared to two years ago. Demand typically rises at a quicker pace in the middle of February, so we will have to see if this trend continues. Part of the problem is that there simply is not a lot of new inventory coming on the market. The biggest complaint from agents down in the trenches is that they need fresh inventory for the many buyers that they are working. The expected market time for all price ranges in Orange County increased slightly from 2.42 months two weeks ago to 2.51 months today. At the current pace, the overall market is a seller’s market without much appreciation at all. The number of distressed homes within the Orange County housing market is keeping a lid on appreciation. On the other hand, the higher end price ranges are experiencing a deep buyer’s market, the higher the price range, the deeper the buyer’s market. The hottest price range is homes priced between $250,000 and $500,000, with an expected market time of 1.75 months. Contrast that with homes priced above $4 million with an expected market time of 33.89 months. The active distressed home market, all short sales and foreclosures combined, increased by 54 homes to 2,705. The number of foreclosures within the active listing inventory increased in the past two weeks from 377 to 380, a gain of only three. The expected market time for foreclosures is a sizzling 0.95 months, a deep seller’s market. Foreclosures are HOT. The number of short sales within the active listing inventory increased by 54 and now totals 2,705. The expected market time for short sales is 1.68 months, also a deep seller’s market. There are a lot more short sales than foreclosures. In 2010, short sales will be KING.
Have a wonderful weekend.
Saturday, February 13, 2010
What Happens After the Stimulus Ends? (The national picture)
Low mortgage rates and incentives for first-time homebuyers helped arrest the long slide in home sales, housing starts, and home prices during 2009. Sales of both new and existing homes perked up toward the end of last year and house prices, as measured by the three most popular indices, stabilized during the second half of the year. New home construction also picked up modestly, and a number of homebuilders actually returned to profitability, again with the help of tax refunds from operating-loss carry backs. Foreclosure activity remains high, but lenders, at the urging of government regulators, are making extraordinary efforts to reduce foreclosures and are also showing restraint in unloading foreclosed homes into the already bloated resale market. With so much of the recovery tied to some sort of stimulus, and much of that stimulus set to end in the coming months, the natural question is what happens to the housing market after the stimulus ends?
Home sales and new home construction will recover less rapidly than the pace for which many would hope. We see new home sales rising close to 20 percent on an annual average basis and look for existing home purchases to climb 9 percent. While those increases sound impressive, much of the improvement has already taken place as 2009 ended on such a strong note. Sales likely got off to a slow start in 2010 because of unusually harsh weather in January and February, which are two of the seasonally weakest months of the year. Demand should pick up in March and April as new home sales, which are recorded at the time a contract is signed, would need to be booked by the end of April in order to close on new homes by June 30. Existing home sales, which are recorded at closing, will likely ramp up in May and June. Our expectation is that home sales and new construction will gradually grind higher, reflecting a modest improvement in employment conditions, record-high housing affordability and a slight relaxation in lending requirements in parts of the country.
Low mortgage rates and incentives for first-time homebuyers helped arrest the long slide in home sales, housing starts, and home prices during 2009. Sales of both new and existing homes perked up toward the end of last year and house prices, as measured by the three most popular indices, stabilized during the second half of the year. New home construction also picked up modestly, and a number of homebuilders actually returned to profitability, again with the help of tax refunds from operating-loss carry backs. Foreclosure activity remains high, but lenders, at the urging of government regulators, are making extraordinary efforts to reduce foreclosures and are also showing restraint in unloading foreclosed homes into the already bloated resale market. With so much of the recovery tied to some sort of stimulus, and much of that stimulus set to end in the coming months, the natural question is what happens to the housing market after the stimulus ends?
Home sales and new home construction will recover less rapidly than the pace for which many would hope. We see new home sales rising close to 20 percent on an annual average basis and look for existing home purchases to climb 9 percent. While those increases sound impressive, much of the improvement has already taken place as 2009 ended on such a strong note. Sales likely got off to a slow start in 2010 because of unusually harsh weather in January and February, which are two of the seasonally weakest months of the year. Demand should pick up in March and April as new home sales, which are recorded at the time a contract is signed, would need to be booked by the end of April in order to close on new homes by June 30. Existing home sales, which are recorded at closing, will likely ramp up in May and June. Our expectation is that home sales and new construction will gradually grind higher, reflecting a modest improvement in employment conditions, record-high housing affordability and a slight relaxation in lending requirements in parts of the country.
Sunday, January 31, 2010
What might shock the housing market in 2010
Journalists frequently ask industry insiders and outside watchers about their outlooks for
the housing market. In response, we typically hear what real estate professionals expect to
happen in the coming months.
