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.

Orange County Housing Report: A Holiday Pause

Christmas trees on cars, holiday office parties, full mall parking lots, as the season descends upon us, the Orange County real estate market follows a normal cyclycally slower path through the first couple of weeks of the New Year. Not much has changed over the last couple of weeks other than a drop in demand and the active inventory, typical for this time of year. It is cold outside, for Southern California, it has been raining, Orange County’s equivalent of snow, and there are plenty of holiday distractions. It is no wonder that fewer homes are coming on the market as buyer demand appreciably drops to lows last seen in February. It will take a couple of weeks into 2010 before buyers and sellers shake the cobwebs off and return their focus to real estate once again. Many are taking a break, as this real estate market is absolutely exhausting. Nothing is easy. Ask the buyers in the lower ranges that have written offer after offer with no success thus far. There is just way too much demand, especially below $750,000, and the buyer competition is fierce. Multiple offers are the norm. Losing to buyers with large down payments or all cash investors is the norm. It is frustrating to be a buyer in today’s market. Most buyers enter the Orange County market with totally different expectations, since all they hear about are homeowners in trouble, sellers upside down in their homes and falling property values. Yet, they get into the cars of Realtors®, and quickly come to the realization that the market is much different. It is actually a SELLER’s market, without massive appreciation. It is the short sales and foreclosures that are actually keeping values from appreciating. Demand is HOT, the inventories have fallen appreciably throughout this year, values have already dropped to affordable levels, interest rates are at historical lows, and the government has implemented tax credits for first time home buyers (and now moves up sellers). Today’s market reality is frustrating for buyers. It is no wonder that many buyers will take the holidays off, sit back and relax. It does not help that there simply is not enough new, fresh inventory hitting the market. This is primarily due to the notion that this is not the best time to sell a home. Many want to wait for what they think is the best time to sell a home, the Spring market, which starts after the Super Bowl. But, demand is still strong right now in the lower ranges. During the Spring market, there are more homeowners opting to place their homes on the market along with increased demand. It is actually a good time to market a home, especially if a seller is looking to move up and take advantage of the new tax credit.

So, how do the numbers look? Let’s start by taking a look at the biggest change in the past two weeks, demand. Demand, the number of new pending sales over the past month, dropped by 392 homes to 2,646, a 13% drop. Last year’s demand was 324 fewer and dropped 12% in two weeks. Two years ago there were 1,498 fewer and dropped by 8% in two weeks. The active listing inventory has not really changed much over the past couple of weeks, a 67 home drop to 7,588. We have not seen the active inventory at this low of a level since December 2005. That’s been the story of 2009. The Orange County real estate market has shed 4,254 homes since the beginning of the year, a 36% drop. The expected market time for all of Orange County increased in the past couple of weeks from 2.52 to 2.87 months. A rise in the expected market time is also cyclical through the end of the year. The expected market time last year was at 5.34 months and two years ago it was at 14.05 months. For homes priced below $1 million, the expected market time is 2.29 months. For homes priced between $1 million to $2 million, the expected market time is 7.64 months. That range represents 14% of the active listing inventory, but just 5% of demand. For homes priced above $2 million, the expected market time is 23.68 months. That range represents 12% of the active listing inventory and a meager 1% of demand. The data illustrates what buyers and sellers are experiencing within the housing market, the higher the range, the slower the market. The total pending count, which includes all pending sales beyond 30-days, dropped by 355 homes to 6,391, the largest drop of the year. Now that more short sales are actually obtaining lender approval and are closing, the total pending count has started to drop after rising throughout the year. For the fourth time this year, and now three reports in a row, the number of distressed properties on the market increased, but only by 13 homes, or 0.5%. There are now 2,509 distressed homes on the market, 33% of the total active inventory. Last year 45% of the active inventory was distressed and two years ago it was at 23%. There are currently only 337 foreclosures in all of Orange County, an increase of 16 in the past two weeks. Foreclosures only represent 4% of the active listing inventory and have an expected market time of 0.93 months. Last year the expected market time was at 1.42 months. Foreclosures are exceptionally HOT and continue to sell well above their asking prices. There are currently 2,172 short sales on the active market, a decrease of 3 in the past two weeks. Short sales currently represent 29% of the active listing inventory. The expected market time for short sales is currently at 2.14 month versus 7.32 months one year ago. Homeowners with equity in their home now account for 67% of the current active inventory and 48% of demand.

Orange County Housing Report: Thankful for Affordability

On this Thanksgiving Eve, the return of home affordabilty in Orange County is something to be thankful for, especially if you are a first time home buyer. With the run-up in prices earlier this decade, I recall many people were concerned for their children and the “next generation” of home buyers. Homes had risen to such astronomical heights that many wondered if they were going to be able to live close to home or stay in California. The silver lining to the current downturn has been that affordability and historically low interest rates have enabled buyers pushed out of the market in prior years to buy a home in Orange County. A few years ago nobody was working with first time homebuyers. Today, agents have pockets filled with buyers and many of them are purchasing a home for the first time. There is not a better feeling, as a Realtor® than handing a buyer keys to their first home. The return of affordability, historically low interest rate and a fear that rates will eventually rise has boosted demand as more and more buyers have entered the market, especially in the lower ranges. Throw in the first time home buyer tax credit (now extended through mid-2010) and an increased conventional loan limit all the way to $729,750 (now extended through all of 2010), buyers have even more reasons to purchase. As a result, the active inventory has dropped dramatically throughout the year. The lower ranges are experiencing a lot of activity and multiple offers. Homes below $750,000 are HOT and below $500,000 even HOTTER. Buyers and their agents are diligently watching the inventory for the next new listing to pop on the market. The active inventory is extremely tight, especially in the lower price ranges, with multiple offers and tremendous competition a new norm. As a result, prices have stabilized in many areas. These are the roots to an Orange County housing recovery. All downturns eventually turn around and it is the activity in the lower ranges that prop up the market. We have the activity, but unemployment and the sheer number of distressed properties, especially short sales, have to work their way through the system first.

So, how do the rest of the numbers look? The distractions of the holiday have finally seeped into the Orange County housing market. Demand, the number of new pending sales over the prior month, dropped by 6%, 203 homes, and now totals 3,038. That’s still better than 2,466 posted last year or 1,243 two years ago. Cyclically demand drops for the rest of the year and through the first few weeks of the New Year. We can expect more of the same this year, but maybe not as deep as prior years due to so many buyers waiting for the right home to hit the market. But, not as many homes will hit the market, waiting, instead, for the end of the holidays. As a homeowner, this is actually a good time to place a home on the market, especially in the lower ranges. The active listing inventory will continue its slow descent though the end of the year. The Spring market, which actually begins for Orange County after the Super Bowl, is typically the best time to sell. Demand will increase, but so will the number of homes hitting the market. There will still be plenty of competition from distressed properties, which will keep values in check throughout 2010. We can also expect a return of the discretionary homeowner for the fourth year in a row, only selling their home if they truly are motivated to sell. Currently the active listing inventory decreased by 64 homes over the past two weeks, totaling 7,655. That’s 5,292 fewer than last year and 9,114 fewer than two years ago. The inventory has dropped by 4,187 homes so far this year, a 35% drop. The expected market time for all of Orange County increased in the past couple of weeks from 2.38 to 2.52 months. A rise in the expected market time is also cyclical for the remainder of the year. The expected market time last year was at 5.29 months and two years ago it was at 13.49 months. For homes priced below $1 million, the expected market time is 1.99 months. For homes priced between $1 million to $2 million, the expected market time is 6.64 months. That range represents 15% of the active listing inventory, but just 6% of demand. For homes priced above $2 million, the expected market time is 25.65 months. That range represents 12% of the active listing inventory, but just 1% of demand. The data illustrates what buyers and sellers are experiencing within the housing market, the higher the range, the slower the market. The total pending count, includes all pending sales beyond 30-days, dropped by 109 homes to 6,746. Now that more short sales are actually successfully closing, the total pending count has reached a plateau after rising throughout the year. For the third time this year, and now two reports in a row, the number of distressed properties on the market increased by 34 homes, or 1%. 33% of the active inventory is distressed compared to 45% last year. There are currently only 321 foreclosures in all of Orange County, a decrease of 18 in the past two weeks. Foreclosures only represent 4% of the active listing inventory and have an expected market time of 0.78 months. Last year the expected market time was at 1.40 months. Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. There are currently 2,175 short sales on the active market, an increase of 52 in the past two weeks. Short sales currently represent 28% of the active listing inventory. The expected market time for short sales is currently at 1.82 month versus 7.21 months one year ago. Homeowners with equity in their home now account for 67% of the current active inventory.

