Orange County Housing Report: A Holiday Pause

Christmas trees on cars, holiday office parties, full mall parking lots, as the season descends upon us, the Orange County real estate market follows a normal cyclycally slower path through the first couple of weeks of the New Year. Not much has changed over the last couple of weeks other than a drop in demand and the active inventory, typical for this time of year. It is cold outside, for Southern California, it has been raining, Orange County’s equivalent of snow, and there are plenty of holiday distractions. It is no wonder that fewer homes are coming on the market as buyer demand appreciably drops to lows last seen in February. It will take a couple of weeks into 2010 before buyers and sellers shake the cobwebs off and return their focus to real estate once again. Many are taking a break, as this real estate market is absolutely exhausting. Nothing is easy. Ask the buyers in the lower ranges that have written offer after offer with no success thus far. There is just way too much demand, especially below $750,000, and the buyer competition is fierce. Multiple offers are the norm. Losing to buyers with large down payments or all cash investors is the norm. It is frustrating to be a buyer in today’s market. Most buyers enter the Orange County market with totally different expectations, since all they hear about are homeowners in trouble, sellers upside down in their homes and falling property values. Yet, they get into the cars of Realtors®, and quickly come to the realization that the market is much different. It is actually a SELLER’s market, without massive appreciation. It is the short sales and foreclosures that are actually keeping values from appreciating. Demand is HOT, the inventories have fallen appreciably throughout this year, values have already dropped to affordable levels, interest rates are at historical lows, and the government has implemented tax credits for first time home buyers (and now moves up sellers). Today’s market reality is frustrating for buyers. It is no wonder that many buyers will take the holidays off, sit back and relax. It does not help that there simply is not enough new, fresh inventory hitting the market. This is primarily due to the notion that this is not the best time to sell a home. Many want to wait for what they think is the best time to sell a home, the Spring market, which starts after the Super Bowl. But, demand is still strong right now in the lower ranges. During the Spring market, there are more homeowners opting to place their homes on the market along with increased demand. It is actually a good time to market a home, especially if a seller is looking to move up and take advantage of the new tax credit.

So, how do the numbers look? Let’s start by taking a look at the biggest change in the past two weeks, demand. Demand, the number of new pending sales over the past month, dropped by 392 homes to 2,646, a 13% drop. Last year’s demand was 324 fewer and dropped 12% in two weeks. Two years ago there were 1,498 fewer and dropped by 8% in two weeks. The active listing inventory has not really changed much over the past couple of weeks, a 67 home drop to 7,588. We have not seen the active inventory at this low of a level since December 2005. That’s been the story of 2009. The Orange County real estate market has shed 4,254 homes since the beginning of the year, a 36% drop. The expected market time for all of Orange County increased in the past couple of weeks from 2.52 to 2.87 months. A rise in the expected market time is also cyclical through the end of the year. The expected market time last year was at 5.34 months and two years ago it was at 14.05 months. For homes priced below $1 million, the expected market time is 2.29 months. For homes priced between $1 million to $2 million, the expected market time is 7.64 months. That range represents 14% of the active listing inventory, but just 5% of demand. For homes priced above $2 million, the expected market time is 23.68 months. That range represents 12% of the active listing inventory and a meager 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, which includes all pending sales beyond 30-days, dropped by 355 homes to 6,391, the largest drop of the year. Now that more short sales are actually obtaining lender approval and are closing, the total pending count has started to drop after rising throughout the year. For the fourth time this year, and now three reports in a row, the number of distressed properties on the market increased, but only by 13 homes, or 0.5%. There are now 2,509 distressed homes on the market, 33% of the total active inventory. Last year 45% of the active inventory was distressed and two years ago it was at 23%. There are currently only 337 foreclosures in all of Orange County, an increase of 16 in the past two weeks. Foreclosures only represent 4% of the active listing inventory and have an expected market time of 0.93 months. Last year the expected market time was at 1.42 months. Foreclosures are exceptionally HOT and continue to sell well above their asking prices. There are currently 2,172 short sales on the active market, a decrease of 3 in the past two weeks. Short sales currently represent 29% of the active listing inventory. The expected market time for short sales is currently at 2.14 month versus 7.32 months one year ago. Homeowners with equity in their home now account for 67% of the current active inventory and 48% of demand.