Since we know that the economy likes to throw more than a few curve balls, we recently
asked around town what influential people in this business thought might be the
unexpected for 2010, the shocking housing surprises we all might be talking about a year
from now.
Michael Reynolds, The Concord Group:
“A decline in home prices. Despite good affordability metrics, uncertainty surrounding the
size of the foreclosure pool combined with the elimination of the federal home buyer tax
credit (April 30, 2010) may lead home prices downward. Banks have been stalling on the
foreclosure process with the intent of limiting available home supply for sale and propping
prices. Should banks ramp up on the foreclosure process in 2010, a glut of foreclosure
homes on the market would place downward pressure on home prices.”
Kristine Thalman, Building Industry Association of Orange County: “That the foreclosure
problem was not as bad as predicted in Orange County. We will also be saying, ‘I should
have bought that house!’ I also see a whole new way of financing construction, due to the
banks’ unpredictability and unwillingness to invest.”
Gary Macrides, Orange County Association of Realtors: “The loss of Proposition 13 tax
protections on commercial and multifamily buildings. At least three petitions in circulation
would create a split-roll tax assessment system. It could be devastating to business
owners, and may slam the door shut on commercial investment properties in California.”
Pat Veling, Real Data Strategies: “In- creased sales activity in the luxury property
segment. It is very possible that prices will fall far enough that average guys like me will
make a move on that coastal property we have wanted, but for which we were unwilling to
pay. As an active, hopeful buyer in Laguna Beach, I can tell you firsthand that livable
homes within a three- or four-block walk to the beach are being bought surprisingly fast
and at prices we thought sellers would not get.”
Mark Boud, Real Estate Economics: “The new-home market may rebound more
dramatically than the overall housing market. For example, new homes being offered on
the Irvine Ranch may absorb and appreciate faster than anyone anticipates – partly due to
the lack of competitive new-home inventory and partly due to a faster-than-anticipated
drop in distressed housing inventory. As early as January, there may be a bit of a new
home ‘frenzy’ on the Irvine Ranch.”
Anil Puri, Cal State Fullerton:
“Housing prices fall by 10 percent.”
Steve Thomas, Altera Real Estate:
“The increase in completed short sales, surpassing the number of completed foreclosures.
Over the past several months, there have been more closed short sales than foreclosures.
That fact does not make it a true surprise. Yet, it will be a surprise
the housing market. In response, we typically hear what real estate professionals expect to
happen in the coming months.
Since we know that the economy likes to throw more than a few curve balls, we recently
asked around town what influential people in this business thought might be the
unexpected for 2010, the shocking housing surprises we all might be talking about a year
from now.
Michael Reynolds, The Concord Group:
“A decline in home prices. Despite good affordability metrics, uncertainty surrounding the
size of the foreclosure pool combined with the elimination of the federal home buyer tax
credit (April 30, 2010) may lead home prices downward. Banks have been stalling on the
foreclosure process with the intent of limiting available home supply for sale and propping
prices. Should banks ramp up on the foreclosure process in 2010, a glut of foreclosure
homes on the market would place downward pressure on home prices.”
Kristine Thalman, Building Industry Association of Orange County: “That the foreclosure
problem was not as bad as predicted in Orange County. We will also be saying, ‘I should
have bought that house!’ I also see a whole new way of financing construction, due to the
banks’ unpredictability and unwillingness to invest.”
Gary Macrides, Orange County Association of Realtors: “The loss of Proposition 13 tax
protections on commercial and multifamily buildings. At least three petitions in circulation
would create a split-roll tax assessment system. It could be devastating to business
owners, and may slam the door shut on commercial investment properties in California.”
Pat Veling, Real Data Strategies: “In- creased sales activity in the luxury property
segment. It is very possible that prices will fall far enough that average guys like me will
make a move on that coastal property we have wanted, but for which we were unwilling to
pay. As an active, hopeful buyer in Laguna Beach, I can tell you firsthand that livable
homes within a three- or four-block walk to the beach are being bought surprisingly fast
and at prices we thought sellers would not get.”
Mark Boud, Real Estate Economics: “The new-home market may rebound more
dramatically than the overall housing market. For example, new homes being offered on
the Irvine Ranch may absorb and appreciate faster than anyone anticipates – partly due to
the lack of competitive new-home inventory and partly due to a faster-than-anticipated
drop in distressed housing inventory. As early as January, there may be a bit of a new
home ‘frenzy’ on the Irvine Ranch.”
Anil Puri, Cal State Fullerton:
“Housing prices fall by 10 percent.”
