It is time for buyers to start focusing on historically low interest rates; they won’t last forever.
Interest Rates: Rates are at ridiculously low levels and seem to be taken for granted.
I have always been fascinated how almost nobody focuses on how rates affect purchasing power. These low rates actually pencil out to be so much better than the $8,000 First Time Home Buyer Tax Credit; yet, the lower rates just have not stimulated demand like the credit. Consider a $500,000, 30 year mortgage at 4.375%. The monthly payment would be $2,496 per month. The same monthly payment at 5.375%, where rates were just one year ago, would be for a mortgage of $446,000. That is a $54,000 difference, almost seven times the tax credit. That’s one way to look at the incredible savings today’s low interest rates offer buyers. Now, let’s take a look at the difference in payment for the same mortgage amount. The payment on a $500,000, 30 year mortgage at 5.375% is $2,800 per month, or $304 per month more compared to the 4.375% rate. In just five years, the savings would be a very impressive $18,240. Over the life of the loan, 30 years, the savings would be $109,440. These numbers are mind boggling. Yet, first time home buyers tripped over each other clamoring to purchase a home prior to the end of the tax credit on April 30th. But, now, in the face of the lowest interest rates in our lifetime, buyers just aren’t rushing to purchase. As soon as the economy starts to improve, interest rates will increase by at least one percent. As a buyer, today’s rates should be very motivating. The best time to purchase is during a buyer’s market with rock bottom rates, not when the market is appreciating again. Unfortunately, low rates don’t seem to sell like an $8,000 credit. So, let’s put phrase it in a way that will sell: “Give yourself an $18,240 tax credit by purchasing now before rates rise just one percent.” For further perspective, rates were at 8% at the beginning of 2000. For a $500,000 mortgage, the monthly payment would be $3,669, an additional $1,173 per month. In 1990, rates were at 10%, which would be $4,388, an additional $1,892 per month. Buyers cannot afford to ignore today’s rates. They should not be taken for granted. As soon as the economy improves, rates will increase and buyer’s purchasing power will begin to erode.
Demand: With the begging of the Autumn market, demand drops 7%.
In looking at demand, the First Time Home Buyer Tax Credit pulled demand forward. To take advantage of the credit, a buyer had to be under contract on or before April 30th. Since reaching the height in demand at the end of April, demand has dropped 32%. Demand, the number of new pending sales over the prior month, dropped by 203 over the past two weeks and now totals 2,690 pending sales, a 7% drop. The incredible rates should spur demand. It will be interesting to see where demand goes over the coming weeks now that the kids have settled in at school.
Active Listing Inventory: It appears as if the listing inventory is climbing towards a peak of 12,000 homes.
The active listing inventory gained 175 homes in the past two weeks and now totals 11,892. The inventory has actually grown unabated since the beginning of the year. If demand was just slightly hotter, the inventory would actually drop. It started the year at 7,165 homes and has increased since by 4,727, a 66% increase. This year marked the exit of the discretionary seller. Instead, the market has been plagued by homeowners who have been sitting on the sidelines anticipating a turnaround in the housing market. With demand artificially stimulated at the beginning of the year by the tax credit, sellers were fooled into thinking that the market had indeed turned around. They took reports of year over year increases in the median sales prices and stories of heated demand and multiple offers as the perfect time to dive into the market. Unfortunately, seller after seller entered the market and anticipated appreciation like just a few years ago and priced their homes at unrealistic levels, thousands of dollars above the last comparable or pending sale. The end result is a ton of homes have been sitting on the market overpriced and the active inventory has increased unabated. A SPECIAL NOTE FOR SELLERS: reduce your home to market value or pull your home off the market immediately and wait for the overall economy to dramatically improve.
Expected Market Time: The lower ranges have slowed but not nearly like the stalled upper end.
For homes priced below $1 million, the expected market time is 3.87 months. This range represents 82% of the active inventory and 93% of demand. For homes priced above $1 million, the expected market time is 12.02 months, the higher the range, the slower the expected market time. This range represents 18% of the active inventory, but only 7% of demand. The slowest range, homes priced above $4 million, has an expected market time of 70 months. The hottest market in Orange County is Foothill Ranch with an expected market time of only 2.38 months and an average list price of $467,000. The slowest market in Orange County is Newport Coast with an expected market time of 12.08 months and an average list price of $4.4 million. The expected market time for all of Orange County is 4.42 months. Last year at this time the expected market time was 2.33 months.
Foreclosures and Short Sales: With demand slowing, the distressed inventory continues to grow.
The active distressed inventory grew by 110 homes over the past two weeks and now totals 4,026 total foreclosures and short sales, levels not seen since April of 2009. The active distressed inventory started the year with 2,555 homes and has since grown by 58%. The distressed inventory now represents 34% of the current active inventory. Last year at this time, there were 2,384 distressed homes on the market, 1,642 fewer than today. The number of foreclosures within the active listing inventory increased by 24 homes in the past two weeks from 684 to 708. The expected market time for foreclosures is 1.84 months, still an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 86 homes over the past two weeks and now total 3,318. The expected market time for short sales is 3.61 months, much slower than 1.53 months posted last April.
Saturday, September 18, 2010
Monday, July 12, 2010
Orange County Housing Report: Hey Sellers, Get Realistic!!
The Orange County Housing Inventory has inflated by 48% since the beginning of the year on the backs of unrealistic sellers.
Unrealistic Sellers: Overpriced homes have flooded the market.
Reports of tremendous competition among buyers have fueled unrealistic seller expectations. Reports of multiple offers and homes selling quickly have fueled it as well. Reports of an increase in the median sales price did not help either. Yes, there has been a lot of demand and homes have sold quickly, procuring multiple offers. However, none of this would have happened had it not been for a major increase in home affordability. There has been a culture shift in the past few years where people have gone from spending frivolously (and often recklessly) to saving, paying off debt and making sure that every penny counts. Five years ago home buyers were racing to buy homes at whatever price. Today, buyers have become “spreadsheet” buyers, not wanting to pay much more than the last closed sale, regardless of the amount of competition. Sure, after writing offer after offer after offer a buyer is more willing to up the ante a bit and pay a couple thousand dollars above the most recent comparable sale, but they are NOT going to pay an extra $25,000. That is how we have experienced slight appreciation over the past year. In the hottest ranges, buyers have been willing to pay a little bit extra to procure a home. Over the course of the past year, the small incremental increases have amounted to a positive change in pricing. But think about it; a 5% change in pricing did not happen overnight. The reports in a change in pricing are YEAR OVER YEAR. Back in the heydays of the mid-2000’s homes were increasing a lot faster. That just is not the case this time around. Homeowners have been fooled, thinking the market has not just bottomed, it has recovered. There have been so many homeowners who have sat on the sidelines waiting for the market to recover so that they could finally sell. These pent up sellers have been placing their homes on the market at ridiculous values. They have taken an increase of 5% over a year to mean that they can price their home 5% above the most recent comparable sale. Spreadsheet buyers are just not going to bite. The economy is too fragile for this line of thinking. Yes, there is a premium to selling a home with equity versus the short sale down the street; HOWEVER, a buyer is not going to pay thousands of dollars more. The bottom line: sellers really need to take a hard look in the mirror and ask whether or not they really can drop to the realistic fair market value of their home. If not, they need to stop wasting everybody’s time and pull their home off of the market.
Active Listing Inventory: The proof that unrealistic sellers have flooded the market, an unabated increase in the inventory.
This year the Orange County housing inventory has grown by 3,524 homes, a 48% increase. In the past two weeks, the inventory has grown by 355 homes, a 3% increase, and now totals 10,817. Last year at this time the inventory was at 8,946 homes, 1,871 fewer than today. Every range has experienced growth, but the most substantial growth can be found between $250,000 and $1 million with a 71% increase.
Housing Demand: Independence Day typically marks a drop in demand, this year is not exception.
