Orange County Housing Report May 26

Orange County Housing Report: Double Dip Hype

May 26, 2011

Good Afternoon!

I don’t know about you, but I love a double dip… in chocolate! Pundits and the media are transforming something I love into a buzzword based on conjecture and sensationalism.

Double Dip: Searching on Google for “Double Dip Housing” yields 1,175,000 results
Let’s take a closer look. There are 72,000 results for a double dip in housing in just the last 24 hours, 281,000 in the last week, and 924,000 in the last month. So, what consititues a “double dip.” I don’t know about you, but the term sounds so negative, it gives the impression that we may be in store for a second round of price drops equal to the first huge drop. Let me be the first to tell you… NO WAY. The First Dip: the average home in Orange County dropped about 35% in value. The latest statistic that has received tremendous press is the Standard & Poor’s/Case-Shiller home-price index for Los Angeles and Orange counties, where the combined counties dropped 2.1% year over year. Orange County’s current median sales price, $432,000, is 1.6% off from a year ago. Those numbers do not indicate a housing dip. They are part of market fluctuations. Demand and prices have been a little subdued in 2011 thus far. Everybody, including me, tried to explain and rationalize the housing market behavior. I have finally put my finger on it: too much hype about a double dip. The hype may have subdued demand a bit, but it’s not responsible for the latest reports of a drop in the median price. It all stems from the expiration of the first time home buyer tax credit in the spring of last year. The market in 2010 was HOT through the end of April. In order to take advantage of the credit, a property had to be under contract by April 30, 2010. Demand dropped precipitously from May 1st on. It made for a much slower market through December 2010. Essentially, the credit pulled a lot of sales forward to the beginning of the year. With lower sales, year over year prices dropped a little bit. With that drop, the headlines and media talked about the possiblity of a double dip. That was enough to slow down shell shocked consumers and move many buyers to the fence. Yet, prices have already dropped 35%. A 2.1% drop is a giant yawn in comparison. Some economists are forecasting a slight INCREASE in prices for the remainder of the year. Either way, focusing on any kind of dip is silly, given that it will not be a giant dip like in ROUND 1. Instead, buyers should be focusing on record low interest rates. We know that rates will rise, and when they do, mark my words, they will rise fast, erasing any gains in waiting for prices to dip. As a matter of fact, buyers will be paying more in terms of a monthly mortgage payment even if prices dip a little.

Housing Demand: Demand has continued to cool.
Demand, the number of new pending sales over the past month, increased for the first time in two months, adding an additional 10 homes and now totals 3,052 pending sales. Last year at this time demand was at 3,303 pending sales. It was still under the influence of the first time home buyer tax credit. Many buyers that wanted to buy and take advantage of the credit couldn’t because they lost out on several multiple offer situations. Some buyers that fell into this category walked away, but many opted to still buy despite no government subsidy. Today’s demand is not under the influence of a government subsidy. As buyers begin to understand that today’s incredible interest rates are not here to stay, demand will ultimately increase. That may not come until interest rates start to rise because of inflation, which it inevitably will. The likelihood of consumers ever seeing rates like this again during their lifetime is equivalent to the likelihood of gas prices returning to $2.00 per gallon.


The Active Listing Inventory: There has been very little change in the active listing inventory over the past month.
In the trenches I am told that there isn’t a lot of fresh inventory. Unlike last year, the inventory has not been growing at an alarming, unrealistic pace. Sellers’ expectations are more in check and much more discretionary compared to last year. Over the past month, the active inventory has only grown by 88 homes, now totaling 11,219. Last year at this time, the inventory grew by 488 homes within the prior month and totaled 9,839 homes, pushing its way to the 10,000 mark by the first week of June.

The Distressed Market: the active distressed inventory increased by 10 homes in the past couple of weeks.
Contrary to everybody’s expectations, the distressed inventory has actually dropped by 303 homes. Not much has changed within the distressed market. The distressed inventory now totals 3,808 and represents 33.9% of the active inventory. The expected market time for foreclosures is remains incredibly HOT at 1.63 months. There are currently only 669 foreclosures within the active listing inventory, an increase of five homes in the past two weeks. There are currently 3,139 short sales on the active market, decreasing by five homes in the past two weeks. The expected market time is 2.84 months for short sales, also a seller’s market.

Have a wonderful weekend.

Sincerely,
Brian McGarvin
Realtor
Cell 949.370.2652