Orange County Housing Report: Housing Demand is Back!

For the Orange County housing market, the Super Bowl typically marks the largest increases in housing demand.

A Normal Housing Cycle: Demand may not quite be at where it was in the mid-2000’s, but it is finally following a normal cyclical pattern.
Absent housing rebates, the real estate market is finally functioning on its own. It is easier to gauge where the market is heading. Demand is not being propped up like it was last year in the spring or 2009 in the winter with the first time home buyer tax credits. So, what does a “normal” housing cycle mean to Orange County? After taking down the holiday decorations, stuffing them into their corresponding boxes and then putting them away in the attic, everybody has been able to turn their attention to life as usual. That includes the return of buyer demand. Demand surges at the end of January, levels off in February and then swells to its highest point of the year from March through May, the spring market. At the same time, many sellers know it’s the best time of the year to sell, so a larger number of homeowners place their homes on the market. WARNING TO SELLERS: just because it is the best time of the year to sell, that does NOT mean that buyers are willing to pay a premium for a home in today’s market. Buyers today are “spreadsheet buyers,” meaning they are going to concentrate on the most recent comparable and pending sales to carefully arrive at price. They do not want to overpay for a home and will patiently wait for realistic sellers to negotiate with. My fear for the Orange County housing market is that a number of unrealistic sellers, and even unrealistically priced bank foreclosures, will hit the market like they did last year. I am holding out for a return of the discretionary seller. Sellers should only place their homes on the market if and only if they are ready to do what it takes to sell their home, starting with carefully arriving at price just like buyers. For the spring, expected market time will fall to its lowest point of the year. From June through August, the summer months, the second best time of the year to sell a home, demand will fall slightly, yet the steady stream of homes coming on the market will continue. Many sellers mistaken the summer as the best time of the year to sell a home. Expected market time will rise slightly during the summer market. With the kids starting school, purchasing a home is not as convenient, so demand begins to decelerate further and so does the stream of homes placed on the market. The expected market time during the autumn market remains about the same as the summer. With goblins and ghosts running from door to door chanting “TRICK OR TREAT,” the Orange County housing market transitions to the slowest time of the year, the holiday market. With all of the distractions of the holidays, demand decelerates until it reaches its lowest point of the housing cycle, New Year’s Day. The stream of homes that hit the market slows considerably. Buyers in the marketplace often complain of “nothing new” to look at. The expected market time during the holidays typically rises slightly. This is an outline of a normal housing cycle in Orange County. We have not witnessed a normal cycle in years. There is something refreshing about normal.

Housing Demand: In the last two weeks, housing demand surged.
Demand, the number of new pending sales over the prior month, increased by 26% in the past two weeks, adding an additional 564 homes, and now totals 2,718 pending sales. Thus far this year, demand is a mirror image of 2009, prior to any artificial government stimulus. Last year, there were 530 additional pending sales; but, remember that demand was being propped up by the $8,000 first time home buyer tax credit.

The Active Inventory: the inventory is rising at the same pace as last year.
Two years ago, sellers approached the market with extreme caution. Last year, everybody threw caution into the wind and replaced it with unwarranted optimism. They fell for news of year over year increases in the median sales price and multiple offers on many listed homes. The problem with the median sales price is that it is not an accurate gauge of appreciations or depreciation. It will give an overall feel for where house values are headed, but is not precise. Stack up all sales in a month and take the exact middle value and you get the median sales price. If all of a sudden there is an increase in the number of upper range homes sold, the median sales price is skewed upward. When values were falling like a rock at the end of 2007 and beginning of 2008, only the lower range was selling, the median sales price was skewed lower. Unwarranted optimism is my number one concern for the housing market in 2011. Only realistic homeowners will succeed in today’s marketplace.

In the past two weeks the active inventory added an additional 164 homes and now totals 10,389 homes. Last year at this time there were 2,532 fewer homes on the market.

Expected Market Time and Price Ranges: the expected market time increases as the price range increases.
For Orange County as a whole, the expected market time has dropped in the past month from 5.10 months to 3.82 months today, a slight seller’s market. For homes priced below $750,000, 76% of the active listing inventory, the expected market time is a robust 3.37 months. Even though it is technically a seller’s market, do not expect appreciation. There are just too many distressed homes in the marketplace, keeping a lid on appreciation. For homes priced between $750,000 and $1.5 million, the expected market time is 4.91 months, technically a market in equilibrium. From $1.5 million to $2.5 million, the expected market time is actually at its lowest level in several years. Still a buyer’s market, the expected market time is 9.43 months. For homes above $4 million, there are 277 homes on the market and only 2 pending sales within the last month. That’s an expected market time of just over 138 months. That is most likely an anomaly, but a strong indicator that the highest priced homes on the market should be prepared for a slow 2011.