Orange County Housing Report: Short Sales are a Nightmare

Have you ever pedalled up a steep hill on your bicycle as a kid only to wonder if you were going to ever make it? That’s the same feeling that buyers, sellers and agents get in trying to arrive at a successful close date. Short sales are homes where the asking price is less than the outstanding loan amounts. These are subject to the lender’s approval. This takes anywhere from weeks to months. There is nothing short about a short sale. About a year ago, it was just about impossible for agents to show a short sale to a prospective buyer. Nine times out of ten, the short sale already had at least one offer on the home and submitted to the lender for approval. However, the home remained on the market as an active listing until the approval was received. So, agents would show their buyers home after home only to find out that most short sales already had an offer submitted, which amounted to a giant waste of everybody’s time. Agents then would contact every short sale to see if it was “really” available. This stemmed from the fact that an escrow is not opened until after lender approval. Escrow is not opened so that expenses are not incurred for any work completed. Inspections, homeowner association documentation, appraisals, etcetera, are all fee based and time sensitive and nobody is going to want to pick up the tab if a lender does not approve a file or if there are significant delays. The short sale data has been cleaned up over the course of the last year. It is mandatory for all offers that are submitted to a lender to be placed in “Backup Offer” status or “Pending Sale” status within the Multiple Listing Service. I used to reference the overstated active listing inventory and the understated pending sale statistics last year at this time. The data is still not perfect, but is much improved and easier for agents and buyers to look at homes. In response to so many short sales no longer counted as a part of the active listing inventory, the total pending sale inventory has blossomed. There are currently 6,838 total pending sales. 58% are short sales, only 8% are foreclosures and 33% are homeowners with equity. There are 3,703 pending sales that have been pending for more than one month. 76% are short sales, 5% are foreclosures and 19% are homeowners with equity. There are 2,132 pending sales that are have been pending for more than two months. A stunning 91% are short sales, 1% are foreclosures and 8% are homeowners with equity. Almost a third of the total pending sales count has been pending for more than two months and most are short sales. Even though more and more homeowners have defaulted on loans, lenders have not been foreclosing. As a result, the market has grown much hotter with an increase in successful short sales and a shift to more equity sellers. Here’s a breakdown:

The huge increase in pending short sales has not materialized as a huge increase in closed short sales. All of these numbers illustrate that dealing with short sales is like bicycling up a steep hill as a kid. Just because a buyer’s offers is accepted, if it is a short sale, it is going to take a long time to close escrow. Since short sales are distressed, their pricing attracts a lot of attention from buyers. Buyers can expect multiple offers in dealing with short sales. In the end, buyers have to move quickly and compete with other offers only to wait for a long period of time for the seller to obtain lender approval. Sometimes the process takes such a long time that the buyer walks away and looks for something else. Many move onto equity sellers. The Orange County real estate market and the entire state of California are at the mercy of lenders. The bottom line, the market is full of challenges and the short sale process makes the current real estate landscape even more challenging.

So, how do the rest of the numbers look? The market has continued to not change much over the past few months. Once again, the past two weeks are no exception. The active listing inventory decreased slightly by 30 homes over the past two weeks, totaling 7,719. That’s 5,539 fewer than last year and 9,514 fewer than two years ago. The inventory has dropped by 4,123 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year. Demand, the number of new pending sales within the past month, increased by 75 in the past couple of weeks to 3,241, a 2% increase. Last year’s demand was 684 fewer and two years ago was 1,946 fewer. The expected market time for all of Orange County decreased in the past couple of weeks from 2.48 to 2.38 months. The expected market time last year was at 5.18 months and two years ago it was at 13.31 months. For homes priced below $1 million, the expected market time is 1.87 months. For homes priced above $1 million, the expected market time is 8.79 months. That range represents 27% of the active listing inventory, but just 7% of demand. For only the second time this year, the number of distressed properties on the market increased. The distressed inventory increased by 73 homes, or 3%. 32% of the active inventory is distressed compared to 44% last year. There are currently only 339 foreclosures in all of Orange County, an increase of 25 in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.82 months. Last year the expected market time was at 1.22 months. Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. There are currently 2,123 short sales on the active market, an increase of 48 in the past two weeks. Short sales currently represent 28% of the active listing inventory. The expected market time for short sales is currently at 1.72 month versus 7.08 months one year ago (this number was grossly overstated as illustrated earlier). Homeowners with equity in their home now account for 68% of the current active inventory. If a buyer wants to avoid the many pitfalls of dealing with short sales and foreclosures, they should turn their attention to equity sellers.

Orange County Housing Report: Lack of Inventory is SPOOKY

Keeping with the cries for “trick or treat,” the Orange County housing market has its own eerie trick, an incredible lack of inventory for homes priced below $1 million. The other day I was asked what one thing spooks me the most about the real estate market right now and the crazy inventory was my answer. There is very little fresh, new inventory. The lower the range, the “spookier” it gets. Properties that are priced right and in great condition are flying off of the market with multiple offers and tremendous activity. Buyers new to the market are dumbfounded by all of the competition. Their expectations are of doom and gloom and the ability to “cherry pick” whatever home they are interested in AND at a discount. Yet, just about every agent has pockets filled with buyers who want to buy but have been unable to purchase after losing out on property after property. For most, it is not the first time home buyer credit that is motivating them, as it is set to expire at the end of November anyhow (there is an extension that is in the works though). Many buyers don’t even qualify for the credit due to income requirements. Affordability, low rates and a fear that rates will increase from their historically low levels has motivated people to jump into the market. On average, agents are writing several offers for every buyer. To top it off, investors are back in the real estate game and pushing out buyers with smaller down payments. FHA (Federal Housing Administration) financing allows for a small down payment, but buyers electing to utilize this program simply are finding it impossible to purchase. We have seen prices increasing in the lower ranges slightly, but distressed properties are keeping a lid on stronger appreciation. The "shadow inventory" of foreclosed properties sitting on the sidelines and not yet on the market due to foreclosure moratoriums, government intervention, or banks careful not to flood the market, has only compounded the problem of a lack of inventory. Even if the strategy were to change and more of the “shadow inventory” hit the market, demand is currently strong enough to quickly sop it up. However, buyers should not expect foreclosures to flood the market all at once, lenders and the government are not interested in eroding values further. Instead, when the market heats up in the spring we can probably expect an increase in foreclosure activity to parallel an increase in demand. This housing downturn has been full of surprises and this year's "spooky" twist has been an unexpected drop in the inventory.