Since artificially peaking at the end of April due to the end of the First Time Home Buyer Tax Credit, an $8,000 incentive, demand has dropped 28%. Demand, the number of new pending sales over the prior month, decreased by 247 in the past two weeks and now totals 2,860, levels not seen since January of this year. From here, demand typically rises slightly and peaks at the end of August before slowly deteriorating for the remainder of the year.
Expected Market Time: After bottoming at the end of April, the expected market time for homes in the OC has increased to its highest level of the year.
With an increase in the active listing inventory and a decrease in demand, the expected market time increased from 3.37 months two weeks ago to 3.78 months today. The overall market is still a “seller’s market,” but it is moving in the wrong direction. Remember, this seller’s market is different. There may be a lot of buyers and a lot of competition, but spreadsheet buyers are unwilling to pay much of a premium over the last comparable sale. At the end of April, the expected market time was at 2.35 months. Last year at this time the expected market time was at 2.66 months. For homes priced above $1 million, the expected market time is 10.61 months. Contrast that with homes priced below $1 million where the expected market time is 3.22 months.
Foreclosures and Short Sales: So far this year, the distressed inventory has grown by 29%.
The active distressed inventory has increased from 2,555 homes at the beginning of the year to 3,307, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,766 distressed homes on the market, 541 fewer than today. The number of foreclosures within the active listing inventory increased by 19 homes in the past two weeks from 559 to 578. The expected market time for foreclosures is 1.73 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 71 homes over the past two weeks and now total 2,729. The expected market time for short sales is 2.52 months, still a HOT seller’s market.
Unrealistic Sellers: Overpriced homes have flooded the market.
Reports of tremendous competition among buyers have fueled unrealistic seller expectations. Reports of multiple offers and homes selling quickly have fueled it as well. Reports of an increase in the median sales price did not help either. Yes, there has been a lot of demand and homes have sold quickly, procuring multiple offers. However, none of this would have happened had it not been for a major increase in home affordability. There has been a culture shift in the past few years where people have gone from spending frivolously (and often recklessly) to saving, paying off debt and making sure that every penny counts. Five years ago home buyers were racing to buy homes at whatever price. Today, buyers have become “spreadsheet” buyers, not wanting to pay much more than the last closed sale, regardless of the amount of competition. Sure, after writing offer after offer after offer a buyer is more willing to up the ante a bit and pay a couple thousand dollars above the most recent comparable sale, but they are NOT going to pay an extra $25,000. That is how we have experienced slight appreciation over the past year. In the hottest ranges, buyers have been willing to pay a little bit extra to procure a home. Over the course of the past year, the small incremental increases have amounted to a positive change in pricing. But think about it; a 5% change in pricing did not happen overnight. The reports in a change in pricing are YEAR OVER YEAR. Back in the heydays of the mid-2000’s homes were increasing a lot faster. That just is not the case this time around. Homeowners have been fooled, thinking the market has not just bottomed, it has recovered. There have been so many homeowners who have sat on the sidelines waiting for the market to recover so that they could finally sell. These pent up sellers have been placing their homes on the market at ridiculous values. They have taken an increase of 5% over a year to mean that they can price their home 5% above the most recent comparable sale. Spreadsheet buyers are just not going to bite. The economy is too fragile for this line of thinking. Yes, there is a premium to selling a home with equity versus the short sale down the street; HOWEVER, a buyer is not going to pay thousands of dollars more. The bottom line: sellers really need to take a hard look in the mirror and ask whether or not they really can drop to the realistic fair market value of their home. If not, they need to stop wasting everybody’s time and pull their home off of the market.
Active Listing Inventory: The proof that unrealistic sellers have flooded the market, an unabated increase in the inventory.
This year the Orange County housing inventory has grown by 3,524 homes, a 48% increase. In the past two weeks, the inventory has grown by 355 homes, a 3% increase, and now totals 10,817. Last year at this time the inventory was at 8,946 homes, 1,871 fewer than today. Every range has experienced growth, but the most substantial growth can be found between $250,000 and $1 million with a 71% increase.
Housing Demand: Independence Day typically marks a drop in demand, this year is not exception.
Since artificially peaking at the end of April due to the end of the First Time Home Buyer Tax Credit, an $8,000 incentive, demand has dropped 28%. Demand, the number of new pending sales over the prior month, decreased by 247 in the past two weeks and now totals 2,860, levels not seen since January of this year. From here, demand typically rises slightly and peaks at the end of August before slowly deteriorating for the remainder of the year.
Expected Market Time: After bottoming at the end of April, the expected market time for homes in the OC has increased to its highest level of the year.
With an increase in the active listing inventory and a decrease in demand, the expected market time increased from 3.37 months two weeks ago to 3.78 months today. The overall market is still a “seller’s market,” but it is moving in the wrong direction. Remember, this seller’s market is different. There may be a lot of buyers and a lot of competition, but spreadsheet buyers are unwilling to pay much of a premium over the last comparable sale. At the end of April, the expected market time was at 2.35 months. Last year at this time the expected market time was at 2.66 months. For homes priced above $1 million, the expected market time is 10.61 months. Contrast that with homes priced below $1 million where the expected market time is 3.22 months.
Foreclosures and Short Sales: So far this year, the distressed inventory has grown by 29%.
The active distressed inventory has increased from 2,555 homes at the beginning of the year to 3,307, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,766 distressed homes on the market, 541 fewer than today. The number of foreclosures within the active listing inventory increased by 19 homes in the past two weeks from 559 to 578. The expected market time for foreclosures is 1.73 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 71 homes over the past two weeks and now total 2,729. The expected market time for short sales is 2.52 months, still a HOT seller’s market.
Saturday, June 26, 2010
Orange County Housing Report: Demand is Normal Again
After dropping nearly 22%, Orange County housing demand is now in a normal summer cyclical pattern.
Housing Demand: Over the last 5 years the average drop in demand was 3.2%, this year it was only 2%.
Whatever the reason, the end of school, graduation, the start of summer, demand cyclically drops at this time of year. The only difference this time around is that demand had already dropped 20% due to the end of the Federal first time home buyer tax credit. When demand reached 3,979 pending sales on April 29th, the height for 2010, and the highest threshold in almost five years, there was a rush to purchase by first time home buyers. That segment accounted for 25% of Orange County’s housing activity. With so many of them pushing to purchase by a deadline, it left a void in demand for the six weeks that followed the expiration. It wasn’t until the past two weeks when the normal housing pattern for Orange County reemerged. Earlier in the year, the market followed a normal pattern as well, until March and April. Demand grew by 30% in those two months, and then subsequently, dropped almost 22% in May and June. Demand, the number of new pending sales over the prior month, decreased by 60 in the past two weeks and now totals 3,107. For the second report in a row, demand is less than the prior year with 522 fewer pending sales compared to 2009. From here, demand typically falls in the next two weeks and then climbs at the end of July. With the distraction of the Fourth of July weekend coming up, that sounds fairly accurate.
Active Listing Inventory: The inventory has continued to grow unabated since the beginning of the year.
Last year the inventory dropped by 36%. This year, however, the Orange County housing inventory has grown by 3,034 homes, a 43% increase. In the past two weeks, the inventory has grown by 345 homes, a 3% increase, and now totals 10,469. This is also the second report in a row where the inventory is higher than last year. Last year the inventory was at 9,188 homes, 1,274 fewer than today. The drop in demand is partially to blame for the increase in the inventory, but keep in mind that it was still increasing unabated when demand was at its highest level in years. We have also heard that the market is really hot in lower price ranges, which is true, just ask any buyer. However, all ranges have experienced an increase in inventory, especially homes between $250,000 and $1 million. For homes priced between $500,000 and $750,000, the inventory has increased by 60%. The reason for the increase in inventory is because there are many homeowners who have held off on selling their home, pent up sellers, who have been waiting for the market to turn so that they could take advantage of the market and sell their home. Homeowners have heard about the hot market in the lower ranges with a lot of activity, multiple offers and homes selling for very close to their asking prices, and in many cases, above their asking prices. The problem is that many of these pent up homeowners are placing their homes on the market at unrealistic levels, thousands above the most recent comparable and pending sales. Buyers in today’s market have become “spreadsheet buyers,” pouring over the comparables and not wanting to pay much more than the last buyer. With demand hot, many are willing to pay a bit of a premium to purchase their dream home, but more along the lines of an extra $5,000, not $15,000 or more. As long as the overall economy’s health is in limbo and more distressed homes are hitting the market, buyers are unwilling to pay an extravagant premium to own a home. As a seller, it is imperative to carefully consider all recent comparable sales, taking into account location and amenities, and price accordingly. Then, listen carefully to how the market responds to your home and make any necessary adjustments.
