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.

Orange County Housing Report: Short Sales are a Nightmare

Have you ever pedalled up a steep hill on your bicycle as a kid only to wonder if you were going to ever make it? That’s the same feeling that buyers, sellers and agents get in trying to arrive at a successful close date. Short sales are homes where the asking price is less than the outstanding loan amounts. These are subject to the lender’s approval. This takes anywhere from weeks to months. There is nothing short about a short sale. About a year ago, it was just about impossible for agents to show a short sale to a prospective buyer. Nine times out of ten, the short sale already had at least one offer on the home and submitted to the lender for approval. However, the home remained on the market as an active listing until the approval was received. So, agents would show their buyers home after home only to find out that most short sales already had an offer submitted, which amounted to a giant waste of everybody’s time. Agents then would contact every short sale to see if it was “really” available. This stemmed from the fact that an escrow is not opened until after lender approval. Escrow is not opened so that expenses are not incurred for any work completed. Inspections, homeowner association documentation, appraisals, etcetera, are all fee based and time sensitive and nobody is going to want to pick up the tab if a lender does not approve a file or if there are significant delays. The short sale data has been cleaned up over the course of the last year. It is mandatory for all offers that are submitted to a lender to be placed in “Backup Offer” status or “Pending Sale” status within the Multiple Listing Service. I used to reference the overstated active listing inventory and the understated pending sale statistics last year at this time. The data is still not perfect, but is much improved and easier for agents and buyers to look at homes. In response to so many short sales no longer counted as a part of the active listing inventory, the total pending sale inventory has blossomed. There are currently 6,838 total pending sales. 58% are short sales, only 8% are foreclosures and 33% are homeowners with equity. There are 3,703 pending sales that have been pending for more than one month. 76% are short sales, 5% are foreclosures and 19% are homeowners with equity. There are 2,132 pending sales that are have been pending for more than two months. A stunning 91% are short sales, 1% are foreclosures and 8% are homeowners with equity. Almost a third of the total pending sales count has been pending for more than two months and most are short sales. Even though more and more homeowners have defaulted on loans, lenders have not been foreclosing. As a result, the market has grown much hotter with an increase in successful short sales and a shift to more equity sellers. Here’s a breakdown:

The huge increase in pending short sales has not materialized as a huge increase in closed short sales. All of these numbers illustrate that dealing with short sales is like bicycling up a steep hill as a kid. Just because a buyer’s offers is accepted, if it is a short sale, it is going to take a long time to close escrow. Since short sales are distressed, their pricing attracts a lot of attention from buyers. Buyers can expect multiple offers in dealing with short sales. In the end, buyers have to move quickly and compete with other offers only to wait for a long period of time for the seller to obtain lender approval. Sometimes the process takes such a long time that the buyer walks away and looks for something else. Many move onto equity sellers. The Orange County real estate market and the entire state of California are at the mercy of lenders. The bottom line, the market is full of challenges and the short sale process makes the current real estate landscape even more challenging.

So, how do the rest of the numbers look? The market has continued to not change much over the past few months. Once again, the past two weeks are no exception. The active listing inventory decreased slightly by 30 homes over the past two weeks, totaling 7,719. That’s 5,539 fewer than last year and 9,514 fewer than two years ago. The inventory has dropped by 4,123 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year. Demand, the number of new pending sales within the past month, increased by 75 in the past couple of weeks to 3,241, a 2% increase. Last year’s demand was 684 fewer and two years ago was 1,946 fewer. The expected market time for all of Orange County decreased in the past couple of weeks from 2.48 to 2.38 months. The expected market time last year was at 5.18 months and two years ago it was at 13.31 months. For homes priced below $1 million, the expected market time is 1.87 months. For homes priced above $1 million, the expected market time is 8.79 months. That range represents 27% of the active listing inventory, but just 7% of demand. For only the second time this year, the number of distressed properties on the market increased. The distressed inventory increased by 73 homes, or 3%. 32% of the active inventory is distressed compared to 44% last year. There are currently only 339 foreclosures in all of Orange County, an increase of 25 in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.82 months. Last year the expected market time was at 1.22 months. Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. There are currently 2,123 short sales on the active market, an increase of 48 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 1.72 month versus 7.08 months one year ago (this number was grossly overstated as illustrated earlier). Homeowners with equity in their home now account for 68% of the current active inventory. If a buyer wants to avoid the many pitfalls of dealing with short sales and foreclosures, they should turn their attention to equity sellers.