So, how do the numbers look? The market really has not changed much over the past few months. The past two weeks are definitely no exception. There have been no surprises other than the continued descent in the housing inventory. The active listing inventory decreased by 174 homes over the past two weeks, totaling 7,749. We have not seen the inventory this low since the beginning of January 2006. That’s 5,041 fewer than last year and 9,705 fewer than two years ago. The inventory has dropped by 4,093 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year. Demand, the number of new pending sales within the past month, dropped by 31 in the past couple of weeks to 3,166, a 1% drop. Last year’s demand was 703 fewer and two years ago was 1,925 fewer. For the remainder of the year, as we enter the Holiday market, we can expect demand to continue to slowly drop as the distractions of Thanksgiving, unwrapping presents and ringing in a New Year sets in. The expected market time for all of Orange County decreased ever so slightly in the past couple of weeks from 2.48 to 2.45 months. The expected market time last year was at 5.19 months and two years ago it was at 14.06 months. That’s correct. The current expected market time for the entire market, including the sluggish upper end, is two-and-a-half months. For homes priced below $1 million, the expected market time is 1.89 months. For homes priced above $1 million, the expected market time is 9.27 months. That’s because that range represents 29% of the active listing inventory, BUT just 8% of demand. There is actually okay activity up to $2 million, nothing to write home about, but some movement. For the 1,039 homes priced above $2 million, the expected market time is in the double digits, a crawl. After increasing for the first time this year two weeks ago, the number of distressed properties on the market decreased by 9 homes. 31% of the active inventory is distressed compared to 43% last year. There are currently only 314 foreclosures in all of Orange County, a decrease of eight in the past two weeks. The numbers have not really changed much since July. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.69 months. Last year the expected market time was at 1.22 months. Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. Buyers should be aware that it is a feeding frenzy out there for foreclosures. Realistic expectations are that the more qualified borrower able to bring in a strong offering price is going to ultimately prevail. Buyers with smaller down are going to find it difficult to compete. There are currently 2,075 short sales on the active market, a decrease of just one home in the past two weeks. Short sales currently represent 27% of the active listing inventory, a major player in today’s marketplace. The expected market time for short sales is currently at 1.85 month versus 6.92 months one year ago. Remember, there is nothing “short” about a short sale. Short sales, where the homeowner owes more than the home is worth, are subject to loan approval and can take anywhere from weeks to months to secure that approval.

Orange County Housing Report: Two Polar Opposite Markets

With Halloween fast approaching, the differences between the lower end and higher end Orange County housing market are SPOOKY. It is extremely ironic that the general public expects a really soft real estate market with a lot of inventory and that buyers get to call all of the shots. That is entirely not true for homes priced below $1 million with an expected market time of only 1.88 months. That translates to an incredibly HOT seller’s market. That range represents 71% of the current active listing inventory. The upper range, homes priced above $1 million, represents 29% of the active listing inventory, but has an expected market time of 10.37 months. Anything over 10 months is basically an almost frozen market, a deep buyer’s market. So, today’s Orange County buyers need to know that the lower the range, the hotter the market. From $750,000 to $1 million, the expected market time is 3.76 months, not incredibly hot, but not incredibly slow either. The word on the street is that there is not that much new, fresh inventory hitting the market, so if a great property comes on the market that is priced right, don’t expect it to last very long. Below $750,000 is crazy, and below $500,000 is just NUTS. That’s right, N-U-T-S!!! Tremendous competition, multiple offers, and selling prices close to or above the asking prices are the norm. This is where many who have not experienced the Orange County housing market by sitting in a car and touring the few homes on the market within their areas of interest simply will not believe me. So, if you are in doubt, take a look around for homes in the lower ranges. The hot market is a reality. The homes that do not sell are overpriced, in poor condition or are in a poor location. It is not just distressed homes that are selling. 50% of demand, the number of new pending sales during the past month, is sellers with equity in their homes. Homes that are priced right are selling and selling fast. The sales to list price ratio for homes priced below $1 million is 99%. That means that on average, homes are discounted by only 1% off of their asking prices. For homes priced below $500,000, the sales to list price ratio is 100%, meaning that, on average, they are selling for their full asking price. That should be the headline in local newspapers and the topic for the nightly news: “Most homes in Orange County are selling for their asking prices and they are selling fast!” Let me clarify one important point though, the lower ranges are experiencing a seller’s market, but are not experiencing appreciation. Prices have stabilized because there is just too much demand. But, with so many distressed properties still in the mix and many appraisal issues, prices are not going up. With the government’s changes to the appraisal process, known as “The Home Valuation Code of Conduct,” more and more homes are not appraising for the agreed upon purchase prices. The government had the right intention, but I can write a book as to how the code of conduct has made the housing recovery process much more challenging. When an appraisal comes in too low, the buyer, the seller, or a combination of the two, makes up the difference, OR the pending sale falls apart and the home is placed back on the market.

Now, let’s take a closer look at the upper ranges. Homes above $1 million may represent 29% of the active listing inventory, but they only represent 7% of demand. As is customary, the higher the range, the slower the market. In this downturn it is even more pronounced. The sales to list price ratio in the upper range is 92%. That takes into account the LAST list price after many price reductions. The sales to ORIGINAL list price ratio is 85%. This vast discrepancy is due to unrealistic expectations on the part of sellers within the higher ranges and illustrates the need to carefully price a home based upon recent sales activity, 90 days or sooner is preferable, and all pending activity. Sellers in the upper ranges should not fall into the trap of giving too much weight to active listings. In this market, a buyer is not going to take into consideration another active listing that has sat on the market for months in coming up with an offering price. Appraisers are not going to give active listings much credence either. The market is so slow in the upper ranges that a great price, super condition and a great location still may equate to a long market time. Demand is just too low, so sellers need to pack their patience and enjoy the ride; this may take a while.

So, how do the rest of the numbers look? So, how do the rest of the numbers look? The active listing inventory increased by just six homes within the past couple of weeks, remaining under the 8,000 mark and totaling 7,923. That’s 4,799 fewer than last year and 9,836 fewer than two years ago. Ask any agent and their number one complaint is a lack of inventory in the lower ranges. Demand, the number of new pending sales within the past month, dropped by 73 in the past couple of weeks to 3,197. Last year’s demand was 524 fewer and two years ago was 2,022 fewer. The expected market time for all of Orange County increased slightly in the past couple of weeks from 2.42 to 2.48 months. The expected market time last year was at 4.77 months and two years ago it was at 14.73 months.

The number of distress properties on the market increased for the first time since November of 2008. Within the past couple of weeks the number of foreclosures and short sales increased by 79, now totaling 2,398, returning to early September 2009 numbers. 30.3% of the active inventory is distressed compared to 42.9% last year. There are currently only 322 foreclosures in all of Orange County, an increase of two in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.67 months. Foreclosures are HOT and are, on average, selling for 4% above their asking prices. There are currently 2,076 short sales on the active market, an increase of 77 over the past two weeks. Short sales currently represent 26% of the active listing inventory, a major player in today’s marketplace. The expected market time for short sales is currently at 1.82 month versus 6.08 months one year ago. Short sales are also a hot segment within the marketplace; however, buyers should not expect instantaneous results and quick closings. Short sales must wait for “lender approval,” which can take anywhere from weeks to months.

Top 10 OC Housing Trends

Even though the kids have gone back to school, the Orange County housing market has not really changed much over the course of the past several weeks. It is a good time to take a look at the broader market and pinpoint the latest trends. Here’s a breakdown of the top 10 current Orange County housing market trends (in no particular order):

1. Below $750,000 is technically a seller’s market with an expected market time of approximately two months or less. The activity below $500,000 is incredibly hot. However, this is not a conventional seller’s market as values are not appreciating. The sheer numbers of distressed properties, mainly short sales, is keeping a lid on any appreciation. Buyers can expect multiple offers, a tremendous amount of competition, and the need to write offers to purchase on more than one property (often times several).

2. The listing inventory has been dropping all year and is now just above the 8,000 mark at 8,064. We started the year at 11,842 active homes on the market. One year ago there were 5,110 additional homes on the market and two years ago there was more than double today’s numbers. In the lower price ranges there is not a lot of new inventory coming on the market.

3. Cash is king and so are buyers with larger down payments. With so much competition in the lower ranges, buyers with very little down are having a hard time purchasing. They are losing out to buyers that can afford larger down payments. Many first time home buyers who are relying on the low down payments allowed by FHA financing simply cannot compete with more qualified buyers and investors. That’s right. Investors are back and taking away the ability for a lot of buyers to purchase.

4. Foreclosures are EXTREMELY hot. There are currently only 334 active listings that are foreclosures in all of Orange County, representing 4.1% of the total inventory. The expected market time for foreclosures is 0.66 months, or between two and three weeks.

5. The average sale to list price ratio for foreclosures over the past three months is 103%. That means that, on average, foreclosures are selling for 3% above the list price. The sale to list price ratio for short sales and equity sellers is 98%. And, if there weren’t so many appraisal issues, those numbers would be even higher. Buyers in the lower ranges should not expect to offer that much less than the asking price.

