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.