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.
Thursday, April 23, 2009
Monday, April 6, 2009
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.
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.
Subscribe to:
Posts (Atom)