6. Prices are not dropping in the lower ranges, but they are in the upper ranges above $1 million. The higher the price range, the higher the expected market time with less and less demand. 30% of the active inventory can be found above $1 million, yet the higher end represents only 7% of demand.

7. The rumors of a foreclosure moratorium have been rampant all year long. There is truth to the moratorium, but it does not look like there will be a substantial increase in the number of foreclosures to hit the market until the first quarter of 2010. Also, there is a tremendous amount of pent up demand where just about every agent has pockets filled with buyers who are actively looking, but, surprisingly, there just is not a lot of fresh inventory. Any increase in foreclosures will most likely be offset by pent up demand.

8. With pressure from the federal government, lenders are moving more and more towards short sales. We can expect within the coming weeks for the Obama administration to announce something along these lines. Currently most short sales, where home owners owe more than their homes are worth, take a very long time to obtain lender approval, delaying the ultimate close of escrow. Lenders are creating procedures to speed up the process. Short sales are a better route than foreclosures because they are in much better condition and save the lenders a lot on repairing and carrying costs. There are currently 2,050 short sales on the market with an expected market time of 1.58 months, much different than just one year ago when there were 4,422 short sales with an expected market time of 6.2 months.

9. There are currently more distressed sales within the upper ranges. Last year only 6.5% of all distressed properties were above $750,000. Today, 11.4% of all distressed properties are above that mark. The upper ranges are not immune to distressed sales. More and more prime borrowers are having trouble paying their mortgages. A contributing factor to this trend is the increase in unemployment and the falling of property values where more and more borrowers are upside down in their homes.

10. The total pending sale count , not just a snapshot of the past month (what I refer to as demand), has steadily increased by 56% over the last year. It is taking longer to close pending sales primarily because there are a large number of short sales that are waiting on lender approval; thus, the count has really blossomed. There are now 6,851 total pending sale versus 4,393 one year ago.

Here’s a breakdown of how the numbers look this week: the active listing inventory dropped by 298 homes in the past two weeks to 8,064, its lowest level since January of 2006. Demand, the number of new pending deals over the prior month, increased by 61 in the past two weeks to 3,464. Last year’s demand was at 2,974, 490 fewer than today, and two years ago, it was at 1,180, 2,284 fewer than today. The expected market time is currently at 2.33 months, a slight change from the 2.46 month mark two weeks ago. The number of distress properties on the market dropped by 132 homes in the past two weeks, now totaling 2,384. 29% of the active inventory is distressed compared to 43% last year. There are currently 2,050 short sales on the active market, a drop of 134 over the past two weeks. The expected market time for short sales is currently at 1.58 months.

Orange County Housing Report: End of Summer Cycle

As the end of summer fast approaches, the Orange County real estate market continues to follow its normal, cyclical path. The active listing inventory continues to drop, demand drops slightly and the expected market time has very little movement. This is typical for this time of year.

Here’s a breakdown of how the numbers look this week:

• Active listing inventory dropped by 169 homes in the past two weeks to 8,362, its lowest level since the beginning of 2006.
• The active inventory last year was at 13,582, 5,220 additional homes.
• The active inventory two years ago was at 17,760, 9,398 additional homes.
• Demand, the number of new pending deals over the prior month, dropped by 103 in the past two weeks to 3,403.
• Last year’s demand was at 2,847, 556 fewer than today.
• Two years ago, demand was at 1,206, 2,197 fewer than today.
• The expected market time is currently at 2.46 months, a slight change from the 2.43 month mark posted two weeks ago.
• The current expected market time is within the definition of a seller’s market, below five months. There is tremendous demand for homes priced below $750,000. Below $500,000, the market is extremely hot. Homes are receiving tremendous activity with multiple offers and an average list to sales price ratio of 100%. Even though we are currently experiencing a seller’s market, property values are not appreciating. This is primarily due to the number of distressed properties on the market that continue to suppress values.
• The expected market time for properties priced between $250,000 and $500,000 is currently at 1.33 months, levels not seen since the incredible days of 2005. Ask any buyer looking for a home priced below $500,000 just how crazy the market has been and you will quickly find that they are writing offer after offer. Last week, one of our agents stated that his buyer was finally in escrow after writing their fifth offer.
• Buyers today do not know how crazy the market is until they lose out on a property or two, learning from the good ol’ school of hard knocks. This is contrary to their perception of the housing market out of the gates due to the constant stream of press on the recession, unemployment and distressed homeowners.
• The current Orange County housing market is controlled by lenders, where just about half of all pending deals are either a short sale or foreclosure.
• The number of distress properties on the market dropped by 43 homes in the past two weeks, now totaling 2,516. The total had stopped its drop two weeks ago. I thought that the number would increase today. The pace in the drop has slowed over the past month, so it will be interesting to see where we go from here.
• 30.1% of the active inventory is distressed. That’s far different compared to last year when 42.3% of the inventory was distressed.
• There are currently only 332 foreclosures on the active market, an increase of 13 over the past two weeks.
• The expected market time for foreclosures is currently at 0.71 months, a deep seller’s market.
• There are 2,184 short sales on the active market, a drop of 56 over the past two weeks.
  The expected market time for short sales is currently at 1.80 months.

What can buyers expect going into the Autumn Market? Interest rates dropped and remain extremely low. Demand is still extremely hot for homes priced below $750,000. There has been a lot of news regarding the end of the $8,000 first time tax credit, which currently ends with sales on November 30th. However, we can expect an extension to that program coming soon. We can also expect a second extension to the increased conventional loan limit, for Orange County it is $729,750. The government does not want to see a decrease in the current real estate market momentum, and these two programs have helped immensely. So, even though we are entering a cyclically slower time of year, do not expect that much of a change in the current market. There are still droves of buyers still looking for homes. The word out on the street is that agents have pockets filled with buyers and not enough new inventory coming on the market. Any increase in fresh inventory would be welcomed by buyers and their agents alike. However, there just won’t be a lot of new inventory to hit the market until after the New Year. The upper price ranges are experiencing less demand. Lack of financing and the recession are not helping. But, the distressed inventory within the upper ranges is definitely fueling some demand.

Demand is Up and Supply is Down

As is typical for this time of year, demand increased a bit at the beginning of August; however, the continuous drop in the active listing inventory is far from ordinary. Inventories have been dropping across the nation and Orange County is no exception. Since March of this year, the active inventory has been steadily dropping. The inventory has shed 2,925 homes since then, a 25% drop. Currently at 8,681 homes, that is far fewer than the 14,348 last year or 17,611 two years ago. So, what’s going on? Prices are down, interest rates are down, affordability is up and demand is up. All of these forces together have been pulling the inventory down. Throw in the fact that discretionary homeowners are only placing their homes on the market if they have to and are motivated to do what it takes to compete in this market. Demand, the number o f new pending sales within the past month, is currently at 3,481, an increase of 165 pending sales within the last two weeks. Last year demand was at 2,940. So, with an increase in demand and a lower inventory, the market has heated up. The expected market time for all of Orange County is currently at 2.5 months, technically a seller’s market. The lower the range, the hotter the market. All ranges below $1 million are pretty hot, but homes priced below $500,000 are sizzling. The expected market time for homes priced between $250,000 and $500,000 is currently at 1.30 months. For detached homes within that range, the expected market time is only 1.02 months. When the expected market time drops to such low levels, sellers are busy sorting through multiple offers and buyers are writing offer after offer with no luck. I have been asked many times why the market is not appreciating given all of the activity. The devil is in the details. Even though the distressed inventory has been dropping and now represents 29.5% of the current active inventory, 50% of current demand is distressed properties. With so many short sales and foreclosures driving demand, these distressed sellers are keeping a lid on any price appreciation. But, don’t misinterpret me. There may be a lid on appreciation, but in the hotter areas and price ranges there is also a lid on price depreciation. Values have fallen significantly since the start of this downturn, fueled by a consistent supply of distressed properties. So, current values have reached affordable levels where it makes sense again to own versus rent. First time home buyer activity has returned with a vengeance as well. Throw in the return of investor activity and it is no wonder that demand has increased this year.

