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.