The Distressed Market: there’s still not much change in the distressed market.
In the past two weeks the active distressed inventory, both foreclosure and short sales, dropped by 13 homes. Not much has changed since last September, growing by only 65 homes, now totaling 4,104. There are 726 foreclosures on the market, adding just two homes in the past two weeks. The expected market time for foreclosures is 1.64 months, a HOT seller’s market. There are currently 3,378 short sales on the active market with an expected market time of 2.85 months, also a seller’s market. Expect the distressed inventory to slightly increase as the year progresses. Do not expect a wave of new distressed activity.

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.

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.

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.

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.

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: Two Polar Opposite Markets

With Halloween fast approaching, the differences between the lower end and higher end Orange County housing market are SPOOKY. It is extremely ironic that the general public expects a really soft real estate market with a lot of inventory and that buyers get to call all of the shots. That is entirely not true for homes priced below $1 million with an expected market time of only 1.88 months. That translates to an incredibly HOT seller’s market. That range represents 71% of the current active listing inventory. The upper range, homes priced above $1 million, represents 29% of the active listing inventory, but has an expected market time of 10.37 months. Anything over 10 months is basically an almost frozen market, a deep buyer’s market. So, today’s Orange County buyers need to know that the lower the range, the hotter the market. From $750,000 to $1 million, the expected market time is 3.76 months, not incredibly hot, but not incredibly slow either. The word on the street is that there is not that much new, fresh inventory hitting the market, so if a great property comes on the market that is priced right, don’t expect it to last very long. Below $750,000 is crazy, and below $500,000 is just NUTS. That’s right, N-U-T-S!!! Tremendous competition, multiple offers, and selling prices close to or above the asking prices are the norm. This is where many who have not experienced the Orange County housing market by sitting in a car and touring the few homes on the market within their areas of interest simply will not believe me. So, if you are in doubt, take a look around for homes in the lower ranges. The hot market is a reality. The homes that do not sell are overpriced, in poor condition or are in a poor location. It is not just distressed homes that are selling. 50% of demand, the number of new pending sales during the past month, is sellers with equity in their homes. Homes that are priced right are selling and selling fast. The sales to list price ratio for homes priced below $1 million is 99%. That means that on average, homes are discounted by only 1% off of their asking prices. For homes priced below $500,000, the sales to list price ratio is 100%, meaning that, on average, they are selling for their full asking price. That should be the headline in local newspapers and the topic for the nightly news: “Most homes in Orange County are selling for their asking prices and they are selling fast!” Let me clarify one important point though, the lower ranges are experiencing a seller’s market, but are not experiencing appreciation. Prices have stabilized because there is just too much demand. But, with so many distressed properties still in the mix and many appraisal issues, prices are not going up. With the government’s changes to the appraisal process, known as “The Home Valuation Code of Conduct,” more and more homes are not appraising for the agreed upon purchase prices. The government had the right intention, but I can write a book as to how the code of conduct has made the housing recovery process much more challenging. When an appraisal comes in too low, the buyer, the seller, or a combination of the two, makes up the difference, OR the pending sale falls apart and the home is placed back on the market.

Now, let’s take a closer look at the upper ranges. Homes above $1 million may represent 29% of the active listing inventory, but they only represent 7% of demand. As is customary, the higher the range, the slower the market. In this downturn it is even more pronounced. The sales to list price ratio in the upper range is 92%. That takes into account the LAST list price after many price reductions. The sales to ORIGINAL list price ratio is 85%. This vast discrepancy is due to unrealistic expectations on the part of sellers within the higher ranges and illustrates the need to carefully price a home based upon recent sales activity, 90 days or sooner is preferable, and all pending activity. Sellers in the upper ranges should not fall into the trap of giving too much weight to active listings. In this market, a buyer is not going to take into consideration another active listing that has sat on the market for months in coming up with an offering price. Appraisers are not going to give active listings much credence either. The market is so slow in the upper ranges that a great price, super condition and a great location still may equate to a long market time. Demand is just too low, so sellers need to pack their patience and enjoy the ride; this may take a while.

So, how do the rest of the numbers look? So, how do the rest of the numbers look? The active listing inventory increased by just six homes within the past couple of weeks, remaining under the 8,000 mark and totaling 7,923. That’s 4,799 fewer than last year and 9,836 fewer than two years ago. Ask any agent and their number one complaint is a lack of inventory in the lower ranges. Demand, the number of new pending sales within the past month, dropped by 73 in the past couple of weeks to 3,197. Last year’s demand was 524 fewer and two years ago was 2,022 fewer. The expected market time for all of Orange County increased slightly in the past couple of weeks from 2.42 to 2.48 months. The expected market time last year was at 4.77 months and two years ago it was at 14.73 months.