How do the distressed numbers look? First off, the “next wave” of foreclosures that we have been hearing about since the beginning of the year still has not materialized. I have been hearing from industry experts and agents alike that the next wave is still coming. I am certain that they are right to a degree, that the distressed numbers will increase, just not at the great numbers that they are anticipating. The agents on the streets are telling me that they all have pockets full of buyers waiting for the right property to come onto the market and they all would love a “foreclosure deal.” This is where pent up demand really does exist. Any surge in foreclosures would be met with buyers in waiting. We can expect a lot of competition and continued multiple offers for some time to come. There are currently only 2,559 distressed homes on the market, a drop of 57 in the past two weeks. This is the lowest drop in the distressed inventory since February of this year. Could we be reaching a plateau before the overly predicted wave to come? Only time will tell. There are only 299 foreclosures currently on the active market with demand at 590, representing an expected market time of .51 months. That’s correct, two weeks. Foreclosures are so incredibly hot that they can generate 20 plus offers. Yet, only one gets the property. Demand is plentiful, there just is not enough supply. There are 2,260 short sales on the active market with demand at 1,145 and an expected market time of 1.97 months.

If you are a buyer, how should you respond to this market? First, please throw out the notion that there is no competition and that you can write an offer for thousands less than the asking price. The sales to list price ratio for homes priced below $500,000 is 100%. That means that, on average, homes are selling for their full asking price. For all homes in Orange County, the sales to list price ratio is 98%. Remember, homes have already dropped 30% or more in value. As a buyer, do NOT write an offer for 10% or more off of the asking price with a letter detailing that the housing market is currently in a declining market. These buyers feel that the ultimate sales price should reflect a future drop in values. That notion of purchasing is ludicrous. Industry experts and economists cannot accurately determine future prices and are constantly revising their estimates. The values are already highly discounted over the past few years. Arriving at the fair market value includes taking into consideration pending activity, recent sales (within the prior 90 days), property condition, seller motivation and circumstances, location, upgrades, lot size and amenities. To rely on Zillow.com or other online valuation tools is also absurd. These tools only take into consideration property size and sales price, ignoring all of the other factors that are used to arrive at price. There has been a lot of pressure on interest rates to move higher. Gone are the days of interest rates below 5%. As interest rates rise, affordability drops. In purchasing today, the monthly payment is approximately the same as a home purchased later with a drop of 10% in value and a 1% rise in interest rates. These historically low interest rates are not here to stay. How long they remain low is anybody’s guess. Last, buyers should only purchase in today’s market if and only if they plan on living in their home for years to come. In the long run, Orange County housing has proven to be an excellent long term investment. It is also a great place to call “home.”

Orange County Housing Report: A Seasonal Summer Drop in Demand

While celebrating the 4th of July and enjoying the warm weather and California surf, demand for Orange County homes dropped by 7%, a typical drop for this time of year. The average drop in demand over the past five years has been 8%. This year is no exception. Demand, the number of new pending sales over the past month, dropped from 3,629 pending sales two weeks ago to 3,359 today, a drop of 270 homes. Last year the drop was 324 homes and demand totaled 2,682 pending sales, 677 fewer than today. Two years ago there were 1,578 fewer pending sales compared to today, totaling only 1,781 for all of Orange County. Over the past five years, demand cyclically increases over the next two weeks, averaging an increase of 4%. The active listing inventory dropped to below the 9,000 mark for the first time since February 2006. The inventory dropped by 242 homes in the past two weeks from 9,188 to 8,946, a 3% drop. From the first of the year, when the active inventory totaled 11,842, the inventory has shed a total of 2,896 homes. Last year the active inventory totaled 14,701 homes, 5,755 additional homes on the market compared to today. Two years ago the active inventory reached 17,334 homes, 8,388 additional homes compared to today. Even though demand dropped, the expected market time did not increase that much because of the drop in inventory. The expected market time increased from 2.53 two weeks ago to 2.66 months today. Most buyers have the expectation of a deep buyer’s market where they can take their time and write an offer to purchase a home well below the asking price. With so much negative news swirling around the economy, the recession, employment and the housing market, it is ironic to find that homes priced below $1 million are experiencing tremendous competition and often sell for at or above the asking price. The lower ranges are incredibly hot too. From $250,000 to $500,000, the hottest price range, the expected market time is 1.44 months. That range represents 24% of the current active inventory and 45% of demand. 55% of the active inventory within that range is either a foreclosure or short sale. Buyers are looking for a deal and are looking for foreclosures. 72% of all distressed sales are found below $500,000. It is reasonable to conclude that distressed sales are fueling the market, especially in the lower ranges. Total pending count, different than demand in that demand tracks new pending sales over the past month only, dropped for the first time this year by 54 homes, now totaling 6,403. Last year at this time the total pending count was at 4,192, 2,211 fewer than today. Two years ago there were 3,797 fewer than today.

The active distressed inventory, both foreclosures and short sales, continued its decent, dropping from 2,919 homes to 2,766, a 153 home drop. Foreclosures make up 13.5% of the distressed inventory. There are only 374 in all of Orange County. The other 86.5% are short sales, totaling 2,392. Foreclosures make up only 4.2% of the TOTAL active inventory and 26.7% are short sales. Foreclosures make up 17.7% of demand and short sales make up 35.4%. With so many buyers looking for a deal, many are turning to foreclosures only to find that there is just way too much demand and competition. They fly off the market as quickly as they come on. The expected market time for foreclosures is only .63 months, between two and three weeks. The expected market time would probably be even less, but it takes a bit of time to sort through multiple offers and communicate with the out of area banks. The number of short sales on the active market has dropped to 2,392, 115 fewer than two weeks ago and 50% off of the peak of 4,810 established in May of 2008. With so few foreclosures on the market, many buyers have turned to short sales where the competition has grown substantially and the expected market time has dropped to 2.01 months. Short sales have become an acceptable alternative to both buyers and lenders alike. Not only have buyers jumped on the short sale bandwagon, but lenders have approved more and more short sales in lieu of the lengthy foreclosure process. One year ago 94% of all distressed listings were at or below $750,000. Today, 88% is found below $750,000, dropping from 89% two weeks ago. The trend is more and more distressed homes are found above the $750,000 mark as the market moves from the subprime fallout to prime loans. The upper ranges are just beginning to catch up to the lower ranges. We have all read or heard about the foreclosure wave to come. It will not manifest itself in an increase in short sales. When more foreclosures do hit the market, there is so much pent up demand for the foreclosure “deal” that many will become pending sales just as fast as they are placed on the market. The reports from agents on the streets are that they are all working with buyers and they all would love to jump on the next foreclosure to hit the market.

Orange County Housing Report: The Distressed Inventory is Dropping

The total number of distressed properties, foreclosures and short sales, dropped to its lowest level since December 27, 2007. There are currently 3,724 distressed homes on the active market, 37% off of the peak of 5,950 established in August 2008. The number of active foreclosures has dropped from its November 2008 peak of 1,404 to 529, a 62% drop. It is not just the number of foreclosures that has been dropping; the number of short sales on the active market has dropped by 20% since February, from 4,009 to 3,195. This drop can be directly attributed to much stronger demand for homes priced below $1 million, which accounts for 74% of the active inventory and 95% of demand. Homes above $1 million account for 5% of demand, but 26% of the active inventory. Demand has been incredibly strong in the lower ranges because of two factors: 96% of all distressed properties are found below $1 million; and, jumbo loans, loans above $729,750, are much harder to obtain than conventional loans, loans below that level.

For Orange County, demand, the number of new pending sales over the prior month, increased by an additional 79, now totaling 3,632 and the current height of demand for 2009. Orange County demand has not been at this level since August of 2005, just prior to the beginning of the current cycle. Last year there were 1,092 fewer pending sales, totaling 2,540, 30% less. Two years ago demand was 1,769 fewer, totaling 1,863, 49% less. Three years ago demand was 26% less and totaled 2,701. The recent surge in demand seems to be abating, but this can be attributed to less inventory in the lower ranges. With an expected market time of 1.73 months, the $250,000 to $500,000 range has been incredibly hot and many buyers have written offer after offer with no success. The sales to list price ratio for homes within this range is 100%. So, those buyers looking to scoop up a deal by writing for less than the asking price are, on average, out of luck. The sales to list price ratio for foreclosures within that range is 101%.

