Orange County Housing Report: Thankful for Affordability

On this Thanksgiving Eve, the return of home affordabilty in Orange County is something to be thankful for, especially if you are a first time home buyer. With the run-up in prices earlier this decade, I recall many people were concerned for their children and the “next generation” of home buyers. Homes had risen to such astronomical heights that many wondered if they were going to be able to live close to home or stay in California. The silver lining to the current downturn has been that affordability and historically low interest rates have enabled buyers pushed out of the market in prior years to buy a home in Orange County. A few years ago nobody was working with first time homebuyers. Today, agents have pockets filled with buyers and many of them are purchasing a home for the first time. There is not a better feeling, as a Realtor® than handing a buyer keys to their first home. The return of affordability, historically low interest rate and a fear that rates will eventually rise has boosted demand as more and more buyers have entered the market, especially in the lower ranges. Throw in the first time home buyer tax credit (now extended through mid-2010) and an increased conventional loan limit all the way to $729,750 (now extended through all of 2010), buyers have even more reasons to purchase. As a result, the active inventory has dropped dramatically throughout the year. The lower ranges are experiencing a lot of activity and multiple offers. Homes below $750,000 are HOT and below $500,000 even HOTTER. Buyers and their agents are diligently watching the inventory for the next new listing to pop on the market. The active inventory is extremely tight, especially in the lower price ranges, with multiple offers and tremendous competition a new norm. As a result, prices have stabilized in many areas. These are the roots to an Orange County housing recovery. All downturns eventually turn around and it is the activity in the lower ranges that prop up the market. We have the activity, but unemployment and the sheer number of distressed properties, especially short sales, have to work their way through the system first.

So, how do the rest of the numbers look? The distractions of the holiday have finally seeped into the Orange County housing market. Demand, the number of new pending sales over the prior month, dropped by 6%, 203 homes, and now totals 3,038. That’s still better than 2,466 posted last year or 1,243 two years ago. Cyclically demand drops for the rest of the year and through the first few weeks of the New Year. We can expect more of the same this year, but maybe not as deep as prior years due to so many buyers waiting for the right home to hit the market. But, not as many homes will hit the market, waiting, instead, for the end of the holidays. As a homeowner, this is actually a good time to place a home on the market, especially in the lower ranges. The active listing inventory will continue its slow descent though the end of the year. The Spring market, which actually begins for Orange County after the Super Bowl, is typically the best time to sell. Demand will increase, but so will the number of homes hitting the market. There will still be plenty of competition from distressed properties, which will keep values in check throughout 2010. We can also expect a return of the discretionary homeowner for the fourth year in a row, only selling their home if they truly are motivated to sell. Currently the active listing inventory decreased by 64 homes over the past two weeks, totaling 7,655. That’s 5,292 fewer than last year and 9,114 fewer than two years ago. The inventory has dropped by 4,187 homes so far this year, a 35% drop. The expected market time for all of Orange County increased in the past couple of weeks from 2.38 to 2.52 months. A rise in the expected market time is also cyclical for the remainder of the year. The expected market time last year was at 5.29 months and two years ago it was at 13.49 months. For homes priced below $1 million, the expected market time is 1.99 months. For homes priced between $1 million to $2 million, the expected market time is 6.64 months. That range represents 15% of the active listing inventory, but just 6% of demand. For homes priced above $2 million, the expected market time is 25.65 months. That range represents 12% of the active listing inventory, but just 1% of demand. The data illustrates what buyers and sellers are experiencing within the housing market, the higher the range, the slower the market. The total pending count, includes all pending sales beyond 30-days, dropped by 109 homes to 6,746. Now that more short sales are actually successfully closing, the total pending count has reached a plateau after rising throughout the year. For the third time this year, and now two reports in a row, the number of distressed properties on the market increased by 34 homes, or 1%. 33% of the active inventory is distressed compared to 45% last year. There are currently only 321 foreclosures in all of Orange County, a decrease of 18 in the past two weeks. Foreclosures only represent 4% of the active listing inventory and have an expected market time of 0.78 months. Last year the expected market time was at 1.40 months. Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. There are currently 2,175 short sales on the active market, an increase of 52 in the past two weeks. Short sales currently represent 28% of the active listing inventory. The expected market time for short sales is currently at 1.82 month versus 7.21 months one year ago. Homeowners with equity in their home now account for 67% of the current active inventory.