Steve Thomas, Altera Real Estate:
“The increase in completed short sales, surpassing the number of completed foreclosures.
Over the past several months, there have been more closed short sales than foreclosures.
That fact does not make it a true surprise. Yet, it will be a surprise
Prices to rise in 2010
Home prices to rise 6.75%, study predicts January 3, 2010
A Santa Ana company makes a 2009-10 estimate for county real estate.
By JEFF COLLINS
Santa Ana-based First American CoreLogic projects a 6.75 percent increase to occur in
local home prices over the 12 months ending in October 2010, a smaller increase than
those predicted in past months.
Last month First American projected a 10.94 percent increase in house prices by
September. Before that it projected a 9.53 percent gain by August.
A UCLA forecaster has projected that home prices could climb as much as 16 percent in
2010, while others expect prices to increase by no more than 2 percent to 3 percent, if at
all.
In addition, First American’s Home Price Index shows:
House prices declined 5 percent in October from the year before, compared with a 6.7
percent year-over-year price drop in September.
When sales of distressed houses are excluded, the index of house prices dropped 5.8
percent in October. Distressed sales tend to pull home prices up because of heightened
demand for those residences.
Orange County’s October price compares with a 10.8 percent year-over-year drop in Los
Angeles County, a 9.6 percent drop statewide and a 7.8 percent drop nationally
A Santa Ana company makes a 2009-10 estimate for county real estate.
By JEFF COLLINS
Santa Ana-based First American CoreLogic projects a 6.75 percent increase to occur in
local home prices over the 12 months ending in October 2010, a smaller increase than
those predicted in past months.
Last month First American projected a 10.94 percent increase in house prices by
September. Before that it projected a 9.53 percent gain by August.
A UCLA forecaster has projected that home prices could climb as much as 16 percent in
2010, while others expect prices to increase by no more than 2 percent to 3 percent, if at
all.
In addition, First American’s Home Price Index shows:
House prices declined 5 percent in October from the year before, compared with a 6.7
percent year-over-year price drop in September.
When sales of distressed houses are excluded, the index of house prices dropped 5.8
percent in October. Distressed sales tend to pull home prices up because of heightened
demand for those residences.
Orange County’s October price compares with a 10.8 percent year-over-year drop in Los
Angeles County, a 9.6 percent drop statewide and a 7.8 percent drop nationally
Wednesday, January 6, 2010
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Orange County Housing Report
This is a biweekly report that closely analyzes the Orange County housing market - Altera Real Estate
Tuesday, December 29, 2009
Orange County Housing Report: HAPPY NEW YEAR – A 2010 FORECAST
HAPPY NEW YEAR!!! Now, what does that mean for Orange County real estate? First, let me clarify that forecasting draws from historical data and circumstances to predict the future. Yet, we are currently in uncharted waters, making forecasting the housing market more of an art than an exact science. There have already been many forecasts released that are all over the map. It reminds me of picking NFL football games during the first week of the year when there are a lot of surprises. With that in mind, let’s take a look back at what happened in 2009 in terms of inventory, demand, expected market time and distressed properties.The Active Inventory: We started the year with 11,326 homes on the market. The discretionary homeowner returned, knowing that the market was full of challenges and competition. Values had already dropped substantially, especially in the lower ranges. The active inventory reached its peak of 11,606 homes by the end of March, 280 additional homes compared to the beginning of the year, a 2.5% increase. From there, the inventory continued to drop steadily throughout the year. Currently, the active inventory has continued its downward trend, shedding another 207 homes and bringing the inventory to 7,381 homes, a 36% drop from the peak. The inventory has dropped to levels not seen since December of 2005. In comparison, the 2008 active inventory grew from 14,944 homes in January and peaked in March at 15,617 homes, a 4.5% increase. From there, the 2008 inventory dropped 26% through the end of the year to 11,842. In 2006 and 2007, the active inventory blossomed throughout the year and peaked in August. In both 2008 and 2009, the inventory had dropped to a much healthier level with the help from the discretionary homeowner. Had discretionary homeowners not been present, we could have been looking at inventory levels hovering around the 20,000 mark. The drop in the active listing inventory has also been aided by the number of short sales that have been placed into “Backup” position. Short sales, homeowners that owe more than their home is worth, are subject to lender approval of accepting less than the full loan amount. Many short sales continued to market their homes as active listings even though they had an acceptable agreement between a buyer and the seller. They remained on the market until they had “lender approval.” This resulted in an artificially high active inventory. This has since changed and the active inventory today is a much more accurate depiction of the real active inventory.Demand: Just like in 2008, demand, the number of new pending sales within the prior month, continuously grew unabated. It was plodding along, ignoring cyclical ups and downs from week to week. Demand grew from 2,008 homes in the beginning of January to its peak of 3,652 homes in June, an 