The active listing inventory dropped 198 homes in the past two weeks to 10,363. The inventory has not been at these levels since April 2006. At the start of the year the active inventory was at 11,842, 1,479 additional homes compared to today. Last year there were 15,437 homes on the market, 5,074 additional homes compared. Two years ago there were 15,519 homes on the market, 5,156 additional homes. Three years ago there were 11,956 homes on the market, 593 additional homes compared to today. The expected market time dropped from 2.97 months two weeks ago to 2.85 months today. The expected market time last year was at 6.08 months, two years ago it was at 8.33 months, and three years ago it was at 4.43 months. This is the lowest expected market time since October 2005. Total Orange County pending sales continues its surge, reaching record heights for this three and one-half year downturn, totaling 5,733, an 828 home increase over the past month. Last year at this time, total pending sales reached 3,514, 2,219 fewer than today. Two years ago it was at 2,824, 2,909 fewer. Total pending count is different than demand because demand tracks new pending sales over the past month. Total pending count takes into account all pending sales, including those that have been pending for longer than 30-days. The 5,733 tabulation indicates that there will be a surge in sales over the next couple of months.

How should a buyer approach this market? Most buyers have the wrong expectations in approaching the Orange County real estate market. Everybody is acutely aware of the current global recession caused by the financial crunch, so it is understandable that today’s buyers want a deal when buying a home. However, buyers fail to consider two important aspects of the current real estate market: there is tremendous demand for lower priced homes and distressed properties; and, today’s asking prices already reflect a major drop in value. Prices have reached much more affordable levels just as interest rates have dropped to historical lows, the end result, demand not seen prior to the current downturn. So, buyers need to take a litmus test of the market that they are interested in. Buyers can expect multiple offers and even above asking price sales prices for homes priced below $500,000 and distressed homes. The market has heated up considerably for homes priced between $500,000 and $750,000 as well, with an expected market time of 2.49 months. The market is much stronger between $750,000 and $1 million too, with an expected market time of 4.95 months, considered a market in equilibrium. The incredibly hot demand has been underreported and most buyer have to learn the hard way before getting realistic, writing offers below the asking price and losing out on a property or two. Another reality of the current marketplace is the number of hoops lenders will put you through in funding a loan. Buyers will not only put together the initial loan package; more often than not, the lender is going to request additional paperwork during the pending sale process. As of May 1st, the government imposed an additional hurdle which will change the appraisal process. This new process has a very high potential in delaying the close of a pending sale. It is my humble opinion that these additional hurdles are necessary, but should be postponed until the market has healed. It is easy for politicians to make headlines and change the way lending and appraising is processed in the midst of a downturn, but the real fixes need to come when the market is moving on all cylinders.

Orange County Housing Report: The Spring Surge Continues

Demand surged by 33% in the past month as the active listing inventory dropped by 9%. In turn, the expected market time for Orange County dropped from 4.35 months to 2.97 months. Typically in April, the Spring market picks up steam. However, the market has not been “typical” in years, at least not until this year. Demand has literally taken off over the past four weeks. It is almost as if somebody turned the demand switch to its “on” position. Can this be the stimulus package at work? Are the lower interest rates working? Could the recent uptick be attributed to pent up demand? Is the public at large feeling a little bit at ease given the recent improvement on Wall Street? It is most likely a little bit of everything at work. And, this recent trend is not isolated to just the OC; the entire Southern California market has experienced a 25% increase in demand and a 9% drop in inventory over the past month.

For Orange County, demand, the number of new pending sales over the prior month, increased by an additional 306, now totaling 3,553. This is the current height of demand for 2009, and who knows where it will go from here. The last time demand exceeded 3,500 dates back to August of 2005, just prior to the beginning of the current cycle. Last year there were 1,179 fewer pending sales, totaling 2,374, 50% less. Two years ago demand was 1,628 fewer, totaling 1,925, 85% less. Three years ago demand was 21% less and totaled 2,942. Demand has broken from a normal cyclical path and is currently marching to the beat of its own drum. The same happened for the first half of 2008, where demand continued to grow week after week, ignoring normal market gyrations. Demand followed the atypical seasonal ups and downs for the second half of 2008. So, where does demand go from here? We will all have to wait and see, knowing that there are still a lot of buyers actively looking.

Isn’t there going to be a wave of foreclosures coming on the market? I am often asked about a foreclosure moratorium or banks holding back on releasing foreclosures so that they do not saturate the market. First off, let’s understand the terms when discussing foreclosures. REO, bank owned and foreclosures are all the same thing. Some lenders prohibit the use of the term foreclosure or even bank owned; instead, settling on REO, “Real Estate Owned.” In my opinion, there is so much demand for foreclosures that if it were up to me, I would leverage the terms foreclosure and bank owned. Distressed properties also include short sales, where a seller owes more to a lender, or lenders, than a home is worth. In the case of a short sale, even with a successful negotiation between a buyer and seller, the sale is still subject to the lender, or lenders’, approval. Lenders cannot prevent homeowners from placing their homes on the market as short sales, where they owe more than a home is worth. They can hold up the approval process, but they cannot stop a seller from trying to sell and submitting an offer for the bank’s consideration. So, any moratorium or intentional, intermittent release of foreclosures, would only affect the number of foreclosures or investor bought foreclosures. Yes, investors have been buying, rehabilitating and flipping or buying, rehabilitating and renting, because the “numbers” look good again. Currently, only 15% of the active distressed inventory is a foreclosure. One year ago, it was at 20%. At its height, it was at 24%. Today’s active distressed inventory totals 4,006, a drop of 86 in the past two weeks. 613 of the 4,006 are foreclosures, meaning that the remaining 3,392 are short sales. Let’s just assume that the rumors are correct and that there had been a moratorium and that lenders were intentionally holding off foreclosures from the market. Even if the total surpassed the record mix of foreclosures, 24%, and rose to 30%, the total would only rise to 1,201, almost doubling from its current level. Yet, what everybody has failed to realize is that there is major pent up demand for foreclosures. Just ask any real estate agent or buyer that has written an offer on a foreclosure. You will quickly find that the norm is multiple offers, accepted offers at or above the list price, and losing property after property due to the bidding wars. This is a reality of today’s market that is most often misunderstood. When a buyers journey begins in today’s market, they have the expectations of isolating a foreclosure and getting a heck of a “deal” buy offering thousands, if not tens of thousands, less than the asking price. Buyers fail to consider that prices have already fallen between 30% to 40%. Almost all buyers have to learn the hard way about the realities of today’s market. There are 613 foreclosures in all of Orange County today and demand is at 938. The expected market time for foreclosures has dropped all the way down to .65 weeks, about a 19 day market, a deep, deep seller’s market. So, throw in even double the current number of active foreclosures and they will quickly be eaten up by the insatiable appetite for foreclosures. Given current demand, doubling the foreclosure inventory will increase the expected market time to 1.28 months, about 5 weeks, still a major seller’s market. The real story is that short sales are currently more successful than they were a year ago. Today there are 3,392 short sales on the active market and demand is at 1,106, representing an expected market time of 3.07 months. One year ago there were 4,379 short sales on the market and demand was at 444, representing an expected market time of 9.86 months. Some conclusions can be made based upon all of this data: foreclosures are hot; short sales are hot; expect a lot of competition; and, any increase in foreclosure activity will just help relieve current pent up demand.

So how do the rest of the numbers look? The active listing inventory shed 1,045 homes in the past month, a 9% decrease, now totaling 10,561. The inventory has not dropped below 11,000 since the beginning of April 2006. Last year there were 15,556 homes on the market, 4,995 additional homes compared to today. Two years ago there were 14,811 homes on the market, 4,250 additional homes. The expected market time dropped from 3.4 months two weeks ago to 2.97 months today. The expected market time last year was at 6.55 months, two years ago it was at 7.69 months, and three years ago it was at 3.83 months. This is the lowest expected market time since October 2005. There are 1,944 fewer distressed homes on the market compared to the August 2008 height, a 33% drop. The distressed inventory now represents 38% of the current active inventory, dropping from 40% a month ago. Total Orange County pending sales continues to reach record heights. I started tracking the statistic back in September of 2006. After increasing by 475 homes over the past two weeks and 830 over the past month, the total pending count has reached 5,308 pending sales. Last year at this time, total pending sales reached 3,924, 2,121 fewer than today. Two years ago it was at 2,824, 2,556 fewer.

