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.