Foreclosures and Short Sales: Since October 1, 2009, the distressed inventory has grown by 37%.
The active distressed inventory has increased from 2,346 homes on October 1st and now totals 3,217, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,919 distressed homes on the market, representing 32% of the active inventory. The number of foreclosures within the active listing inventory increased by 29 homes in the past two weeks from 530 to 559. The expected market time for foreclosures is 1.52 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 108 homes over the past two weeks and now total 2,658. The expected market time for short sales is 2.28 months, still a HOT seller’s market.
Interest Rates: Interest rates are at a 60 year low and will NOT last.
Everybody is so focused on price and the current historically low interest rates have become an expected part of our real estate market. However, with all of the money that the Federal government has poured into our economy, there is a real threat of major inflation on the horizon. One of the only ways to counter the threat is to raise rates. Due to the lackluster economy, the Federal Reserve is currently stuck and unable to raise rates in the short run, but sooner or later they will be forced to make a change. Rates are predicted to increase to 6% over the course of the next year. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in a drop in home affordability from $590,000 to $540,000, a $50,000 drop. Buyers waiting for that “good buy” may find it next year, but at a price, with higher rates and a larger monthly payment.
Housing Demand: Over the last 5 years the average drop in demand was 3.2%, this year it was only 2%.
Whatever the reason, the end of school, graduation, the start of summer, demand cyclically drops at this time of year. The only difference this time around is that demand had already dropped 20% due to the end of the Federal first time home buyer tax credit. When demand reached 3,979 pending sales on April 29th, the height for 2010, and the highest threshold in almost five years, there was a rush to purchase by first time home buyers. That segment accounted for 25% of Orange County’s housing activity. With so many of them pushing to purchase by a deadline, it left a void in demand for the six weeks that followed the expiration. It wasn’t until the past two weeks when the normal housing pattern for Orange County reemerged. Earlier in the year, the market followed a normal pattern as well, until March and April. Demand grew by 30% in those two months, and then subsequently, dropped almost 22% in May and June. Demand, the number of new pending sales over the prior month, decreased by 60 in the past two weeks and now totals 3,107. For the second report in a row, demand is less than the prior year with 522 fewer pending sales compared to 2009. From here, demand typically falls in the next two weeks and then climbs at the end of July. With the distraction of the Fourth of July weekend coming up, that sounds fairly accurate.
Active Listing Inventory: The inventory has continued to grow unabated since the beginning of the year.
Last year the inventory dropped by 36%. This year, however, the Orange County housing inventory has grown by 3,034 homes, a 43% increase. In the past two weeks, the inventory has grown by 345 homes, a 3% increase, and now totals 10,469. This is also the second report in a row where the inventory is higher than last year. Last year the inventory was at 9,188 homes, 1,274 fewer than today. The drop in demand is partially to blame for the increase in the inventory, but keep in mind that it was still increasing unabated when demand was at its highest level in years. We have also heard that the market is really hot in lower price ranges, which is true, just ask any buyer. However, all ranges have experienced an increase in inventory, especially homes between $250,000 and $1 million. For homes priced between $500,000 and $750,000, the inventory has increased by 60%. The reason for the increase in inventory is because there are many homeowners who have held off on selling their home, pent up sellers, who have been waiting for the market to turn so that they could take advantage of the market and sell their home. Homeowners have heard about the hot market in the lower ranges with a lot of activity, multiple offers and homes selling for very close to their asking prices, and in many cases, above their asking prices. The problem is that many of these pent up homeowners are placing their homes on the market at unrealistic levels, thousands above the most recent comparable and pending sales. Buyers in today’s market have become “spreadsheet buyers,” pouring over the comparables and not wanting to pay much more than the last buyer. With demand hot, many are willing to pay a bit of a premium to purchase their dream home, but more along the lines of an extra $5,000, not $15,000 or more. As long as the overall economy’s health is in limbo and more distressed homes are hitting the market, buyers are unwilling to pay an extravagant premium to own a home. As a seller, it is imperative to carefully consider all recent comparable sales, taking into account location and amenities, and price accordingly. Then, listen carefully to how the market responds to your home and make any necessary adjustments.
Foreclosures and Short Sales: Since October 1, 2009, the distressed inventory has grown by 37%.
The active distressed inventory has increased from 2,346 homes on October 1st and now totals 3,217, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,919 distressed homes on the market, representing 32% of the active inventory. The number of foreclosures within the active listing inventory increased by 29 homes in the past two weeks from 530 to 559. The expected market time for foreclosures is 1.52 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 108 homes over the past two weeks and now total 2,658. The expected market time for short sales is 2.28 months, still a HOT seller’s market.
Interest Rates: Interest rates are at a 60 year low and will NOT last.
Everybody is so focused on price and the current historically low interest rates have become an expected part of our real estate market. However, with all of the money that the Federal government has poured into our economy, there is a real threat of major inflation on the horizon. One of the only ways to counter the threat is to raise rates. Due to the lackluster economy, the Federal Reserve is currently stuck and unable to raise rates in the short run, but sooner or later they will be forced to make a change. Rates are predicted to increase to 6% over the course of the next year. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in a drop in home affordability from $590,000 to $540,000, a $50,000 drop. Buyers waiting for that “good buy” may find it next year, but at a price, with higher rates and a larger monthly payment.
Tuesday, May 4, 2010
Orange County Housing Report: End of Credit Won’t End Demand
At the stroke of midnight on April 30th the Federal first time home buyer tax credit will end, but there is just too much demand for it to spell the end to demand. Everybody within the real estate trenches, blogs and media have been looking to the end of the tax credit like the infamous Y2K predictions of a little more than decade ago. Remember those days? I had a neighbor who bought a trash can from the local hardware store and filled it with bottled water and canned goods claiming that the end of life as we knew it was upon us. Governments, banks, power companies, airports, traffic systems and more were all supposed to fail on the first day of the year 2000. Nothing really happened. For Orange County real estate, the end of the tax credit is not going to have much of an impact either. Don’t get me wrong; all of the government stimulus has definitely had a profound impact of the real estate market right in our very own backyard; however, it is time to move on. The program has to end sometime and it might as well be during the hottest time of the year, the Spring market. Yes, we have had buyers hurry to cash in on the credits, but there are enough first time home buyers that have been unsuccessful in purchasing thus far that will still be looking. The reports from the trenches are that these buyers are not about to do an about face and leave the market with their tales between their legs. More recently, many buyers saw the credit as a perk. The new California tax credit that starts this Monday is only going to last about a week due to the fact that only 17,500 first time home buyers in ALL of California will obtain the $10,000 credit (spread over three years) before the funds runs out. Yet, when California announced the credit about a month ago, demand was already hot. It did nothing to instigate more demand. The problem has been not enough supply in the lower ranges where first time home buyer activity is the greatest, not a lack of demand. Also, first time home buyer activity has been bumping along at about 25% of total activity. It is not going to drop significantly and there are plenty of non-first time home buyers in the marketplace as well.
Interest Rates: Rates are expected to rise which drops home affordability.
Buyers are motivated to purchase knowing that the expected rise in interest rates will ultimately make their payments go up. But, it is more than that. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in in home affordability from $590,000 to $540,000, a $50,000 drop. With the government no longer committing to purchasing pools of loans, which ended on March 31st, interest rates are expected to rise a full percent over the coming year.
Housing Demand: Demand has not seen these levels since June of 2005
Demand, the number of new pending sales over the prior month, increased by 231 homes over the prior two weeks and now totals 3,979, a 3% increase and the height thus far in 2010. Demand is 347 pending sales stronger than last year at this time and 1,439 stronger than two years ago. Demand should hit a plateau through the remainder of the Spring market.