Orange County Housing Report: Lack of Inventory is SPOOKY

Keeping with the cries for “trick or treat,” the Orange County housing market has its own eerie trick, an incredible lack of inventory for homes priced below $1 million. The other day I was asked what one thing spooks me the most about the real estate market right now and the crazy inventory was my answer. There is very little fresh, new inventory. The lower the range, the “spookier” it gets. Properties that are priced right and in great condition are flying off of the market with multiple offers and tremendous activity. Buyers new to the market are dumbfounded by all of the competition. Their expectations are of doom and gloom and the ability to “cherry pick” whatever home they are interested in AND at a discount. Yet, just about every agent has pockets filled with buyers who want to buy but have been unable to purchase after losing out on property after property. For most, it is not the first time home buyer credit that is motivating them, as it is set to expire at the end of November anyhow (there is an extension that is in the works though). Many buyers don’t even qualify for the credit due to income requirements. Affordability, low rates and a fear that rates will increase from their historically low levels has motivated people to jump into the market. On average, agents are writing several offers for every buyer. To top it off, investors are back in the real estate game and pushing out buyers with smaller down payments. FHA (Federal Housing Administration) financing allows for a small down payment, but buyers electing to utilize this program simply are finding it impossible to purchase. We have seen prices increasing in the lower ranges slightly, but distressed properties are keeping a lid on stronger appreciation. The "shadow inventory" of foreclosed properties sitting on the sidelines and not yet on the market due to foreclosure moratoriums, government intervention, or banks careful not to flood the market, has only compounded the problem of a lack of inventory. Even if the strategy were to change and more of the “shadow inventory” hit the market, demand is currently strong enough to quickly sop it up. However, buyers should not expect foreclosures to flood the market all at once, lenders and the government are not interested in eroding values further. Instead, when the market heats up in the spring we can probably expect an increase in foreclosure activity to parallel an increase in demand. This housing downturn has been full of surprises and this year's "spooky" twist has been an unexpected drop in the inventory.

So, how do the numbers look? The market really has not changed much over the past few months. The past two weeks are definitely no exception. There have been no surprises other than the continued descent in the housing inventory. The active listing inventory decreased by 174 homes over the past two weeks, totaling 7,749. We have not seen the inventory this low since the beginning of January 2006. That’s 5,041 fewer than last year and 9,705 fewer than two years ago. The inventory has dropped by 4,093 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year. Demand, the number of new pending sales within the past month, dropped by 31 in the past couple of weeks to 3,166, a 1% drop. Last year’s demand was 703 fewer and two years ago was 1,925 fewer. For the remainder of the year, as we enter the Holiday market, we can expect demand to continue to slowly drop as the distractions of Thanksgiving, unwrapping presents and ringing in a New Year sets in. The expected market time for all of Orange County decreased ever so slightly in the past couple of weeks from 2.48 to 2.45 months. The expected market time last year was at 5.19 months and two years ago it was at 14.06 months. That’s correct. The current expected market time for the entire market, including the sluggish upper end, is two-and-a-half months. For homes priced below $1 million, the expected market time is 1.89 months. For homes priced above $1 million, the expected market time is 9.27 months. That’s because that range represents 29% of the active listing inventory, BUT just 8% of demand. There is actually okay activity up to $2 million, nothing to write home about, but some movement. For the 1,039 homes priced above $2 million, the expected market time is in the double digits, a crawl. After increasing for the first time this year two weeks ago, the number of distressed properties on the market decreased by 9 homes. 31% of the active inventory is distressed compared to 43% last year. There are currently only 314 foreclosures in all of Orange County, a decrease of eight in the past two weeks. The numbers have not really changed much since July. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.69 months. Last year the expected market time was at 1.22 months. Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. Buyers should be aware that it is a feeding frenzy out there for foreclosures. Realistic expectations are that the more qualified borrower able to bring in a strong offering price is going to ultimately prevail. Buyers with smaller down are going to find it difficult to compete. There are currently 2,075 short sales on the active market, a decrease of just one home in the past two weeks. Short sales currently represent 27% of the active listing inventory, a major player in today’s marketplace. The expected market time for short sales is currently at 1.85 month versus 6.92 months one year ago. Remember, there is nothing “short” about a short sale. Short sales, where the homeowner owes more than the home is worth, are subject to loan approval and can take anywhere from weeks to months to secure that approval.