The number of distress properties on the market increased for the first time since November of 2008. Within the past couple of weeks the number of foreclosures and short sales increased by 79, now totaling 2,398, returning to early September 2009 numbers. 30.3% of the active inventory is distressed compared to 42.9% last year. There are currently only 322 foreclosures in all of Orange County, an increase of two in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.67 months. Foreclosures are HOT and are, on average, selling for 4% above their asking prices. There are currently 2,076 short sales on the active market, an increase of 77 over the past two weeks. Short sales currently represent 26% of the active listing inventory, a major player in today’s marketplace. The expected market time for short sales is currently at 1.82 month versus 6.08 months one year ago. Short sales are also a hot segment within the marketplace; however, buyers should not expect instantaneous results and quick closings. Short sales must wait for “lender approval,” which can take anywhere from weeks to months.

Orange County Housing Report: End of Summer Cycle

As the end of summer fast approaches, the Orange County real estate market continues to follow its normal, cyclical path. The active listing inventory continues to drop, demand drops slightly and the expected market time has very little movement. This is typical for this time of year.

Here’s a breakdown of how the numbers look this week:

• Active listing inventory dropped by 169 homes in the past two weeks to 8,362, its lowest level since the beginning of 2006.
• The active inventory last year was at 13,582, 5,220 additional homes.
• The active inventory two years ago was at 17,760, 9,398 additional homes.
• Demand, the number of new pending deals over the prior month, dropped by 103 in the past two weeks to 3,403.
• Last year’s demand was at 2,847, 556 fewer than today.
• Two years ago, demand was at 1,206, 2,197 fewer than today.
• The expected market time is currently at 2.46 months, a slight change from the 2.43 month mark posted two weeks ago.
• The current expected market time is within the definition of a seller’s market, below five months. There is tremendous demand for homes priced below $750,000. Below $500,000, the market is extremely hot. Homes are receiving tremendous activity with multiple offers and an average list to sales price ratio of 100%. Even though we are currently experiencing a seller’s market, property values are not appreciating. This is primarily due to the number of distressed properties on the market that continue to suppress values.
• The expected market time for properties priced between $250,000 and $500,000 is currently at 1.33 months, levels not seen since the incredible days of 2005. Ask any buyer looking for a home priced below $500,000 just how crazy the market has been and you will quickly find that they are writing offer after offer. Last week, one of our agents stated that his buyer was finally in escrow after writing their fifth offer.
• Buyers today do not know how crazy the market is until they lose out on a property or two, learning from the good ol’ school of hard knocks. This is contrary to their perception of the housing market out of the gates due to the constant stream of press on the recession, unemployment and distressed homeowners.
• The current Orange County housing market is controlled by lenders, where just about half of all pending deals are either a short sale or foreclosure.
• The number of distress properties on the market dropped by 43 homes in the past two weeks, now totaling 2,516. The total had stopped its drop two weeks ago. I thought that the number would increase today. The pace in the drop has slowed over the past month, so it will be interesting to see where we go from here.
• 30.1% of the active inventory is distressed. That’s far different compared to last year when 42.3% of the inventory was distressed.
• There are currently only 332 foreclosures on the active market, an increase of 13 over the past two weeks.
• The expected market time for foreclosures is currently at 0.71 months, a deep seller’s market.
• There are 2,184 short sales on the active market, a drop of 56 over the past two weeks.
  The expected market time for short sales is currently at 1.80 months.

What can buyers expect going into the Autumn Market? Interest rates dropped and remain extremely low. Demand is still extremely hot for homes priced below $750,000. There has been a lot of news regarding the end of the $8,000 first time tax credit, which currently ends with sales on November 30th. However, we can expect an extension to that program coming soon. We can also expect a second extension to the increased conventional loan limit, for Orange County it is $729,750. The government does not want to see a decrease in the current real estate market momentum, and these two programs have helped immensely. So, even though we are entering a cyclically slower time of year, do not expect that much of a change in the current market. There are still droves of buyers still looking for homes. The word out on the street is that agents have pockets filled with buyers and not enough new inventory coming on the market. Any increase in fresh inventory would be welcomed by buyers and their agents alike. However, there just won’t be a lot of new inventory to hit the market until after the New Year. The upper price ranges are experiencing less demand. Lack of financing and the recession are not helping. But, the distressed inventory within the upper ranges is definitely fueling some demand.