82% increase. After June, just like in 2008, demand followed the normal cyclical, seasonal pattern. Demand was boosted by the major drop in home values over the prior couple of years, increased affordability, historically low interest rates, the first time home buyer tax credit and the sheer number of distressed properties on the market. In 2008, a peak in demand of 3,060 homes was reached in June, and then slowed for the Autumn and Holiday markets. Currently, in keeping up with the normal Holiday market cycle, demand dropped by 523 homes in the past month to 2,515 homes. That is still much healthier than last year at this time when demand dropped to 1,997 homes, 21% slower than today. In 2007, demand was at 1,031 homes, 59% slower. Current demand is also at the strongest level for the finish to a year since I started tracking the Orange County housing market five years ago.Expected Market Time: Orange County started off the year with an expected market time of 5.62 months. But, as demand continued to pick up steam and the inventory dropped, the expected market time methodically declined and reached a bottom in September of 2.33 months. Currently the expected market time is at 2.93 months. In 2008 the expected market time started the year at 14.97 months and dropped to 5.93 months at the end of the year. In 2007 the expected market time started the year at 7.78 months and increased to 15.05 at the end of the year. The current expected market time is also at a much healthier level going into 2010. At the current expected market time, it is technically a seller’s market. Distressed properties are keeping a lid on any real appreciation, but all of the other trimmings that go along with a seller’s market are very much a part of today’s housing landscape: multiple offers, sale prices above list prices, tremendous competition, and buyer frustration.Distressed Properties: The big story of 2008 was how much the distressed inventory grew and became such a large part of the housing market. This year, the big story was how the number of distressed properties had dropped. With moratoriums on foreclosures at the beginning of the year and the government insisting upon loan modifications, the number of foreclosures dropped throughout the year. In the beginning of 2009 there were 5,118 distressed homes on the market, both short sales and foreclosures, representing 45% of the active inventory. The distressed inventory dropped 46% to a low of 2,346 in October, representing 31% of the active inventory. With a decrease in demand due to the holidays, the current active distressed inventory increased by 41 homes over the past month and is now at 2,537 homes, representing 34% of the total inventory. In 2008, the distressed inventory started the year at 3,858 homes, peaked in August at 5,950 homes and then dropped to 5,379 homes at the end of the year. Short sales make up 85% of the distressed inventory versus 15% for foreclosures. At the beginning of the year, distressed properties made up 69% of demand versus 55% today. There is tremendous demand for distressed properties. Even though it is the Holiday market, the expected market time for all foreclosures is at 1.07 months, a DEEP SELLER’s market. The sales to list price ratio for foreclosures in the month of November was 104%. That means that the average foreclosure sold for 4% ABOVE the list price. There are only 378 foreclosures actively listed today. One year ago there were 1,294. There is similar demand for short sales with an expected market time of 2.12 months. The sales to list price ratio for short sales in November was at 99%. Short sales have become a major part of the housing market and will be throughout 2010. There are 2,159 short sales on the active market, 4,037 short sales are pending and 856 have been placed on hold. All of these statuses combined total 7,093. Short sales represent 48% of all listings, pendings and properties on hold. As a buyer, it is very difficult to avoid short sales and their lengthy process. The bottom line, there is tremendous demand for distressed properties and buyers should not have the expectation of being able to offer much less than the purchase price.2009, a look back: Perhaps the biggest surprise of the year has been the large drop in distressed sales. Throughout the year, everybody has heard of various foreclosure moratoriums and the pending wave of foreclosures to come, also known as the “shadow inventory.” The shadow inventory includes all homes that have been foreclosed on but the lender purposefully held off of the market, all homes scheduled for a trustees deed upon sale (the final foreclosure action) and, most important, all homes that are 90 days or more delinquent. There is a giant shadow inventory, but many economists and analysts have made the error of presuming that lenders are purposely holding already foreclosed homes off of the market. Instead, most of the shadow inventory is already on the market as short sales. There are over 7,000 in Orange County alone that are on the active market, pending or on hold. In Los Angeles, there are over 13,000, in Riverside there are over 8,000, in San Bernardino there are over 5,700, an in San Diego there are over 8,500. Minus Ventura County, there are over 42,000 short sales in Southern California alone. The short sales have piled up across the United States. There has been tremendous pressure from the federal government for lenders to modify loans. Thus far the program has not been that successful. Now they are turning their sites on short sales. The government wants lenders to modify first, short sale second, and, as a last resort, foreclose. On November 30th of this year, the Obama administration, through the U.S. Treasury, released the Home Affordable Foreclosure Alternative Program (HAFA), providing financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to avoid a foreclosure on an eligible loan. In response, lenders are already gearing up to handle the volume of short sales.The first time home buyer tax credit also had a positive impact on the housing market along with the increased conventional loan limit to $729,750. The tax credit was supposed to end November 30th, but has since been extended through June of next year. So, we can expect a bump in activity due to the credit for the first half of 2010. The government was late to provide an extension to the increased conventional loan limit from 2008. So the first few months, the conventional loan limit dropped to $625,500 and then it was increased again to $729,750. The increase was set to expire at the end of 2009, but this time the government actually planned ahead and extended the increase through the end of 2010. This is very important to the Orange County housing market since loans above the conventional loan limit, jumbo loans, are much more difficult to obtain.What can we expect in 2010? The federal government has been working overtime to help instigate an increase in demand and an eventual recovery within the real estate sector. The first time home buyer tax credit has been expanded to include move-up buyers who need to sell their homes first and extended through June of next year (homes need to be pending by April 30th and close by June 30th). As discussed prior, the conventional loan limit has been extended through all of 2010. But, the biggest wild card for 2010 is what will eventually happen to interest rates as the Federal Reserve halts the purchase of mortgage-backed securities. Here is my forecast:
The lower end, below $1 million, and especially below $750,000, will continue to experience strong demand and values will remain flat or appreciate slightly. Homes priced below $1 million accounts for 76% of the active listing inventory and 94% of demand. Buyers and sellers can continue to expect multiple offers and sales prices at or above the list price. Bottom feeders need not waste their time.
The upper end, above $1 million, and especially above $2 million, will continue to experience muted demand along with a drop in value. The upper end is catching up with the large drops in value within the lower end. The drop in value will be led by an increase in distressed sales in the upper ranges. Jumbo loans may be tougher to obtain in the upper ranges, but as values drop, demand will increase. The appetite for upper end distressed sales has grown and, with proper pricing, will attract higher demand and multiple offers.
The number of units sold will increase year over year slightly. The difference will be much stronger in the first quarter of 2010 and the gap will tighten for the remainder of the year. For the most part, the demand curve will closely mirror 2009.
The discretionary seller will return to the marketplace, keeping inventory levels at a healthy level. We can expect the active inventory to grow to no more than 9,000 homes.
Short sales will be king in 2010. With the federal government turning their attention to short sales, the process is going to get a whole lot better. The government had been strong arming lenders to modify loans, but success has been very limited. There will be a lot more short sale approvals, which translates to successful closed short sales. The infamous “shadow inventory” will actually translate to more short sales. Short sales are already a major component of today’s real estate market. The only thing missing right now is a higher success rate and that is about to change. Expect the number of closed short sales to continue to exceed the number of closed foreclosures on a monthly basis.
The number of foreclosures to hit the market will increase slightly year over year, but will NOT be a wave fueled by the “shadow inventory.”
We can expect the distressed inventory to rise slowly with more short sales and foreclosures to hit the market; but, this will be offset by incredible demand for distressed properties. With demand so high, distressed properties will be placed at the last comparable sale, not below.
As the Federal Reserve purchase of mortgage-backed securities comes to an end after the first quarter of 2010, interest rates will rise to about 6%. That may seem like a giant jump, but 6% is still low historically.
It is going to by a long wait for homeowners waiting for the market to rebound. With unemployment high and more distressed homes to hit the market, the most likely scenario is going to be a flat market for the next couple of years, with no real appreciation or depreciation.
There have been a lot of lessons learned from the housing speculative bubble. The most important lesson has to be that people need to look for a place to call “home” for the long term, making sure that their family can afford the monthly payment. If a homeowner pays their 30-year fixed rate mortgage for 30-years, they own their home free and clear. Historically, in the long run, a home is a great investment. Your home is not an asset that is meant to be flipped every two years because the government has made it convenient to write off the gains. A home is place to call your own and a great place to raise a family or retire. And, in my humble opinion, you cannot beat Orange County as a place to call home.
Posted by Steven Thomas at 11:30 AM
Labels: altera, forecast, foreclosure, housing report, orange county, real estate, short sale, steve thomas
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Blog Archive
▼ 2009 (18)
▼ December (2)
Orange County Housing Report: HAPPY NEW YEAR – A ...
Orange County Housing Report: A Holiday Pause
► November (3)
Orange County Housing Report: Thankful for Afford...
Orange County Housing Report: Short Sales are a N...