There is a major difference between the lower and upper ranges. Every price range improved over the past two weeks with the exception of homes priced above $4 million. The expected market time for homes priced below $250,000 dropped to 2.23 months. For the hottest range, homes priced between $250,000 and $500,000, the expected market time is 1.8 months. We have not seen the market time below the two month mark since October 2005. For homes between $500,000 and $750,000, the expected market time has dropped to 2.82 months. This range has not seen these levels since February 2006. Between $750,000 and $1 million, the expected market time dropped below the six month mark for the first time since October 2008, now at 5.49 months. For homes between $1 million and $1.5 million, the expected market time dropped below ten months for the first time since October last year as well, now at 9.51 months. For homes priced above $1.5 million, the markets have improved, but still have expected market times in the double digits, stagnant markets. As the lower ranges improve and consumer confidence slowly emerges, the good vibes are starting to flow to the upper ranges. If the latest trends continue, a bottom could be reached in the upper ranges by the end of this year to the beginning of next year.

Orange County Housing Report: Demand Suddenly Surges

Coinciding with a drop in interest rates and a Wall Street rebound, demand for Orange County housing increased by 22% in just two weeks. Demand, the number of new pending sales over the past month, increased from 2,670 pending sales two weeks ago to 3,247 today, a 577 home increase. Last year’s high of 3,060 pending sales was reached on June 12. Orange County demand has not reached this level since September 2005, the beginning of the current downturn. Last year there were 962 fewer pending sales, totaling 2,285, and two years ago there were 1,114 fewer,

totaling 2,133. The active listing inventory shed 580 homes in the past two week, a 5% decrease, totaling 11,026. The active listing inventory has not seen these lower levels since the beginning of April 2006. Last year there were 15,474 homes on the market, 4,448 additional homes compared to today. Two years ago there were 14,010 homes on the market, 2,894 additional homes. The expected market time dropped from 4.35 months two weeks ago to 3.4 months today. The expected market time last year was at 6.77 months, and two years ago it was at 6.57 months. This is the lowest expected market time since March 2006. The distressed homes inventory, foreclosures and short sales, dramatically changed over the past two weeks, dropping by 581 homes to 4,092. The height of the distressed inventory, 5,950, was achieved on August 7, 2008. There are 1,858 fewer distressed homes on the market compared to the height, a 31% drop. The distressed inventory now represents 37% of the current active inventory, dropping from 40% two weeks ago. Foreclosures now have an expected market time of 0.77 months, or three weeks. There are 170 fewer foreclosures on the market, totaling 731. Demand for foreclosures is at 953 pending sales. The foreclosure market is extremely hot. Buyers can expect to compete with multiple offers and sales prices above their list prices. The short sale inventory shed 391 homes in the past two weeks to 3,379 homes. The short sale inventory height, 4,701, was reached on August 7, 2008, coinciding with the total distressed inventory height. There are 1,322 fewer short sales on the market today. Demand for short sales increased by 205 pending sales, totaling 967. Since short sales are subject to lenders approval and are often not changed to pending status until lender approval is received, this may be a sign that lenders are gearing up to curb foreclosures through the accommodation of short sales. Total Orange County pending sales continues to reach record heights week after week. I started tracking the statistic back in September of 2006. After increasing by 355 homes over the past two weeks, the total pending count has reached 4,905 pending sales. Last year at this time, total pending sales totaled 2,852, 1,698 fewer than today. Two years ago it was at 3,047, 1,858 fewer.

Word within the trenches is that there is tremendous activity out there in the lower ranges and with distressed properties. Many buyers first enter the market with anticipation that they are going to somehow be able to obtain a property for tens of thousands less than the asking price. They are quickly learning that there is a lot of competition in the lower ranges and all distressed homes. There just is not enough news highlighting this aspect of the real estate market. The activity in the lower ranges has reached such a high level, that it is starting to reflect in the median sales price for Orange County, which posted its first month over month increase, from January to February 2009, in eight months. Lower interest rates, a lot of stimulus, the massive return of the first time home buyer, the return of investors, have all equated to a sharp uptick in the current Orange County real estate market.

There is a major difference between the lower and upper ranges. For all home below $750,000, the expected market time has been dropped considerably. The best range in Orange County is homes between $250,000 and $500,000, with an expected market time of 2.09 months. 60% of the inventory within that range is either a short sale or foreclosure. The expected market time for homes below $250,000 is 2.46 months. For homes between $500,000 and $750,000, the expected market time is 3.46 months. It shoots up to a 6.4 month expected market time for homes between $750,000 and $1 million. From there, the expected market time blossoms to a stagnant market. The expected market time ranges from 13.11 month, homes between $1 million and $1.5 million, and 43.44 months, homes above $4 million. What this helps illustrate is that the government’s focus on freeing up conventional financing, loans up to $729,750, is working within the real estate market. For jumbo financing, where loans are much more difficult to obtain and are at a higher rate, especially above $1 million, demand has just come to a crawl. With no focus from the government on higher ranges, it will not be until a bottom is reached in the lower ranges, which some are predicting during the second half of 2009, and confidence is restored in the financial markets, that decent demand will return to the upper ranges.

Orange County Housing Report: 21% Fewer Distressed Homes on the Market

As the market marches forward, the distressed active inventory, both foreclosures and short sales, has dropped by 21% since its peak in August of 2008. There have been various explanations for a dip in the number of distressed sales, like legislation that lengthens the amount of time to file a notice of default (when somebody is behind on their mortgage) and ultimately delay foreclosure. The problem with that theory is that the distressed inventory has been steadily dropping for seven months. The distressed inventory has dropped by 1,277 homes, or 21%. On August 7, 2008, the distressed inventory was at 5,950 homes and represented 41% of the 14,348 total active inventory (both distressed and non-distressed listings). Today, the distressed inventory has fallen to 4,673, 40% of the 11,606 total active inventory. One year ago today, the distressed inventory was at 5,221, 548 more that today, the second report in a row with a year over year improvement. However, the distressed inventory is still extremely high. This inventory needs to drop significantly for the real estate market to start to appreciate once again. The rate that it drops is slow because of the number of bad loans in the system combined with a high unemployment. However, in the lower ranges, the rate of depreciation has slowed remarkably, and even bottomed in some areas. This is due primarily to the extremely high demand in the lower ranges, homes priced below $500,000. This range accounts for 49% of the total active inventory, but 73% of demand. There are some cities with expected market times close to two months, technically a seller’s market. A lot of this demand has been fueled by the drop in prices and the desire to acquire a bank owned, foreclosed home. Buyers looking for a home below $500,000 need to be prepared for a lot of competition. The average sales to list price ratio for foreclosed homes is 101%, meaning that, on average, the home is selling for above the list price. Short sales DOMINATE the distressed sales market within Orange County and account for 80.7% of all distressed homes. The other 19.4% are foreclosures, the hottest properties in the county. There are currently 905 foreclosures on the market and demand, the number of homes placed into escrow within the last month, is at 882 pending sales. The expected market time for foreclosure is 1.03 months. Foreclosures are so hot, that multiple offers are the norm. The demand is similar to 2005 demand for all homes, CRAZY seller’s market. Buyers in today’s market expect a discount and expect to be able to take their time in making a decision to write a purchase offer. Most buyers must learn the hard way, after losing a property or two, that these homes generate tremendous buyer competition. The expected market time for short sales has dropped significantly, now at 4.95 months, but this figure is grossly overinflated due to the nature of short sales. Short sales are where a homeowner attempts to sell their home, owing more than their home is worth. Even though most short sales have an agreed upon purchase offer between a buyer and the seller, most are continually marketed as an active listing rather than as a pending sale because of the belief by many that they do not have an official acceptance until the lender approves the sale at a discount in what is owed. In the trenches, agents are reporting that vast majority of short sales that are a part of the active inventory have offers that are already submitted to the lender(s). Another giant drawback to short sales is that the “lender approval” process can take weeks to months to obtain. Often, by the time a lender does approve of a short sale offer, the buyer has already moved onto another home. The bottom line, there may be a lot of distressed homes on the market, but as a buyer, expect a lot of competition.