Demand is Up and Supply is Down

As is typical for this time of year, demand increased a bit at the beginning of August; however, the continuous drop in the active listing inventory is far from ordinary. Inventories have been dropping across the nation and Orange County is no exception. Since March of this year, the active inventory has been steadily dropping. The inventory has shed 2,925 homes since then, a 25% drop. Currently at 8,681 homes, that is far fewer than the 14,348 last year or 17,611 two years ago. So, what’s going on? Prices are down, interest rates are down, affordability is up and demand is up. All of these forces together have been pulling the inventory down. Throw in the fact that discretionary homeowners are only placing their homes on the market if they have to and are motivated to do what it takes to compete in this market. Demand, the number o f new pending sales within the past month, is currently at 3,481, an increase of 165 pending sales within the last two weeks. Last year demand was at 2,940. So, with an increase in demand and a lower inventory, the market has heated up. The expected market time for all of Orange County is currently at 2.5 months, technically a seller’s market. The lower the range, the hotter the market. All ranges below $1 million are pretty hot, but homes priced below $500,000 are sizzling. The expected market time for homes priced between $250,000 and $500,000 is currently at 1.30 months. For detached homes within that range, the expected market time is only 1.02 months. When the expected market time drops to such low levels, sellers are busy sorting through multiple offers and buyers are writing offer after offer with no luck. I have been asked many times why the market is not appreciating given all of the activity. The devil is in the details. Even though the distressed inventory has been dropping and now represents 29.5% of the current active inventory, 50% of current demand is distressed properties. With so many short sales and foreclosures driving demand, these distressed sellers are keeping a lid on any price appreciation. But, don’t misinterpret me. There may be a lid on appreciation, but in the hotter areas and price ranges there is also a lid on price depreciation. Values have fallen significantly since the start of this downturn, fueled by a consistent supply of distressed properties. So, current values have reached affordable levels where it makes sense again to own versus rent. First time home buyer activity has returned with a vengeance as well. Throw in the return of investor activity and it is no wonder that demand has increased this year.

How do the distressed numbers look? First off, the “next wave” of foreclosures that we have been hearing about since the beginning of the year still has not materialized. I have been hearing from industry experts and agents alike that the next wave is still coming. I am certain that they are right to a degree, that the distressed numbers will increase, just not at the great numbers that they are anticipating. The agents on the streets are telling me that they all have pockets full of buyers waiting for the right property to come onto the market and they all would love a “foreclosure deal.” This is where pent up demand really does exist. Any surge in foreclosures would be met with buyers in waiting. We can expect a lot of competition and continued multiple offers for some time to come. There are currently only 2,559 distressed homes on the market, a drop of 57 in the past two weeks. This is the lowest drop in the distressed inventory since February of this year. Could we be reaching a plateau before the overly predicted wave to come? Only time will tell. There are only 299 foreclosures currently on the active market with demand at 590, representing an expected market time of .51 months. That’s correct, two weeks. Foreclosures are so incredibly hot that they can generate 20 plus offers. Yet, only one gets the property. Demand is plentiful, there just is not enough supply. There are 2,260 short sales on the active market with demand at 1,145 and an expected market time of 1.97 months.

If you are a buyer, how should you respond to this market? First, please throw out the notion that there is no competition and that you can write an offer for thousands less than the asking price. The sales to list price ratio for homes priced below $500,000 is 100%. That means that, on average, homes are selling for their full asking price. For all homes in Orange County, the sales to list price ratio is 98%. Remember, homes have already dropped 30% or more in value. As a buyer, do NOT write an offer for 10% or more off of the asking price with a letter detailing that the housing market is currently in a declining market. These buyers feel that the ultimate sales price should reflect a future drop in values. That notion of purchasing is ludicrous. Industry experts and economists cannot accurately determine future prices and are constantly revising their estimates. The values are already highly discounted over the past few years. Arriving at the fair market value includes taking into consideration pending activity, recent sales (within the prior 90 days), property condition, seller motivation and circumstances, location, upgrades, lot size and amenities. To rely on Zillow.com or other online valuation tools is also absurd. These tools only take into consideration property size and sales price, ignoring all of the other factors that are used to arrive at price. There has been a lot of pressure on interest rates to move higher. Gone are the days of interest rates below 5%. As interest rates rise, affordability drops. In purchasing today, the monthly payment is approximately the same as a home purchased later with a drop of 10% in value and a 1% rise in interest rates. These historically low interest rates are not here to stay. How long they remain low is anybody’s guess. Last, buyers should only purchase in today’s market if and only if they plan on living in their home for years to come. In the long run, Orange County housing has proven to be an excellent long term investment. It is also a great place to call “home.”