Active Listing Inventory: The active inventory has continued its gradual climb and just reached levels not seen since June of last year.
Over the past two weeks, the inventory has increased by 174 homes to 9,351, a 2% increase. We started the year at 7,165 listings and have added 2,186 homes to the active inventory to date. Last year, the inventory continued to drop from mid-March to the New Year. The increase seems gradual, but when looked at since the beginning of the year, a 31% increase is pretty profound. Agents in the trenches are stating that there are more overpriced, unrealistic sellers placing their homes on the market. Prior to the start of the year I forecasted that the discretionary seller would return; however, if more and more homes are placed on the market at unrealistic values, the inventory will continue to rise. This rise in inventory could dampen demand. This is a trend that we will have to continue to watch. If you are a homeowner contemplating placing your home on the market much higher than the most recent comparable sales and pending activity, the current market will not support your line of thinking. Buyers are not willing to pay a sizeable sum extra for a home simply because there is more demand and more competition. There is just too much distress that remains in the market and the distressed market is keeping a lid on appreciation.
Expected Market Time: Every price range experienced a drop in the expected market time. The expected market time for all of Orange County dropped slightly from 2.45 months two weeks ago to 2.35 months today. Yet, there still are two distinct markets: homes priced below $1 million, HOT, and homes priced above $1 million COLD. It is important to note that the lower the range, the HOTTER the market. For homes priced below $500,000, the hottest range, the expected market time is 1.6 months. Compare that to homes priced above $4 million where the expected market time is a frigid 29.5 months.
Distressed Inventory: The number of active foreclosures increased while the number of active short sales decreased.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by only 9 homes in the past two weeks and now total 2,790, or 29.8% of the current active inventory. Last year at this time, there were 3,724 distressed homes on the market, representing 35.9% of the active inventory. The number of foreclosures within the active listing inventory increased by 38 homes in the past two weeks from 416 to 454. The expected market time for foreclosures is 1.12 months, an extremely HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, which requires lender approval, decreased by 29 homes over the past two weeks and now total 2,336. The expected market time for short sales is 1.53 months, also a HOT seller’s market. Everybody’s looking for a deal, so there’s a lot of competition in purchasing foreclosures and short sales.
Interest Rates: Rates are expected to rise which drops home affordability.
Buyers are motivated to purchase knowing that the expected rise in interest rates will ultimately make their payments go up. But, it is more than that. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in in home affordability from $590,000 to $540,000, a $50,000 drop. With the government no longer committing to purchasing pools of loans, which ended on March 31st, interest rates are expected to rise a full percent over the coming year.
Housing Demand: Demand has not seen these levels since June of 2005
Demand, the number of new pending sales over the prior month, increased by 231 homes over the prior two weeks and now totals 3,979, a 3% increase and the height thus far in 2010. Demand is 347 pending sales stronger than last year at this time and 1,439 stronger than two years ago. Demand should hit a plateau through the remainder of the Spring market.
Active Listing Inventory: The active inventory has continued its gradual climb and just reached levels not seen since June of last year.
Over the past two weeks, the inventory has increased by 174 homes to 9,351, a 2% increase. We started the year at 7,165 listings and have added 2,186 homes to the active inventory to date. Last year, the inventory continued to drop from mid-March to the New Year. The increase seems gradual, but when looked at since the beginning of the year, a 31% increase is pretty profound. Agents in the trenches are stating that there are more overpriced, unrealistic sellers placing their homes on the market. Prior to the start of the year I forecasted that the discretionary seller would return; however, if more and more homes are placed on the market at unrealistic values, the inventory will continue to rise. This rise in inventory could dampen demand. This is a trend that we will have to continue to watch. If you are a homeowner contemplating placing your home on the market much higher than the most recent comparable sales and pending activity, the current market will not support your line of thinking. Buyers are not willing to pay a sizeable sum extra for a home simply because there is more demand and more competition. There is just too much distress that remains in the market and the distressed market is keeping a lid on appreciation.
Expected Market Time: Every price range experienced a drop in the expected market time. The expected market time for all of Orange County dropped slightly from 2.45 months two weeks ago to 2.35 months today. Yet, there still are two distinct markets: homes priced below $1 million, HOT, and homes priced above $1 million COLD. It is important to note that the lower the range, the HOTTER the market. For homes priced below $500,000, the hottest range, the expected market time is 1.6 months. Compare that to homes priced above $4 million where the expected market time is a frigid 29.5 months.
Distressed Inventory: The number of active foreclosures increased while the number of active short sales decreased.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by only 9 homes in the past two weeks and now total 2,790, or 29.8% of the current active inventory. Last year at this time, there were 3,724 distressed homes on the market, representing 35.9% of the active inventory. The number of foreclosures within the active listing inventory increased by 38 homes in the past two weeks from 416 to 454. The expected market time for foreclosures is 1.12 months, an extremely HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, which requires lender approval, decreased by 29 homes over the past two weeks and now total 2,336. The expected market time for short sales is 1.53 months, also a HOT seller’s market. Everybody’s looking for a deal, so there’s a lot of competition in purchasing foreclosures and short sales.
Friday, April 16, 2010
Orange County Housing Report: This Market is Taxing
Talk to an Orange County buyer, especially a first time home buyer, and you will quickly find that the real estate market is simply crazy. Let’s first establish that there are two different markets, below $1 million, HOT, and above $1 million, COLD. The below $1 million market accounts for 77% of the total active inventory and 94% of demand. The lower the range, the hotter the market. Most buyers new to the market have already formed an incorrect idea of the real estate market. They think that the market is plagued with desperate sellers waiting for a buyer to finally write an offer to purchase at a major discount and an incredible “deal” for the buyer. Instead, new, fresh inventory is scarce and buyers find that they are competing for anything half way decent that hits the market. Properties that are priced well and are in good condition garner tremendous attention and procure mulitple offers. Writing a purchase offer at the list price only to lose to three other buyers that brought in offers above the list price is common. Sales prices above list prices are common. First time home buyers losing out on properties to investors with larger down payments is common. The reality is that if a buyer is looking to bargain and negotiate, they are better off attending the local weekend swap meet. Remember, values of homes have already dropped significantly, 35% or more. Some economists have argued that values have dropped below where they should be today, which is often the case in real estate downturns. So, homes are already heavily discounted from where they were a few years ago. Home affordability has returned to the Orange County real estate market. Interest rates are still at historical lows. Throw in buyer income tax credits and we have all of the ingredients for a major seller’s market. Buyers entering the fray in today’s market get a real quick dose of reality and, if they really want to buy, sharpen their pencils real fast. In the lower ranges and in hotter areas, homes are starting to sell for more than the last comparable sale. The only thing that is keeping values from taking off like they did before is the distressed inventory.
Housing Demand: Demand has not seen these levels since the beginning of August 2005.
Demand, the number of new pending sales over the prior month, increased by 126 homes over the prior two weeks and now totals 3,748, a 3% increase and the height thus far in 2010. Last year’s height in demand was reached in June at 3,652 pending sales. Demand is 195 pending sales stronger than last year at this time and 1,374 stronger than two years ago. It seems as if demand is beginning to hit a plateau, so we will have to watch and see if that trend continues over the coming weeks.
Developing Trends: The active listing inventory has continued to gradually increase after bottoming at the beginning of the year.
