OC Housing Report April 2011

Orange County Housing Report: Welcome to Fantasyland

April 14, 2011

Good Afternoon!

The market realities are much different than buyer expectations when it comes to distressed homes.

Foreclosures and Short Sales: 44% of all sales in March were either a foreclosure or a short sale.
Understandably, every buyer is looking for a deal in today’s market. Nobody sits across from a REALTOR® for the first time and asks to pay fair market value for a home. No way! The market is way down from its height in the mid-2000’s, they should be able to secure a “deal.” That is how the logic flows for buyers today. In reading newspaper articles or watching the news, when it comes to real estate, it is easy to see where everybody arrives at the misconception that it must be a buyer’s market. Buyers gravitate to foreclosures and short sales in search of that proverbial deal. With so many buyers flocking to distressed properties, there is tremendous competition. For the market as a whole, the expected market time is 3.36 months, a slight seller’s market. That’s right, a “seller’s market.” So, if it is a seller’s market, why aren’t home values appreciating right now? The answer is simple; with so many distressed properties on the market, they are keeping a lid on appreciation. Buyers simply do not want to overpay for a home, even if there is a lot of competition with multiple offers. Instead, values are holding steady in the lower ranges, homes below $750,000. Who ultimately is the winning bidder on a home? It is not necessarily the “all cash” buyer. In a multiple offer situation, when two offers are identical, cash beats out a buyer in need of financing. Most homes are sold to buyers that have been burned once or twice before they finally believe that is not a buyer’s market. In order to finally secure a home, they sharpen their pencil and are ready to pay the fair market value for a home. There are plenty of Lowball Larry’s out there writing tons of offers at deep discounts in hopes that somebody out there has to be desperate enough to take their offer. Those buyers ultimately just end up wasting a lot of people’s time, especially the REALTOR® that they are working with. For foreclosures, the expected market time is a sizzling HOT 1.39 months, a deep seller’s market. Buyers should expect the most competition in dealing with foreclosures. Short sales, sellers who owe more than the current market value of their home and require lender approval of any sale, have an expected market time of 2.52 months, also a hot seller’s market. With so many buyers turning to distressed homes to chase after that misleading “deal,” it is no wonder that it is the hottest segment of the market. There are not enough foreclosures to go around, either. They represent only 6% of the current active inventory and 20% of all sales in March. Short sales represent 29% of the active listing inventory and 24%of all sales in March. Yet, there is a disconnect when it comes to short sales. Almost 40% of demand is made up of short sales, but they only make up about 25% of closed sales. The trouble is that, on average, short sales take a very long time to close, and, in many cases, they fall out of escrow and have to secure a new buyer. Short sales are the most complex transaction. Often there are multiple lenders, delinquent property taxes, and delinquent homeowner association dues. When the homeowner falls too far behind in association dues, attorneys often get involved, making the process even more complicated. The sell requires the approval of all lenders and the association and the property taxes need to be paid current. Arriving at a successful close requires a lot of perseverance and patience.

Housing Demand: Demand cooled a bit in the past couple of weeks.
Demand, the number of new pending sales over the past month, decreased by 2%, shedding 76 pending sales and now totals 3,282. That’s still much stronger than the beginning of the year. It will be interesting to see if cooling demand was related to unusually cooler weather and rainstorms or the first sign of a new trend. I am going to go out on a limb and state that it is most likely just a temporary blip on the radar screen.













The Active Listing Inventory: With slightly slower demand, the active listing inventory grew.
Typically, demand increases during this time of the year. Since it actually dropped a little, there weren’t as many pending sales to eat into the active inventory. Instead, the listing inventory increased by 272 homes in the past two weeks and now totals 11,028. That’s the first time that the inventory has surpassed 11,000 homes since November 2010. Last year, the active listing inventory grew unabated as unrealistic homeowners flooded the market. Unrealistic homeowners become unsuccessful sellers until they finally reach the conclusion that the price needs to be dropped to the fair market value or they need to simply pull their homes off the market and throw in the towel. Thus far this year, for the most part, homeowners are figuring it out again: market your home if and only if you have what it takes to get the home sold. Carefully arriving at the fair market value is fundamental to successfully selling.