Orange County Housing Report: A Much Better Start

The Orange County housing market is in a much better place in starting 2009 compared to the last couple of New Years. Prices are down, affordability is up and interest rates are at historically low levels. The housing market and the financial markets have the attention of every corner of the government. The Federal Reserve, Congress, the Bush Administration, the incoming Obama Administration, Democrats and Republicans alike, everybody has their collective eye on the ball, putting a bottom underneath the housing market, thawing the financial markets and reversing the trend of unemployment. With all of that in mind, many buyers have already taken advantage of the Orange County housing market despite the slowest season of the year for real estate, the Holiday market. After President-Elect Obama is sworn into the office in about two weeks, we will have officially left the distractions of the holidays behind and entered into the beginning stages of the Spring market. The Spring market this year will be marked by increased demand and an inventory that will prove to be slow to grow. So, where are we right now? First, let’s take a look at the current active inventory. The inventory has shed just over 1,100 homes in the past month and now sits at 11,287 homes. Last year, we started 2008 with 14,944 homes on the market, 3,657 more than today. In 2007 there were 11,643 homes on the market, 356 additional compared to right now. Don’t be fooled by the similarities in these numbers because 2007 was much different than today. Today we have discretionary sellers who expect tremendous competition from distressed properties, both short sales and foreclosures. In 2007, many homeowners expected the Spring market to be hot and homes coming on the market outpaced demand considerably; thus, the inventory grew. In 2008, the discretionary seller knew what to expect and the number of homes that came on the market kept up with demand. In 2009, we can expect it to be quite similar to 2008. Due to the distractions of the heart of the holidays, demand, the number of new pending sales over the course of a month, took a cyclical drop of 314 homes over the past four weeks to 2008. But, this is typically the low point of the year for demand. At this time last year, demand was at 998 pending deals, 1,010 fewer than today. Demand is 101% stronger than last year… incredible! Two years ago demand was at 1,496 pending sales, 512 fewer than today. Three years ago demand was at 1,573 pending sales. The expected market time is currently at 5.62 months. Last year’s expected market time was at 14.97 months, and it was at 7.78 months two years ago. The distressed inventory, foreclosures and short sales, dropped by 401 homes over the past month, bringing the total to 5,118, its lowest point since March of last year. That’s a 7.2 % drop. Distressed properties now make up 45.3% of the inventory, a slight drop over the past couple of weeks. 69% of all pending sales are distressed sales right now. Obviously, the distressed inventory is helping fuel demand. 79% of all distressed homes are isolated below $500,000 and 92% are found below $750,000. It is no wonder that the lower end of the market has been a lot hotter than the rest of the market. All homes, distressed and the non-distressed traditional homeowner, below $500,000 make up 53% of the active inventory and 73% of demand. The lower ranges are also hotter than the rest of the market due to the fact that the government is backing all conventional financing and FHA financing up to $625,500. That does not mean that there are not great deals in the upper ranges; it means that it there are a few more hoops to leap through in financing above the $625,500 loan limits.

So, if you are a buyer, how should you approach this market? It is a great time to be a buyer. It has been more than worth the wait for the patient buyers that have been sitting on the fence. Now, I am hearing again of so many buyers trying to predict the bottom of the housing market. It absolutely astounds me at the number of buyers that flocked to purchase back in 2005 after tremendous appreciation year in and year out. Real estate booms and busts are cyclical and it could not last forever. After tremendous depreciation in housing, this is the time to purchase. This is the time to flock to real estate, when prices are down. Why buy near a peak in appreciation? The time to buy is somewhere near the bottom of the trough of a downturn. Would it be so bad if the market continued to drop for another year? Not really. Prices have already dropped considerably to this point, and most of that drop took place when we bottomed in demand from August of 2007 through February of 2008. The bottom line, if you find the home that best meets your family’s desires and budget, and you are not planning to move in a couple of year, than BUY. This is Orange County, a very desirable place to live with a shortage of buildable land, plenty of great weather and beaches and historically an excellent long term housing investment. Buyers in this market need to be aware that there is plenty of competition for distressed properties and homes in the lower ranges. The sales to list price ratio for foreclosures is currently 101%, meaning that, on average, they are selling for slightly above the list price. The sales to list price ratio for short sales is currently 97%, meaning that offers written for 10% less than the asking price have a much less chance of success. Know the market that you are considering and utilize the expertise of an experienced real estate agent to guide you through the myths and hurdles of Orange County housing in 2009.

So, if you are a seller, how should you approach the market? If you are a homeowner and you absolutely, unequivocally have to sell, than do not hesitate to place your home on the market immediately at the best price and in the best condition. Homes that are priced well and in great condition have a much better chance in successfully selling in a shorter amount of time. So, carefully arrive at price by placing the most emphasis on current pending sales and recent comparable sales, sales within the prior 90-days. Major discounts from the prior sales are not necessary, but do not “pad” the asking price because there is a dollar amount that you are looking for. Unfortunately, the market does not care what you need to net from your home. Be prepared to make any changes or modifications to the asking price or condition based upon new pending and closed sales and buyer showing feedback. Sellers too need to know their market and utilize the expertise of an experienced real estate agent to achieve success. The area expert may not be the best choice. Instead, look to the real estate agent that knows and understands the current market with a track record of success, a market expert.