Orange County Housing Report: Lack of Inventory i...
► October (1)
Orange County Housing Report: Two Polar Opposite ...
► September (2)
Top 10 OC Housing Trends
Orange County Housing Report: End of Summer Cycle...
► August (1)
Demand is Up and Supply is Down
► July (1)
Orange County Housing Report: A Seasonal Summer D...
► May (1)
Orange County Housing Report: The Distressed Inve...
► April (2)
Orange County Housing Report: The Spring Surge Co...
Orange County Housing Report: Demand Suddenly Sur...
► March (2)
Orange County Housing Report: 21% Fewer Distresse...
Orange County Housing Report: A Stimulating Pause...
► February (1)
Orange County Housing Report: Demand Takes Off
► January (2)
Orange County Housing Report: Waiting on Stimulus...
Orange County Housing Report: A Much Better Start...
► 2008 (16)
► December (2)
Orange County Housing Report: HAPPY NEW YEAR – A ...
Orange County Housing Report: Lower Ranges Hot, U...
► November (3)
The Government Will Fuel Demand
Buying Season is Upon Us
Demand Slows with Holiday Market
► October (2)
Orange County Housing Report: Brisk Activity Desp...
Orange County Housing Report: Inventory Drops Bel...
► September (1)
Market Time Report: Expected Market Time Remains ...
► August (1)
Market Time Report: Current Demand Double 2007 Le...
► July (2)
Market Time Report: Demand 50% Stronger Compared ...
Market Time Report: June 2008 Closed Sales 11% Be...
► June (1)
Market Time Report: Demand Surges as the Inventor...
► May (2)
Market Time Report: Demand Far Exceeds 2007 Level...
Market Time Report: The First Time Wave is Growin...
► April (2)
Market Time Report: First Time Home Buyers are Ba...
Market Time Report: Housing Demand Stronger than ...
About Me
Steven Thomas
Aliso Viejo, California, United States
President of Altera Real Estate in Orange County, California. Altera has offices throughout Orange County and over 350 associates. View my complete profile
Orange County Housing Report
This is a biweekly report that closely analyzes the Orange County housing market - Altera Real Estate
Tuesday, December 29, 2009
Orange County Housing Report: HAPPY NEW YEAR – A 2010 FORECAST
HAPPY NEW YEAR!!! Now, what does that mean for Orange County real estate? First, let me clarify that forecasting draws from historical data and circumstances to predict the future. Yet, we are currently in uncharted waters, making forecasting the housing market more of an art than an exact science. There have already been many forecasts released that are all over the map. It reminds me of picking NFL football games during the first week of the year when there are a lot of surprises. With that in mind, let’s take a look back at what happened in 2009 in terms of inventory, demand, expected market time and distressed properties.The Active Inventory: We started the year with 11,326 homes on the market. The discretionary homeowner returned, knowing that the market was full of challenges and competition. Values had already dropped substantially, especially in the lower ranges. The active inventory reached its peak of 11,606 homes by the end of March, 280 additional homes compared to the beginning of the year, a 2.5% increase. From there, the inventory continued to drop steadily throughout the year. Currently, the active inventory has continued its downward trend, shedding another 207 homes and bringing the inventory to 7,381 homes, a 36% drop from the peak. The inventory has dropped to levels not seen since December of 2005. In comparison, the 2008 active inventory grew from 14,944 homes in January and peaked in March at 15,617 homes, a 4.5% increase. From there, the 2008 inventory dropped 26% through the end of the year to 11,842. In 2006 and 2007, the active inventory blossomed throughout the year and peaked in August. In both 2008 and 2009, the inventory had dropped to a much healthier level with the help from the discretionary homeowner. Had discretionary homeowners not been present, we could have been looking at inventory levels hovering around the 20,000 mark. The drop in the active listing inventory has also been aided by the number of short sales that have been placed into “Backup” position. Short sales, homeowners that owe more than their home is worth, are subject to lender approval of accepting less than the full loan amount. Many short sales continued to market their homes as active listings even though they had an acceptable agreement between a buyer and the seller. They remained on the market until they had “lender approval.” This resulted in an artificially high active inventory. This has since changed and the active inventory today is a much more accurate depiction of the real active inventory.Demand: Just like in 2008, demand, the number of new pending sales within the prior month, continuously grew unabated. It was plodding along, ignoring cyclical ups and downs from week to week. Demand grew from 2,008 homes in the beginning of January to its peak of 3,652 homes in June, an 82% increase. After June, just like in 2008, demand followed the normal cyclical, seasonal pattern. Demand was boosted by the major drop in home values over the prior couple of years, increased affordability, historically low interest rates, the first time home buyer tax credit and the sheer number of distressed properties on the market. In 2008, a peak in demand of 3,060 homes was reached in June, and then slowed for the Autumn and Holiday markets. Currently, in keeping up with the normal Holiday market cycle, demand dropped by 523 homes in the past month to 2,515 homes. That is still much healthier than last year at this time when demand dropped to 1,997 homes, 21% slower than today. In 2007, demand was at 1,031 homes, 59% slower. Current demand is also at the strongest level for the finish to a year since I started tracking the Orange County housing market five years ago.Expected Market Time: Orange County started off the year with an expected market time of 5.62 months. But, as demand continued to pick up steam and the inventory dropped, the expected market time methodically declined and reached a bottom in September of 2.33 months. Currently the expected market time is at 2.93 months. In 2008 the expected market time started the year at 14.97 months and dropped to 5.93 months at the end of the year. In 2007 the expected market time started the year at 7.78 months and increased to 15.05 at the end of the year. The current expected market time is also