Over the past two weeks, the inventory has increased by 266 homes to 9,177. We started the year at 7,165 listings and have added 2,012 homes to the active inventory thus far. Last year, the inventory continued to drop from mid-March to the New Year. Towards the end of last year, the drop was probably more in line with the cyclical drop in the inventory that starts in September until the end of the year. Naturally, during the beginning of the year and into the Spring market, more and more homeowners place their homes on the market in anticipation of the strongest time of the year to sell, the Spring market. In 2006 and 2007, homeowners often tested the market and attempted to obtain values above the current fair market value. There were a ton of overpriced listings that remained on the market and were not successful in ever selling. Instead, they just clogged the inventory and it methodically grew, reaching a height in August 2007 of just shy of 18,000 listings. In 2008 and 2009, homeowners no longer tested the market and the discretionary seller emerged. During the second half of 2009, the Orange County active listing inventory continued to shed homes and not as many new, fresh homes were placed on the market. REALTORS® in the trenches were complaining of a lack of inventory and nothing “fresh” to show their buyers. We still here that there is a lack of inventory, but behind the scenes, the active inventory is slowly but surely replenishing in every price range. It remains to be seen if the trend in an increase in the active inventory continues. Will the discretionary homeowner return or will more and more homeowners place their toe in the water, testing the market? We will have to wait and see. There are currently 1,384 fewer homes on the market today than just one year ago and 6,379 fewer than two years ago.
Expected Market Time: The lower the range, the lower the expected market time.
The expected market time for all of Orange County is currently at 2.45 months, a slight drop from 2.46 months two weeks ago. For homes priced below $500,000, the expected market time is 1.63 months, a deep seller’s market. For homes priced between $500,000 and $1 million, the expected market time is 2.84 months, still a seller’s market. For homes priced above $1 million, the expected market time is 9.44 months, the higher the range, the slower the market. For homes priced above $4 million, the expected market time is 38.44 months, or over 3 years.
Distressed Inventory: Again, not much has changed in the distressed inventory.
The number of active distressed homes on the market, all short sales and foreclosures combined, decreased by 33 homes to 2,781 and represent 30.3% of the active inventory. Last year at this time, there were 4,006 distressed homes on the market, representing 37.9% of the active inventory. The number of foreclosures within the active listing inventory decreased by two homes in the past two weeks from 418 to 416. Yes, that is correct. With all of the talk of foreclosures there are only 416 on the market in all of Orange County. The expected market time for foreclosures is 1.01 months. Short sales is a different story; there are plenty of short sales in Orange County. Short sales are where a homeowner attempts to sell a home for less than the total outstanding loans against the home, which requires the lender (or lenders in many cases) to approve the short sale, indicating their willingness to take less than the full payoff of a loan. Most short sales are not fast like their name would indicate and, on average, take months to close. The number of short sales within the active listing inventory decreased by 31 and now total 2,365. The expected market time for short sales is 1.61 months, also a HOT seller’s market. Everybody’s looking for a deal, so foreclosures and short sales tend to fly off of the market.
The Most Absurd Tax Credit EVER: The latest tax credit for first time homebuyers in California is going to run out in mid-May.
I am still scratching my head trying to understand why California approved $100 million towards a first time homebuyer tax credit. These are for transactions that close escrow on or after May 1, 2010. The $10,000 credit is spread out over three years. So, when will the $100 million run out? For every buyer, the state is counting $5,700 against the $100 million. That equates to 17,543 first time home buyers. Based upon the current wave of first time home buyer activity, the credit is forecasted to last less than two weeks. And, if there are buyers that are supposed to closed at the end of this month and are looking to delay closing until after May 1st, the credit may end even sooner.
Housing Demand: Demand has not seen these levels since the beginning of August 2005.
Demand, the number of new pending sales over the prior month, increased by 126 homes over the prior two weeks and now totals 3,748, a 3% increase and the height thus far in 2010. Last year’s height in demand was reached in June at 3,652 pending sales. Demand is 195 pending sales stronger than last year at this time and 1,374 stronger than two years ago. It seems as if demand is beginning to hit a plateau, so we will have to watch and see if that trend continues over the coming weeks.
Developing Trends: The active listing inventory has continued to gradually increase after bottoming at the beginning of the year.
Over the past two weeks, the inventory has increased by 266 homes to 9,177. We started the year at 7,165 listings and have added 2,012 homes to the active inventory thus far. Last year, the inventory continued to drop from mid-March to the New Year. Towards the end of last year, the drop was probably more in line with the cyclical drop in the inventory that starts in September until the end of the year. Naturally, during the beginning of the year and into the Spring market, more and more homeowners place their homes on the market in anticipation of the strongest time of the year to sell, the Spring market. In 2006 and 2007, homeowners often tested the market and attempted to obtain values above the current fair market value. There were a ton of overpriced listings that remained on the market and were not successful in ever selling. Instead, they just clogged the inventory and it methodically grew, reaching a height in August 2007 of just shy of 18,000 listings. In 2008 and 2009, homeowners no longer tested the market and the discretionary seller emerged. During the second half of 2009, the Orange County active listing inventory continued to shed homes and not as many new, fresh homes were placed on the market. REALTORS® in the trenches were complaining of a lack of inventory and nothing “fresh” to show their buyers. We still here that there is a lack of inventory, but behind the scenes, the active inventory is slowly but surely replenishing in every price range. It remains to be seen if the trend in an increase in the active inventory continues. Will the discretionary homeowner return or will more and more homeowners place their toe in the water, testing the market? We will have to wait and see. There are currently 1,384 fewer homes on the market today than just one year ago and 6,379 fewer than two years ago.
Expected Market Time: The lower the range, the lower the expected market time.
The expected market time for all of Orange County is currently at 2.45 months, a slight drop from 2.46 months two weeks ago. For homes priced below $500,000, the expected market time is 1.63 months, a deep seller’s market. For homes priced between $500,000 and $1 million, the expected market time is 2.84 months, still a seller’s market. For homes priced above $1 million, the expected market time is 9.44 months, the higher the range, the slower the market. For homes priced above $4 million, the expected market time is 38.44 months, or over 3 years.
Distressed Inventory: Again, not much has changed in the distressed inventory.
The number of active distressed homes on the market, all short sales and foreclosures combined, decreased by 33 homes to 2,781 and represent 30.3% of the active inventory. Last year at this time, there were 4,006 distressed homes on the market, representing 37.9% of the active inventory. The number of foreclosures within the active listing inventory decreased by two homes in the past two weeks from 418 to 416. Yes, that is correct. With all of the talk of foreclosures there are only 416 on the market in all of Orange County. The expected market time for foreclosures is 1.01 months. Short sales is a different story; there are plenty of short sales in Orange County. Short sales are where a homeowner attempts to sell a home for less than the total outstanding loans against the home, which requires the lender (or lenders in many cases) to approve the short sale, indicating their willingness to take less than the full payoff of a loan. Most short sales are not fast like their name would indicate and, on average, take months to close. The number of short sales within the active listing inventory decreased by 31 and now total 2,365. The expected market time for short sales is 1.61 months, also a HOT seller’s market. Everybody’s looking for a deal, so foreclosures and short sales tend to fly off of the market.
The Most Absurd Tax Credit EVER: The latest tax credit for first time homebuyers in California is going to run out in mid-May.
I am still scratching my head trying to understand why California approved $100 million towards a first time homebuyer tax credit. These are for transactions that close escrow on or after May 1, 2010. The $10,000 credit is spread out over three years. So, when will the $100 million run out? For every buyer, the state is counting $5,700 against the $100 million. That equates to 17,543 first time home buyers. Based upon the current wave of first time home buyer activity, the credit is forecasted to last less than two weeks. And, if there are buyers that are supposed to closed at the end of this month and are looking to delay closing until after May 1st, the credit may end even sooner.