Orange County Housing Report: A Seasonal Summer Drop in Demand

While celebrating the 4th of July and enjoying the warm weather and California surf, demand for Orange County homes dropped by 7%, a typical drop for this time of year. The average drop in demand over the past five years has been 8%. This year is no exception. Demand, the number of new pending sales over the past month, dropped from 3,629 pending sales two weeks ago to 3,359 today, a drop of 270 homes. Last year the drop was 324 homes and demand totaled 2,682 pending sales, 677 fewer than today. Two years ago there were 1,578 fewer pending sales compared to today, totaling only 1,781 for all of Orange County. Over the past five years, demand cyclically increases over the next two weeks, averaging an increase of 4%. The active listing inventory dropped to below the 9,000 mark for the first time since February 2006. The inventory dropped by 242 homes in the past two weeks from 9,188 to 8,946, a 3% drop. From the first of the year, when the active inventory totaled 11,842, the inventory has shed a total of 2,896 homes. Last year the active inventory totaled 14,701 homes, 5,755 additional homes on the market compared to today. Two years ago the active inventory reached 17,334 homes, 8,388 additional homes compared to today. Even though demand dropped, the expected market time did not increase that much because of the drop in inventory. The expected market time increased from 2.53 two weeks ago to 2.66 months today. Most buyers have the expectation of a deep buyer’s market where they can take their time and write an offer to purchase a home well below the asking price. With so much negative news swirling around the economy, the recession, employment and the housing market, it is ironic to find that homes priced below $1 million are experiencing tremendous competition and often sell for at or above the asking price. The lower ranges are incredibly hot too. From $250,000 to $500,000, the hottest price range, the expected market time is 1.44 months. That range represents 24% of the current active inventory and 45% of demand. 55% of the active inventory within that range is either a foreclosure or short sale. Buyers are looking for a deal and are looking for foreclosures. 72% of all distressed sales are found below $500,000. It is reasonable to conclude that distressed sales are fueling the market, especially in the lower ranges. Total pending count, different than demand in that demand tracks new pending sales over the past month only, dropped for the first time this year by 54 homes, now totaling 6,403. Last year at this time the total pending count was at 4,192, 2,211 fewer than today. Two years ago there were 3,797 fewer than today.

The active distressed inventory, both foreclosures and short sales, continued its decent, dropping from 2,919 homes to 2,766, a 153 home drop. Foreclosures make up 13.5% of the distressed inventory. There are only 374 in all of Orange County. The other 86.5% are short sales, totaling 2,392. Foreclosures make up only 4.2% of the TOTAL active inventory and 26.7% are short sales. Foreclosures make up 17.7% of demand and short sales make up 35.4%. With so many buyers looking for a deal, many are turning to foreclosures only to find that there is just way too much demand and competition. They fly off the market as quickly as they come on. The expected market time for foreclosures is only .63 months, between two and three weeks. The expected market time would probably be even less, but it takes a bit of time to sort through multiple offers and communicate with the out of area banks. The number of short sales on the active market has dropped to 2,392, 115 fewer than two weeks ago and 50% off of the peak of 4,810 established in May of 2008. With so few foreclosures on the market, many buyers have turned to short sales where the competition has grown substantially and the expected market time has dropped to 2.01 months. Short sales have become an acceptable alternative to both buyers and lenders alike. Not only have buyers jumped on the short sale bandwagon, but lenders have approved more and more short sales in lieu of the lengthy foreclosure process. One year ago 94% of all distressed listings were at or below $750,000. Today, 88% is found below $750,000, dropping from 89% two weeks ago. The trend is more and more distressed homes are found above the $750,000 mark as the market moves from the subprime fallout to prime loans. The upper ranges are just beginning to catch up to the lower ranges. We have all read or heard about the foreclosure wave to come. It will not manifest itself in an increase in short sales. When more foreclosures do hit the market, there is so much pent up demand for the foreclosure “deal” that many will become pending sales just as fast as they are placed on the market. The reports from agents on the streets are that they are all working with buyers and they all would love to jump on the next foreclosure to hit the market.

Orange County Housing Report: The Distressed Inventory is Dropping

The total number of distressed properties, foreclosures and short sales, dropped to its lowest level since December 27, 2007. There are currently 3,724 distressed homes on the active market, 37% off of the peak of 5,950 established in August 2008. The number of active foreclosures has dropped from its November 2008 peak of 1,404 to 529, a 62% drop. It is not just the number of foreclosures that has been dropping; the number of short sales on the active market has dropped by 20% since February, from 4,009 to 3,195. This drop can be directly attributed to much stronger demand for homes priced below $1 million, which accounts for 74% of the active inventory and 95% of demand. Homes above $1 million account for 5% of demand, but 26% of the active inventory. Demand has been incredibly strong in the lower ranges because of two factors: 96% of all distressed properties are found below $1 million; and, jumbo loans, loans above $729,750, are much harder to obtain than conventional loans, loans below that level.