at a much healthier level going into 2010. At the current expected market time, it is technically a seller’s market. Distressed properties are keeping a lid on any real appreciation, but all of the other trimmings that go along with a seller’s market are very much a part of today’s housing landscape: multiple offers, sale prices above list prices, tremendous competition, and buyer frustration.Distressed Properties: The big story of 2008 was how much the distressed inventory grew and became such a large part of the housing market. This year, the big story was how the number of distressed properties had dropped. With moratoriums on foreclosures at the beginning of the year and the government insisting upon loan modifications, the number of foreclosures dropped throughout the year. In the beginning of 2009 there were 5,118 distressed homes on the market, both short sales and foreclosures, representing 45% of the active inventory. The distressed inventory dropped 46% to a low of 2,346 in October, representing 31% of the active inventory. With a decrease in demand due to the holidays, the current active distressed inventory increased by 41 homes over the past month and is now at 2,537 homes, representing 34% of the total inventory. In 2008, the distressed inventory started the year at 3,858 homes, peaked in August at 5,950 homes and then dropped to 5,379 homes at the end of the year. Short sales make up 85% of the distressed inventory versus 15% for foreclosures. At the beginning of the year, distressed properties made up 69% of demand versus 55% today. There is tremendous demand for distressed properties. Even though it is the Holiday market, the expected market time for all foreclosures is at 1.07 months, a DEEP SELLER’s market. The sales to list price ratio for foreclosures in the month of November was 104%. That means that the average foreclosure sold for 4% ABOVE the list price. There are only 378 foreclosures actively listed today. One year ago there were 1,294. There is similar demand for short sales with an expected market time of 2.12 months. The sales to list price ratio for short sales in November was at 99%. Short sales have become a major part of the housing market and will be throughout 2010. There are 2,159 short sales on the active market, 4,037 short sales are pending and 856 have been placed on hold. All of these statuses combined total 7,093. Short sales represent 48% of all listings, pendings and properties on hold. As a buyer, it is very difficult to avoid short sales and their lengthy process. The bottom line, there is tremendous demand for distressed properties and buyers should not have the expectation of being able to offer much less than the purchase price.2009, a look back: Perhaps the biggest surprise of the year has been the large drop in distressed sales. Throughout the year, everybody has heard of various foreclosure moratoriums and the pending wave of foreclosures to come, also known as the “shadow inventory.” The shadow inventory includes all homes that have been foreclosed on but the lender purposefully held off of the market, all homes scheduled for a trustees deed upon sale (the final foreclosure action) and, most important, all homes that are 90 days or more delinquent. There is a giant shadow inventory, but many economists and analysts have made the error of presuming that lenders are purposely holding already foreclosed homes off of the market. Instead, most of the shadow inventory is already on the market as short sales. There are over 7,000 in Orange County alone that are on the active market, pending or on hold. In Los Angeles, there are over 13,000, in Riverside there are over 8,000, in San Bernardino there are over 5,700, an in San Diego there are over 8,500. Minus Ventura County, there are over 42,000 short sales in Southern California alone. The short sales have piled up across the United States. There has been tremendous pressure from the federal government for lenders to modify loans. Thus far the program has not been that successful. Now they are turning their sites on short sales. The government wants lenders to modify first, short sale second, and, as a last resort, foreclose. On November 30th of this year, the Obama administration, through the U.S. Treasury, released the Home Affordable Foreclosure Alternative Program (HAFA), providing financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to avoid a foreclosure on an eligible loan. In response, lenders are already gearing up to handle the volume of short sales.The first time home buyer tax credit also had a positive impact on the housing market along with the increased conventional loan limit to $729,750. The tax credit was supposed to end November 30th, but has since been extended through June of next year. So, we can expect a bump in activity due to the credit for the first half of 2010. The government was late to provide an extension to the increased conventional loan limit from 2008. So the first few months, the conventional loan limit dropped to $625,500 and then it was increased again to $729,750. The increase was set to expire at the end of 2009, but this time the government actually planned ahead and extended the increase through the end of 2010. This is very important to the Orange County housing market since loans above the conventional loan limit, jumbo loans, are much more difficult to obtain.What can we expect in 2010? The federal government has been working overtime to help instigate an increase in demand and an eventual recovery within the real estate sector. The first time home buyer tax credit has been expanded to include move-up buyers who need to sell their homes first and extended through June of next year (homes need to be pending by April 30th and close by June 30th). As discussed prior, the conventional loan limit has been extended through all of 2010. But, the biggest wild card for 2010 is what will eventually happen to interest rates as the Federal Reserve halts the purchase of mortgage-backed securities. Here is my forecast:
The lower end, below $1 million, and especially below $750,000, will continue to experience strong demand and values will remain flat or appreciate slightly. Homes priced below $1 million accounts for 76% of the active listing inventory and 94% of demand. Buyers and sellers can continue to expect multiple offers and sales prices at or above the list price. Bottom feeders need not waste their time.