Monday, March 22, 2010
Orange County Housing Report: Demand Springs Forward
With the return of Southern California sunshine and temperatures in the 70’s, Orange County demand is finally on the rise. Orange County is taking “Spring Forward” to a whole new level with an increase in demand for the first time in six weeks. Demand, the number of new pending sales over the prior month, increased by 216 homes over the prior two weeks and now totals 3,270, the highest level thus far in 2010. Demand is 600 pending sales stronger than last year at this time and 1,187 stronger than two years ago. After looking at developing trends, I had been wondering whether or not demand was going to surge or if it would ignore cyclical market fundamentals. It would not have been the first time that this downturn ignored the conventional Southern California housing cycle. Call it a coincidence, but now that the cool temperatures, clouds and rain have subsided, the Orange County housing market is revving its engine. There are a ton of buyers in the marketplace right now according to REALTORS® in the trenches. The current problem is surprisingly a LACK OF INVENTORY. The expected market time for all homes priced below $1 million is 2.23 months, a deep seller’s market with a very low inventory. These homes represent 78% of the active inventory and 94% of demand. But, for homes priced above $1 million, there is NOT a lack of inventory. Collectively, this range represents 22% of the active inventory but only 6% of demand. The expected market time is 8.99 months, a buyer’s market. To understand how the market has evolved since last year, let’s take a closer look and compare year over year changes in both the active inventory and demand: 
The inventory has dropped significanlty in every range. With the exception of homes priced below $250,000, demand is much stronger in every range. There just are not enough homes on the market in the lower ranges where demand is so incredibly hot. For the lowest range, less than $250,000, the inventory is down 43%, but demand is only off by 10%. It is no wonder that there are multiple offers and homes selling for above their asking prices in the lower ranges. More inventory would actually be welcomed with open arms by both buyers and their REALTORS®. These charts also illustrate how the “jumbo” market between $750,000 and $4 million has actually improved tremendously. Their expected market time has dropped significantly as well. For example, homes priced between $1 million and $1.5 million dropped from an expected market time last year of 16.21 months to 6.55 months today. 6.55 months may be a buyer’s market, but it is not frozen. Anytime the expected market time is above 10 months, double digits, there is just too much inventory and very little demand. Currently, only homes above $2 million have expected market times that are double digits. They represent 10% of the current active inventory, but only 2% of demand. The current market is much different than just one year ago. Just ask all of the buyers who are having trouble purchasing because of a lack in inventory.
How do the rest of the numbers look? The active inventory increased over the past two weeks by 330 homes, or 4%, to 8,776. The active inventory last year was at 11,606, 2,830 additional homes compared to today. Two years ago it was at 15,617, 6,841 additional homes. The overall expected market time for all of Orange County dropped from 2.77 two weeks ago to 2.68 months today. The total pending count, which includes homes that have been pending for months, increased from 6,869 two weeks ago to 7,049 today. That is the highest level since I started tracking total pendings back in September of 2006. This is primarily due to the mind-boggling number of short sales that are waiting for lender approval (short sales are homes where the outstanding loans exceed the market value of the home and are subject to the lender[s] agreeing to take less in order to close the sale). 4,250 of the 7,049 total pending sales are short sales, 60%. Yet, only 40% of current demand is made up of short sales. On average, short sales just do not close as fast. Instead, they clog the system and buyers are left on the edge of their seats wondering when they will ever be able to move into their new home.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 26 homes to 2,795 and now represent 31.8% of the inventory. Last year at this time, there were 4,673 distressed homes on the market, representing 40.3% of the active inventory. The number of foreclosures within the active listing inventory dropped by two homes in the past two weeks from 396 to 394. The expected market time for foreclosures is an astonishing 1.05 months, a deep seller’s market. Foreclosures are flying off of the market. The number of short sales within the active listing inventory increased by 28 and now total 2,401. The expected market time for short sales is 1.86 months, also a deep seller’s market.
The inventory has dropped significanlty in every range. With the exception of homes priced below $250,000, demand is much stronger in every range. There just are not enough homes on the market in the lower ranges where demand is so incredibly hot. For the lowest range, less than $250,000, the inventory is down 43%, but demand is only off by 10%. It is no wonder that there are multiple offers and homes selling for above their asking prices in the lower ranges. More inventory would actually be welcomed with open arms by both buyers and their REALTORS®. These charts also illustrate how the “jumbo” market between $750,000 and $4 million has actually improved tremendously. Their expected market time has dropped significantly as well. For example, homes priced between $1 million and $1.5 million dropped from an expected market time last year of 16.21 months to 6.55 months today. 6.55 months may be a buyer’s market, but it is not frozen. Anytime the expected market time is above 10 months, double digits, there is just too much inventory and very little demand. Currently, only homes above $2 million have expected market times that are double digits. They represent 10% of the current active inventory, but only 2% of demand. The current market is much different than just one year ago. Just ask all of the buyers who are having trouble purchasing because of a lack in inventory.
How do the rest of the numbers look? The active inventory increased over the past two weeks by 330 homes, or 4%, to 8,776. The active inventory last year was at 11,606, 2,830 additional homes compared to today. Two years ago it was at 15,617, 6,841 additional homes. The overall expected market time for all of Orange County dropped from 2.77 two weeks ago to 2.68 months today. The total pending count, which includes homes that have been pending for months, increased from 6,869 two weeks ago to 7,049 today. That is the highest level since I started tracking total pendings back in September of 2006. This is primarily due to the mind-boggling number of short sales that are waiting for lender approval (short sales are homes where the outstanding loans exceed the market value of the home and are subject to the lender[s] agreeing to take less in order to close the sale). 4,250 of the 7,049 total pending sales are short sales, 60%. Yet, only 40% of current demand is made up of short sales. On average, short sales just do not close as fast. Instead, they clog the system and buyers are left on the edge of their seats wondering when they will ever be able to move into their new home.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 26 homes to 2,795 and now represent 31.8% of the inventory. Last year at this time, there were 4,673 distressed homes on the market, representing 40.3% of the active inventory. The number of foreclosures within the active listing inventory dropped by two homes in the past two weeks from 396 to 394. The expected market time for foreclosures is an astonishing 1.05 months, a deep seller’s market. Foreclosures are flying off of the market. The number of short sales within the active listing inventory increased by 28 and now total 2,401. The expected market time for short sales is 1.86 months, also a deep seller’s market.
Friday, March 5, 2010
Orange County Housing Report: An Olympic Pause
National anthems, a record medal haul for the U.S., a spectacular gold medal hockey game, all great distractions of Olympic proportions, but we typically see a pause in Orange County housing demand at this time of year. Demand, the number of new pending sales over the prior month, dropped by 190 homes over the prior two weeks, now totaling 3,054. However, this is a cyclical anomaly in the data because February is such a short month. Had February been a normal month in length, demand would have remained unchanged from a couple of weeks ago. Demand is 430 pending sales stronger than last year at this time and 1,161 stronger compared to two years ago. There really has not been much change in the past
month, in terms of activity. The storyline remains the same: there are not enough homes coming on the market in the lower ranges to satiate the ravenous appetite of current demand. If a home is priced well and is below $750,000, it will fly off the market and generate more than one offer. I am asked over and over why there is so much demand. It is worth repeating over and over again until the general public is acutely aware of the current marketplace. Yes, there are a ton of distressed homes on the market. But, in the lower ranges, they are not eroding pricing any further. Values have already dropped at least 35%. Interest rates are low. There still is the first time home buyer’s tax credit, but its reach is not very far due to the lack of inventory and the fact that cash buyers, or buyers with larger down payments, are snatching up many of the homes that are hitting the market.
How do the rest of the numbers look? The active inventory increased over the past two weeks by 311 homes, or 4%, to 8,446. The active inventory last year was at 11,562, 3,116 additional homes compared to today. Two years ago it was at 15,412, 6,966 additional homes. With a drop in demand and an increase in the inventory, the expected market time increased from 2.51 months two weeks ago to 2.77 months today. At the current pace, the overall market continues to be a seller’s market without much appreciation at all. But, for those sellers in the higher ranges, DO NOT GET EXCITED about the overall numbers. In drilling down to specific ranges, the higher the price range, the slower the market. It is slow for all markets above $1 million. Above $2 million, the market is ice cold. The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 64 homes to 2,769. The number of foreclosures within the active listing inventory increased in the past two weeks from 380 to 396, a gain of 16. The expected market time for foreclosures is a mind numbing 1.14 months, a deep seller’s market. Foreclosures remain the hot ticket. The number of short sales within the active listing inventory increased by 48 and now totals 2,373. The expected market time for short sales is 1.91 months, also a hot ticket. There are 6,867 total pending sales in all of Orange County. Of those, 4,254 are short sales, 62%. Yet, only 27% of all closed residential resales in February were short sales. Most short sales are simply not closing. They are waiting on lender, or in many cases lenders, approval of the sale. Of the 4,254 pending short sales, only 757 have been pending for less than a month. 1,488 have been
pending for over three months. The data does not even capture the short sales where a frustrated buyer walks away after waiting too long. Those are placed back on the market and, often, after generating several offers, quickly become pending sales again.