For Orange County, demand, the number of new pending sales over the prior month, increased by an additional 79, now totaling 3,632 and the current height of demand for 2009. Orange County demand has not been at this level since August of 2005, just prior to the beginning of the current cycle. Last year there were 1,092 fewer pending sales, totaling 2,540, 30% less. Two years ago demand was 1,769 fewer, totaling 1,863, 49% less. Three years ago demand was 26% less and totaled 2,701. The recent surge in demand seems to be abating, but this can be attributed to less inventory in the lower ranges. With an expected market time of 1.73 months, the $250,000 to $500,000 range has been incredibly hot and many buyers have written offer after offer with no success. The sales to list price ratio for homes within this range is 100%. So, those buyers looking to scoop up a deal by writing for less than the asking price are, on average, out of luck. The sales to list price ratio for foreclosures within that range is 101%.

The active listing inventory dropped 198 homes in the past two weeks to 10,363. The inventory has not been at these levels since April 2006. At the start of the year the active inventory was at 11,842, 1,479 additional homes compared to today. Last year there were 15,437 homes on the market, 5,074 additional homes compared. Two years ago there were 15,519 homes on the market, 5,156 additional homes. Three years ago there were 11,956 homes on the market, 593 additional homes compared to today. The expected market time dropped from 2.97 months two weeks ago to 2.85 months today. The expected market time last year was at 6.08 months, two years ago it was at 8.33 months, and three years ago it was at 4.43 months. This is the lowest expected market time since October 2005. Total Orange County pending sales continues its surge, reaching record heights for this three and one-half year downturn, totaling 5,733, an 828 home increase over the past month. Last year at this time, total pending sales reached 3,514, 2,219 fewer than today. Two years ago it was at 2,824, 2,909 fewer. Total pending count is different than demand because demand tracks new pending sales over the past month. Total pending count takes into account all pending sales, including those that have been pending for longer than 30-days. The 5,733 tabulation indicates that there will be a surge in sales over the next couple of months.

How should a buyer approach this market? Most buyers have the wrong expectations in approaching the Orange County real estate market. Everybody is acutely aware of the current global recession caused by the financial crunch, so it is understandable that today’s buyers want a deal when buying a home. However, buyers fail to consider two important aspects of the current real estate market: there is tremendous demand for lower priced homes and distressed properties; and, today’s asking prices already reflect a major drop in value. Prices have reached much more affordable levels just as interest rates have dropped to historical lows, the end result, demand not seen prior to the current downturn. So, buyers need to take a litmus test of the market that they are interested in. Buyers can expect multiple offers and even above asking price sales prices for homes priced below $500,000 and distressed homes. The market has heated up considerably for homes priced between $500,000 and $750,000 as well, with an expected market time of 2.49 months. The market is much stronger between $750,000 and $1 million too, with an expected market time of 4.95 months, considered a market in equilibrium. The incredibly hot demand has been underreported and most buyer have to learn the hard way before getting realistic, writing offers below the asking price and losing out on a property or two. Another reality of the current marketplace is the number of hoops lenders will put you through in funding a loan. Buyers will not only put together the initial loan package; more often than not, the lender is going to request additional paperwork during the pending sale process. As of May 1st, the government imposed an additional hurdle which will change the appraisal process. This new process has a very high potential in delaying the close of a pending sale. It is my humble opinion that these additional hurdles are necessary, but should be postponed until the market has healed. It is easy for politicians to make headlines and change the way lending and appraising is processed in the midst of a downturn, but the real fixes need to come when the market is moving on all cylinders.

Orange County Housing Report: Demand Suddenly Surges

Coinciding with a drop in interest rates and a Wall Street rebound, demand for Orange County housing increased by 22% in just two weeks. Demand, the number of new pending sales over the past month, increased from 2,670 pending sales two weeks ago to 3,247 today, a 577 home increase. Last year’s high of 3,060 pending sales was reached on June 12. Orange County demand has not reached this level since September 2005, the beginning of the current downturn. Last year there were 962 fewer pending sales, totaling 2,285, and two years ago there were 1,114 fewer,