The upper end, above $1 million, and especially above $2 million, will continue to experience muted demand along with a drop in value. The upper end is catching up with the large drops in value within the lower end. The drop in value will be led by an increase in distressed sales in the upper ranges. Jumbo loans may be tougher to obtain in the upper ranges, but as values drop, demand will increase. The appetite for upper end distressed sales has grown and, with proper pricing, will attract higher demand and multiple offers.
The number of units sold will increase year over year slightly. The difference will be much stronger in the first quarter of 2010 and the gap will tighten for the remainder of the year. For the most part, the demand curve will closely mirror 2009.
The discretionary seller will return to the marketplace, keeping inventory levels at a healthy level. We can expect the active inventory to grow to no more than 9,000 homes.
Short sales will be king in 2010. With the federal government turning their attention to short sales, the process is going to get a whole lot better. The government had been strong arming lenders to modify loans, but success has been very limited. There will be a lot more short sale approvals, which translates to successful closed short sales. The infamous “shadow inventory” will actually translate to more short sales. Short sales are already a major component of today’s real estate market. The only thing missing right now is a higher success rate and that is about to change. Expect the number of closed short sales to continue to exceed the number of closed foreclosures on a monthly basis.
The number of foreclosures to hit the market will increase slightly year over year, but will NOT be a wave fueled by the “shadow inventory.”
We can expect the distressed inventory to rise slowly with more short sales and foreclosures to hit the market; but, this will be offset by incredible demand for distressed properties. With demand so high, distressed properties will be placed at the last comparable sale, not below.
As the Federal Reserve purchase of mortgage-backed securities comes to an end after the first quarter of 2010, interest rates will rise to about 6%. That may seem like a giant jump, but 6% is still low historically.
It is going to by a long wait for homeowners waiting for the market to rebound. With unemployment high and more distressed homes to hit the market, the most likely scenario is going to be a flat market for the next couple of years, with no real appreciation or depreciation.
There have been a lot of lessons learned from the housing speculative bubble. The most important lesson has to be that people need to look for a place to call “home” for the long term, making sure that their family can afford the monthly payment. If a homeowner pays their 30-year fixed rate mortgage for 30-years, they own their home free and clear. Historically, in the long run, a home is a great investment. Your home is not an asset that is meant to be flipped every two years because the government has made it convenient to write off the gains. A home is place to call your own and a great place to raise a family or retire. And, in my humble opinion, you cannot beat Orange County as a place to call home.
Posted by Steven Thomas at 11:30 AM
Labels: altera, forecast, foreclosure, housing report, orange county, real estate, short sale, steve thomas
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Orange County Housing Report: HAPPY NEW YEAR – A ...
Orange County Housing Report: A Holiday Pause
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Orange County Housing Report: Thankful for Afford...
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Top 10 OC Housing Trends
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Demand is Up and Supply is Down
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The Government Will Fuel Demand
Buying Season is Upon Us
Demand Slows with Holiday Market
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Orange County Housing Report: Brisk Activity Desp...
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Market Time Report: Expected Market Time Remains ...
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About Me
Steven Thomas
Aliso Viejo, California, United States
President of Altera Real Estate in Orange County, California. Altera has offices throughout Orange County and over 350 associates. View my complete profile
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