So, where do we go from here? There are a lot of unknowns regarding the future of the economy, unemployment, a double dip, etc. All of the experts seem to enjoy the healthy debate, but opinions are all over the map. But, the Orange County housing market is trudging forward, regardless. First time homebuyers represent about 25% of all purchases and so do investors. I have also been asked where all of these first time homebuyers are coming from. Many of them are in their late twenties or early thirties and responsibly saved for a down payment, but simply could not afford to buy when prices reached their astronomical heights several years back. They were priced out of the market for years and did not jump into the market until prices dropped to a very attractive level along with interest rates. Current demand is strong. The market would appear even stronger in if all of the short sales that are pending would close. That will change as more short sales are approved as 2010 rolls along. The federal government now wants the big banks to modify loans first. If that does not work out, then they want the big banks to go the short sale route. Foreclosing is only a last resort. As March rolls along and the spring officially begins, we can expect more homes to hit the market and demand to increase. The listing inventory will increase slightly due to more and more higher priced properties hitting the market where demand is not strong enough to keep up with the increased flow. The lower ranges will remain feverish.
month, in terms of activity. The storyline remains the same: there are not enough homes coming on the market in the lower ranges to satiate the ravenous appetite of current demand. If a home is priced well and is below $750,000, it will fly off the market and generate more than one offer. I am asked over and over why there is so much demand. It is worth repeating over and over again until the general public is acutely aware of the current marketplace. Yes, there are a ton of distressed homes on the market. But, in the lower ranges, they are not eroding pricing any further. Values have already dropped at least 35%. Interest rates are low. There still is the first time home buyer’s tax credit, but its reach is not very far due to the lack of inventory and the fact that cash buyers, or buyers with larger down payments, are snatching up many of the homes that are hitting the market.How do the rest of the numbers look? The active inventory increased over the past two weeks by 311 homes, or 4%, to 8,446. The active inventory last year was at 11,562, 3,116 additional homes compared to today. Two years ago it was at 15,412, 6,966 additional homes. With a drop in demand and an increase in the inventory, the expected market time increased from 2.51 months two weeks ago to 2.77 months today. At the current pace, the overall market continues to be a seller’s market without much appreciation at all. But, for those sellers in the higher ranges, DO NOT GET EXCITED about the overall numbers. In drilling down to specific ranges, the higher the price range, the slower the market. It is slow for all markets above $1 million. Above $2 million, the market is ice cold. The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 64 homes to 2,769. The number of foreclosures within the active listing inventory increased in the past two weeks from 380 to 396, a gain of 16. The expected market time for foreclosures is a mind numbing 1.14 months, a deep seller’s market. Foreclosures remain the hot ticket. The number of short sales within the active listing inventory increased by 48 and now totals 2,373. The expected market time for short sales is 1.91 months, also a hot ticket. There are 6,867 total pending sales in all of Orange County. Of those, 4,254 are short sales, 62%. Yet, only 27% of all closed residential resales in February were short sales. Most short sales are simply not closing. They are waiting on lender, or in many cases lenders, approval of the sale. Of the 4,254 pending short sales, only 757 have been pending for less than a month. 1,488 have been
pending for over three months. The data does not even capture the short sales where a frustrated buyer walks away after waiting too long. Those are placed back on the market and, often, after generating several offers, quickly become pending sales again.So, where do we go from here? There are a lot of unknowns regarding the future of the economy, unemployment, a double dip, etc. All of the experts seem to enjoy the healthy debate, but opinions are all over the map. But, the Orange County housing market is trudging forward, regardless. First time homebuyers represent about 25% of all purchases and so do investors. I have also been asked where all of these first time homebuyers are coming from. Many of them are in their late twenties or early thirties and responsibly saved for a down payment, but simply could not afford to buy when prices reached their astronomical heights several years back. They were priced out of the market for years and did not jump into the market until prices dropped to a very attractive level along with interest rates. Current demand is strong. The market would appear even stronger in if all of the short sales that are pending would close. That will change as more short sales are approved as 2010 rolls along. The federal government now wants the big banks to modify loans first. If that does not work out, then they want the big banks to go the short sale route. Foreclosing is only a last resort. As March rolls along and the spring officially begins, we can expect more homes to hit the market and demand to increase. The listing inventory will increase slightly due to more and more higher priced properties hitting the market where demand is not strong enough to keep up with the increased flow. The lower ranges will remain feverish.
Saturday, February 20, 2010
Orange County Housing Report: Short Sales Clog the System
Short sales, sales of homes for less than what is owed on the mortgage, are creating a backlog of pending sales that take FOREVER to close. 2010 is going to be the year of the short sale. With an enormous glut of foreclosures in 2008, the Federal government stepped in and in 2009 virtually strong armed big lenders to modify loans. The problem is that not everybody qualifies for a loan modification and many successful loan modifications default again on their loans down the road. Yet, there are still a tremendous number of homeowners in trouble. Both the government and banks are in agreement, that they don’t want to foreclose unless there is virtually no other alternative. And, there is a better alternative, short sales. There are many advantages to short sales for the homeowner; including, the ability to purchase again sooner. For the lender, they get to take advantage of pride in homeownership, the homes are not dilapidated and, unlike foreclosures, do not require thousands of dollars to fix nor do they have significant holding costs. So, at the end of November 2009, the US Treasury put together a short sale directive that outlines a new process that begins on April 5, 2010, for all Fannie Mae and Freddie Mac loans. In the interim, lenders have been scrambling to address the new program and modify their current processes that have been ineffective thus far. Currently, the short sale process is NOT working and has resulted in a deluge of pending sales that take forever to close. There are currently 6,706 outstanding pending sales in all of Orange County. Of those, 4,154, or 62%, are short sales. The problem is that almost 70% have been pending for over one month. Many have been pending for months. The reason these do not close within a short period of time is because they require lender approval. And, if there is a second loan, the process is even longer. Throw in the fact that many short sale homeowners have stopped paying their homeowner association dues, and they too have to sign off on the deal if they are obtaining less than what is owed. Often, the buyer of a pending short sale grows so frustrated that they cancel and look elsewhere. The short sale is then placed back on the market and is often placed right back into pending status in a short period of time, and the wait for lender approval continues. With short sales, the buyer, seller and offer must all qualify. The buyer must qualify for the new loan. The seller must qualify to obtain the short sale; there must truly be a hardship. Finally, the offer to purchase must be at or near fair market value. With demand so hot, lenders are taking a closer look at value and not willing to sell at a major discount. The current process for short sales is an absolute crapshoot. Real estate agents, buyers and sellers enter into a pending sale with no definitive timeline. Some lenders are better than others. Some second lenders are better than others. Some Realtors® are better than others. 2010 promises to be the year of the short sale. It is the year where a lot of the distressed backlog, often referred to as the “shadow inventory,” will finally be properly diminished in the form of short sales. Yes, there will still be foreclosures. Some short sales simply will not go together. Some homeowners will just walk away from their obligations. But, banks and the government have their sights set on going the short sale route. It is in everybody’s best interest. Buyers, sellers and agents have had their sights set on short sales for about a year and half now. If you are skeptical, just take a look at the following chart, the number of short sales versus foreclosures in Orange County:
As 2010 rolls along, the process is going to get better and better. It will not be perfect, but it will be better than it is right now. Short sales will finally result in more successful closed sales.