totaling 2,133. The active listing inventory shed 580 homes in the past two week, a 5% decrease, totaling 11,026. The active listing inventory has not seen these lower levels since the beginning of April 2006. Last year there were 15,474 homes on the market, 4,448 additional homes compared to today. Two years ago there were 14,010 homes on the market, 2,894 additional homes. The expected market time dropped from 4.35 months two weeks ago to 3.4 months today. The expected market time last year was at 6.77 months, and two years ago it was at 6.57 months. This is the lowest expected market time since March 2006. The distressed homes inventory, foreclosures and short sales, dramatically changed over the past two weeks, dropping by 581 homes to 4,092. The height of the distressed inventory, 5,950, was achieved on August 7, 2008. There are 1,858 fewer distressed homes on the market compared to the height, a 31% drop. The distressed inventory now represents 37% of the current active inventory, dropping from 40% two weeks ago. Foreclosures now have an expected market time of 0.77 months, or three weeks. There are 170 fewer foreclosures on the market, totaling 731. Demand for foreclosures is at 953 pending sales. The foreclosure market is extremely hot. Buyers can expect to compete with multiple offers and sales prices above their list prices. The short sale inventory shed 391 homes in the past two weeks to 3,379 homes. The short sale inventory height, 4,701, was reached on August 7, 2008, coinciding with the total distressed inventory height. There are 1,322 fewer short sales on the market today. Demand for short sales increased by 205 pending sales, totaling 967. Since short sales are subject to lenders approval and are often not changed to pending status until lender approval is received, this may be a sign that lenders are gearing up to curb foreclosures through the accommodation of short sales. Total Orange County pending sales continues to reach record heights week after week. I started tracking the statistic back in September of 2006. After increasing by 355 homes over the past two weeks, the total pending count has reached 4,905 pending sales. Last year at this time, total pending sales totaled 2,852, 1,698 fewer than today. Two years ago it was at 3,047, 1,858 fewer.

Word within the trenches is that there is tremendous activity out there in the lower ranges and with distressed properties. Many buyers first enter the market with anticipation that they are going to somehow be able to obtain a property for tens of thousands less than the asking price. They are quickly learning that there is a lot of competition in the lower ranges and all distressed homes. There just is not enough news highlighting this aspect of the real estate market. The activity in the lower ranges has reached such a high level, that it is starting to reflect in the median sales price for Orange County, which posted its first month over month increase, from January to February 2009, in eight months. Lower interest rates, a lot of stimulus, the massive return of the first time home buyer, the return of investors, have all equated to a sharp uptick in the current Orange County real estate market.

There is a major difference between the lower and upper ranges. For all home below $750,000, the expected market time has been dropped considerably. The best range in Orange County is homes between $250,000 and $500,000, with an expected market time of 2.09 months. 60% of the inventory within that range is either a short sale or foreclosure. The expected market time for homes below $250,000 is 2.46 months. For homes between $500,000 and $750,000, the expected market time is 3.46 months. It shoots up to a 6.4 month expected market time for homes between $750,000 and $1 million. From there, the expected market time blossoms to a stagnant market. The expected market time ranges from 13.11 month, homes between $1 million and $1.5 million, and 43.44 months, homes above $4 million. What this helps illustrate is that the government’s focus on freeing up conventional financing, loans up to $729,750, is working within the real estate market. For jumbo financing, where loans are much more difficult to obtain and are at a higher rate, especially above $1 million, demand has just come to a crawl. With no focus from the government on higher ranges, it will not be until a bottom is reached in the lower ranges, which some are predicting during the second half of 2009, and confidence is restored in the financial markets, that decent demand will return to the upper ranges.

Orange County Housing Report: 21% Fewer Distressed Homes on the Market

As the market marches forward, the distressed active inventory, both foreclosures and short sales, has dropped by 21% since its peak in August of 2008. There have been various explanations for a dip in the number of distressed sales, like legislation that lengthens the amount of time to file a notice of default (when somebody is behind on their mortgage) and ultimately delay foreclosure. The problem with that theory is that the distressed inventory has been steadily dropping for seven months. The distressed inventory has dropped by 1,277 homes, or 21%. On August 7, 2008, the distressed inventory was at 5,950 homes and represented 41% of the 14,348 total active inventory (both distressed and non-distressed listings). Today, the distressed inventory has fallen to 4,673, 40% of the 11,606 total active inventory. One year ago today, the distressed inventory was at 5,221, 548 more that today, the second report in a row with a year over year improvement. However, the distressed inventory is still extremely high. This inventory needs to drop significantly for the real estate market to start to appreciate once again. The rate that it drops is slow because of the number of bad loans in the system combined with a high unemployment. However, in the lower ranges, the rate of depreciation has slowed remarkably, and even bottomed in some areas. This is due primarily to the extremely high demand in the lower ranges, homes priced below $500,000. This range accounts for 49% of the total active inventory, but 73% of demand. There are some cities with expected market times close to two months, technically a seller’s market. A lot of this demand has been fueled by the drop in prices and the desire to acquire a bank owned, foreclosed home. Buyers looking for a home below $500,000 need to be prepared for a lot of competition. The average sales to list price ratio for foreclosed homes is 101%, meaning that, on average, the home is selling for above the list price. Short sales DOMINATE the distressed sales market within Orange County and account for 80.7% of all distressed homes. The other 19.4% are foreclosures, the hottest properties in the county. There are currently 905 foreclosures on the market and demand, the number of homes placed into escrow within the last month, is at 882 pending sales. The expected market time for foreclosure is 1.03 months. Foreclosures are so hot, that multiple offers are the norm. The demand is similar to 2005 demand for all homes, CRAZY seller’s market. Buyers in today’s market expect a discount and expect to be able to take their time in making a decision to write a purchase offer. Most buyers must learn the hard way, after losing a property or two, that these homes generate tremendous buyer competition. The expected market time for short sales has dropped significantly, now at 4.95 months, but this figure is grossly overinflated due to the nature of short sales. Short sales are where a homeowner attempts to sell their home, owing more than their home is worth. Even though most short sales have an agreed upon purchase offer between a buyer and the seller, most are continually marketed as an active listing rather than as a pending sale because of the belief by many that they do not have an official acceptance until the lender approves the sale at a discount in what is owed. In the trenches, agents are reporting that vast majority of short sales that are a part of the active inventory have offers that are already submitted to the lender(s). Another giant drawback to short sales is that the “lender approval” process can take weeks to months to obtain. Often, by the time a lender does approve of a short sale offer, the buyer has already moved onto another home. The bottom line, there may be a lot of distressed homes on the market, but as a buyer, expect a lot of competition.