So how do the numbers look? In the past two weeks, demand, the number of new pending sales within the prior month, increased by 46 pending sales to 2,670. Last year at this time there were 587 fewer pending sales, totaling 2,083. Two years ago there were 2,195 pending sales, 475 fewer than today. All of the recent stimulus aimed specifically at real estate should begin to trickle down into the Orange County real estate scene in the form of increased demand within the next couple of weeks. In the trenches, agents are already reporting increased buyer interest, increased open house activity and more buyers on the verge of writing after fence sitting for quite some time. All of the ingredients for an increase are there: historically low interest rates, government incentives to purchase now, and a lot of government intervention aimed at placing a sound bottom underneath the housing market. Prices, especially in the upper ranges, may continue to fall; however, what most buyers fail to consider is that these historically low interest rates will not be around forever. Instead, with all of the money that the federal government is pumping into our economy, the U.S. economy will most certainly endure a major increase in inflation down the road. The Federal Reserve responds to an increase in inflation with an increase in interest rates. In 1990, interest rates were thought to be at a great level when they broke just below 10%. At 5%, today’s approximate interest rate, the payment for a $500,000 loan is $2,684. At 7%, the payment is $3,327, an increase of $643 per month. At 10%, the payment would be $4,388, a difference of $1,704. Even if homes were to fall an additional 10%, a 7% loan at $450,000 would be $2,994, still $310 a month more than a 5% loan at $500,000. At 10% it would be $1,265 more per month. The beauty of homeownership in Orange County is it is an incredible long term investment. So, if you are a buyer and can live in your home for more than just a few years, ultimately it makes sense to buy as soon as you isolate the home that best fits your family’s criteria and budget. It may not pay to wait because after the economy turns around, inflation will increase interest rates. Almost all buyers fail to factor the negative effects of increasing interest rates, which can be profound.

The active listing inventory continues to remain relatively unchanged so far this year, increasing by only 65 homes over the past month, bringing the current total to 11,606. Last year the active inventory was at 15,617 homes, 35% higher. Two years ago there were 1,767 additional homes on the market, totaling 13,373, 15% higher. The current expected market time decreased slightly from 4.41 months two weeks ago to 4.35 months today. Last year the expected market time was 7.5 months. Two year ago the expected market time was 6.09 months. Total Orange County pending sales continues to reach record heights over the past two reports. I started tracking the statistic back in September of 2006. After increasing by 142 homes over the past two weeks, the total pending count has reached 4,550 pending sales. Last year at this time, total pending sales totaled 2,852, 1,698 fewer than today. Two years ago it was at 3,321, 1,229 fewer.

The condition of the Orange County real estate market really depends upon the price range. The story of 2009 remains the same, the lower the price range, the hotter the market. The hottest range is detached homes below $250,000 with an expected market time of only 1.94 months. However, there are only 303 detached homes in that range. The second hottest range is detached homes between $250,000 and $500,000, with an expected market time of 2.27 months.

It will be interesting to see the impact of all of the recent stimulus within the various ranges. We can expect the lower ranges to improve and eventually bottom first. It won’t be until confidence is restored in the financial marketplace, the current focus of the Federal Reserve, the Obama administration and Congress, that we will see a bottom in the upper ranges.

Orange County Housing Report: A Stimulating Pause

As all of the details of the various stimulus plans are slowly making their way to Main Street, the Orange County housing market has slowed as well. The tax credit for first time home buyers (individuals who have not owned within the prior 3 years), the increased conventional loan limit to $729,750, the unveiling of the details to help instigate lenders to refinance loans for homeowners who are as much as 5% upside down in their homes, and the unveiling of the finer points to help promote loan modifications, are only just beginning to make their way to the experts and professionals that work within the real estate and lending industries. It is no wonder that there has been a pause in recent Orange County demand as buyers are just not yet aware of how all of the recent fanfare applies to them. Also, there has benn recent news of even more stimulus to come to help resurrect the dormant financial engine that keeps our economy in gear. The frozen financial markets are only moving because the U.S. Treasury is purchasing pools of loans to keep lending flowing. The government is working on incentives to motivate investors to enter the game as well. They are looking to help purchase “toxic assets,” a term that simply means “bad loans,” to help instigate lenders to lend again. The problem thus far has been that lenders have received billions of dollars from the government only to clamp down further on lending. Part of the problem is that for every loan that is bad, they have to have a certain threshold of capital set aside. With so many bad loans on the books, lenders have had to maintain hordes of capital in the form of reserves and they cannot use that money for new loans. So, this is what the government is sifting through in the background to repair out financial markets and restore confidence in the U.S. financial system once again. As more and more of these programs are unveiled there will be a slight delay until it trickles down to the Orange County marketplace. Similarly, the new higher conventional loan limits that were unveiled in February of 2007 took over a month until it finally hit Main Street in the form of new loans. The latest round of stimulus was only unveiled in the third week of February of this year, but the real estate and financial industries are still ironing out all of the details. With all of the stimulus and record low interest rates, each program is going to slowly trickle down in the form of increased demand in real estate in weeks and months to come.

So how do the numbers look? In the past two weeks, demand, the number of new pending sales within the prior month, decreased by 195 homes to 2,624. Last year at this time there were 731 fewer pending sales, totaling 1,893. Two years ago there were 2,388 pending sales, 236 fewer than today. The affects on demand from the stimulus plan should probably start to play out within the Orange County real estate marketplace over the next month. The active listing inventory has remained relatively unchanged so far this year, increasing by only 43 homes over the past month, bringing the current total to 11,562. Last year the active inventory was at 15,412 homes, 33% higher. Two years ago there were 996 additional homes on the market, totaling 12,558, 10% higher. The current expected market time increased from 4.09 months two weeks ago to 4.41 months today. Last year the expected market time was 8.14 months. Two year ago the expected market time was 5.26 months. Total Orange County pending sales is at a much healthier level compared to the last two years. Currently, total pending sales is at 4,408, an increase of 67 pending sales in the past two weeks. This is the highest level for total pending sales since I began tracking this figure back in September of 2006. Last year at this time, total pending sales totaled 2,524, 1,884 fewer than today. Two years ago it was at 3,419, 989 fewer compared to today. Today marks the first time that the distressed inventory is lower compared to the prior year, after falling by another 99 foreclosures and short sales over the prior two weeks to 4,408. One year ago today, the distressed inventory was at 5,057, 649 more than today. Since peaking on August 7th at 5,950, the distressed active inventory has dropped by 20%; that is 1,166 fewer distressed homes on the active market. The distressed inventory represents 41% of the total active inventory, dropping from 42% two weeks ago. The number of pending sales that are either a short sale or a foreclosure remained at 62%. The expected market time for foreclosures increased slightly from its record low of .99 months two weeks ago to 1.08 months today. Foreclosures remain the hottest category of homes within the Orange County marketplace today. The expected market time for short sales dropped ever so slightly from 5.16 months to 5.14 months today, a record low for the current housing downturn.

The condition of the Orange County real estate market really depends upon the price range. Of course, the lower the price range, the hotter the market. The hottest range is detached homes below $250,000 with an expected market time of only 1.95 months. However, there are only 321 detached homes within the detached active home inventory out of 6,966 total, less than 5%. The second hottest range is detached homes between $250,000 and $500,000 with an expected market time of 2.46 months. There are 1,905 detached homes within that range, 27% of the detached inventory.

It will be interesting to witness the ramifications of increased demand in the lower ranges. The lower ranges are already hot and there have been reports from the trenches that a bottom in pricing has been achieved in many areas where prices have not changed over the course of the past few months. As a stronger bottom is established in the lower ranges throughout Orange County, and the flow of financial system is restored, the strength in the market will eventually start to trickle up to the higher ranges.