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.