So how do the numbers look? In the past two weeks, demand, the number of new pending sales within the prior month, increased by 46 pending sales to 2,670. Last year at this time there were 587 fewer pending sales, totaling 2,083. Two years ago there were 2,195 pending sales, 475 fewer than today. All of the recent stimulus aimed specifically at real estate should begin to trickle down into the Orange County real estate scene in the form of increased demand within the next couple of weeks. In the trenches, agents are already reporting increased buyer interest, increased open house activity and more buyers on the verge of writing after fence sitting for quite some time. All of the ingredients for an increase are there: historically low interest rates, government incentives to purchase now, and a lot of government intervention aimed at placing a sound bottom underneath the housing market. Prices, especially in the upper ranges, may continue to fall; however, what most buyers fail to consider is that these historically low interest rates will not be around forever. Instead, with all of the money that the federal government is pumping into our economy, the U.S. economy will most certainly endure a major increase in inflation down the road. The Federal Reserve responds to an increase in inflation with an increase in interest rates. In 1990, interest rates were thought to be at a great level when they broke just below 10%. At 5%, today’s approximate interest rate, the payment for a $500,000 loan is $2,684. At 7%, the payment is $3,327, an increase of $643 per month. At 10%, the payment would be $4,388, a difference of $1,704. Even if homes were to fall an additional 10%, a 7% loan at $450,000 would be $2,994, still $310 a month more than a 5% loan at $500,000. At 10% it would be $1,265 more per month. The beauty of homeownership in Orange County is it is an incredible long term investment. So, if you are a buyer and can live in your home for more than just a few years, ultimately it makes sense to buy as soon as you isolate the home that best fits your family’s criteria and budget. It may not pay to wait because after the economy turns around, inflation will increase interest rates. Almost all buyers fail to factor the negative effects of increasing interest rates, which can be profound.

The active listing inventory continues to remain relatively unchanged so far this year, increasing by only 65 homes over the past month, bringing the current total to 11,606. Last year the active inventory was at 15,617 homes, 35% higher. Two years ago there were 1,767 additional homes on the market, totaling 13,373, 15% higher. The current expected market time decreased slightly from 4.41 months two weeks ago to 4.35 months today. Last year the expected market time was 7.5 months. Two year ago the expected market time was 6.09 months. Total Orange County pending sales continues to reach record heights over the past two reports. I started tracking the statistic back in September of 2006. After increasing by 142 homes over the past two weeks, the total pending count has reached 4,550 pending sales. Last year at this time, total pending sales totaled 2,852, 1,698 fewer than today. Two years ago it was at 3,321, 1,229 fewer.

The condition of the Orange County real estate market really depends upon the price range. The story of 2009 remains the same, the lower the price range, the hotter the market. The hottest range is detached homes below $250,000 with an expected market time of only 1.94 months. However, there are only 303 detached homes in that range. The second hottest range is detached homes between $250,000 and $500,000, with an expected market time of 2.27 months.

It will be interesting to see the impact of all of the recent stimulus within the various ranges. We can expect the lower ranges to improve and eventually bottom first. It won’t be until confidence is restored in the financial marketplace, the current focus of the Federal Reserve, the Obama administration and Congress, that we will see a bottom in the upper ranges.