So, how do the rest of the numbers look? The active inventory increased over the past two weeks by 278 homes, or 4%, to 8,135. The active inventory last year was at 11,541, 3,406 additional homes compared to today. Two years ago it was at 15,392, 7,257 additional homes. Demand, the number of new pending sales over the prior 30-days, decreased by 4 to 3,244. There are 425 additional pending sales compared to last year and 1,424 compared to two years ago. Demand typically rises at a quicker pace in the middle of February, so we will have to see if this trend continues. Part of the problem is that there simply is not a lot of new inventory coming on the market. The biggest complaint from agents down in the trenches is that they need fresh inventory for the many buyers that they are working. The expected market time for all price ranges in Orange County increased slightly from 2.42 months two weeks ago to 2.51 months today. At the current pace, the overall market is a seller’s market without much appreciation at all. The number of distressed homes within the Orange County housing market is keeping a lid on appreciation. On the other hand, the higher end price ranges are experiencing a deep buyer’s market, the higher the price range, the deeper the buyer’s market. The hottest price range is homes priced between $250,000 and $500,000, with an expected market time of 1.75 months. Contrast that with homes priced above $4 million with an expected market time of 33.89 months. The active distressed home market, all short sales and foreclosures combined, increased by 54 homes to 2,705. The number of foreclosures within the active listing inventory increased in the past two weeks from 377 to 380, a gain of only three. The expected market time for foreclosures is a sizzling 0.95 months, a deep seller’s market. Foreclosures are HOT. The number of short sales within the active listing inventory increased by 54 and now totals 2,705. The expected market time for short sales is 1.68 months, also a deep seller’s market. There are a lot more short sales than foreclosures. In 2010, short sales will be KING.
As 2010 rolls along, the process is going to get better and better. It will not be perfect, but it will be better than it is right now. Short sales will finally result in more successful closed sales.So, how do the rest of the numbers look? The active inventory increased over the past two weeks by 278 homes, or 4%, to 8,135. The active inventory last year was at 11,541, 3,406 additional homes compared to today. Two years ago it was at 15,392, 7,257 additional homes. Demand, the number of new pending sales over the prior 30-days, decreased by 4 to 3,244. There are 425 additional pending sales compared to last year and 1,424 compared to two years ago. Demand typically rises at a quicker pace in the middle of February, so we will have to see if this trend continues. Part of the problem is that there simply is not a lot of new inventory coming on the market. The biggest complaint from agents down in the trenches is that they need fresh inventory for the many buyers that they are working. The expected market time for all price ranges in Orange County increased slightly from 2.42 months two weeks ago to 2.51 months today. At the current pace, the overall market is a seller’s market without much appreciation at all. The number of distressed homes within the Orange County housing market is keeping a lid on appreciation. On the other hand, the higher end price ranges are experiencing a deep buyer’s market, the higher the price range, the deeper the buyer’s market. The hottest price range is homes priced between $250,000 and $500,000, with an expected market time of 1.75 months. Contrast that with homes priced above $4 million with an expected market time of 33.89 months. The active distressed home market, all short sales and foreclosures combined, increased by 54 homes to 2,705. The number of foreclosures within the active listing inventory increased in the past two weeks from 377 to 380, a gain of only three. The expected market time for foreclosures is a sizzling 0.95 months, a deep seller’s market. Foreclosures are HOT. The number of short sales within the active listing inventory increased by 54 and now totals 2,705. The expected market time for short sales is 1.68 months, also a deep seller’s market. There are a lot more short sales than foreclosures. In 2010, short sales will be KING.
Monday, January 25, 2010
Orange County Housing Report: Regardless of the Rain, the Market is Heating Up
Buyers have jumped right back into the real estate market, not missing a beat since shaking off the holiday cobwebs. What in the world is going on with Orange County’s hot real estate market? First, it is not just Orange County, it is a Southern California phenomena. There are many skeptics and naysayers who believe that the hot market is temporary and totally propped up by the government. Many point to the tax credit, or the low interest rates to explain away the current hot demand. Others point to the pending “shadow inventory” of foreclosures that lurks around the corner and will destroy demand (I dealt with the shadows in detail two weeks ago). With the government potentially ending their purchase of Freddie Mac and Fannie Mae loans, interest rates are going to go through the roof and slaughter demand, according to the skeptics. They talk about a double dip and they are not referring to a soft serve ice cream cone dipped twice in chocolate. I heard recently that the real estate market is starting to inflate into a new bubble. The moral to the story: you don’t have to look very far to find somebody beating down the real estate market. There’s almost a perverse group of people out there that want to see the demise of real estate and values drop to 1995 levels. Bearish blogs and emails with web links to pessimistic articles abound. Those that labeled real estate a bubble back in 2005 were right. Values have dropped substantially. Foreclosures and short sales have flourished. But, what the current naysayers are missing is that values have dropped to levels that have improved affordability substantially. First time home buyers have come out of the woodwork. Interest rates have dropped to ridiculously low levels. Investors have reemerged. Interest rates will increase this year, but that will help reel in current rampant demand. Even though the government is stating that the end of their mortgage purchases is coming, they will not let rates increase much past 6%. They will purchase if they need to, but they do want to see that financial investors reemerge to some degree. And, let’s keep the current interest rates in perspective. They were at 17% in 1980, 10% in 1990, and 8% in 2000. 5% rates have helped resurrect the market, but they can float up and we will still have demand. It’s the incredible drop in prices that has fueled demand. In looking at long term data, values have dropped too much from where they should be today. They were way too high back in 2005, but they are too low in 2010. Does that mean that Orange County real estate is going to appreciate this year? Not with so many distressed properties on the market. Distressed properties are keeping a lid on appreciation for now. Don’t get me wrong; the tax credit has helped fuel demand. So have lower interest rates and government programs. But, basic economics always prevail. As prices fall, demand increases. They eventually fall to a point where demand begins to surge. This surge places a bottom on the drop in values. In the lower ranges, prices have bottomed (and in some really hot areas are actually increasing). Currently, there is almost too much demand. Showing a buyer a home in the lower ranges today is just like the heydays of 2004 and 2005. The problem is that there just is not enough inventory.
So, how do the rest of the numbers look: The active inventory increased over the past two weeks by 387 homes, or 5%, to 7,680. The active inventory last year was at 11,560, 3,880 additional homes compared to today. Two years ago it was at 15,245, 7,565 additional homes.
The current increase is typical for this time of year now that the holidays are behind us. We are at the beginning stages of developing the Spring market. Over the past two weeks demand, the number of new pending sales over the prior month, increased by 12% to 2,547. The Orange County housing market has not seen demand this strong at this point of the New Year since 2004. Last year’s demand was at 2,146, 401 fewer than today. Two years ago it was at 1,219,
1,328 fewer than today. The expected market time is currently at 3.02 months, a slight change from the 3.22 month mark posted two weeks ago. The current OC real estate is essentially made up of three very different real estate markets: - MARKET 1: the below $1 million market. A vast majority of the market is below $1 million. This market represents 77% of the active listing inventory and 93% of current demand. The expected market time for homes priced below $1 million is 2.5 months, a seller’s market with multiple offers that fetch sales above their asking prices. This is especially true below $750,000. This market is sizzling.
- MARKET 2: between $1 million and $1.5 million. This market represents 8% of the current active inventory and 4% of current demand. The expected market time is 5.73 months, which is just about at equilibrium. This market is all about price. Sellers that overprice their homes will sit. Buyers can afford to be more patient, but distressed properties that are priced well are snapped up quickly. This market is tepid.
- MARKET 3: homes priced above $1.5 million. This market represents 15% of the current active inventory, yet only 3% of demand. The expected market time is 18 months. Anything above 10 months is virtually at a standstill, a deep buyer’s market. This market is frozen.
Over the past two weeks the distressed inventory increased by 118 homes to 2,673, levels last seen in July of last year. The number of foreclosures actually dropped from 375 to 355. The expected market time for foreclosures is an unbelievable 0.94 months, a deep seller’s market. If you are a buyer interested in a foreclosure, sharpen your pencil. The number of short sales on the active inventory increased by 138 and now totals 2,318. As I forecasted last month, short sales are going to by KING in 2010. The expected market time for short sales is 2.17 months, also a seller’s market. These too require buyers to sharpen their pencils prior to bringing in an offer to purchase. 34.8% of the active inventory is distressed. Last year at this time 44.2% of the inventory was distressed. Distressed properties are fueling demand as well.
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