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.
Showing posts with label harcourts. Show all posts
Showing posts with label harcourts. Show all posts
Monday, July 12, 2010
Saturday, June 26, 2010
Orange County Housing Report: Demand is Normal Again
After dropping nearly 22%, Orange County housing demand is now in a normal summer cyclical pattern.
Housing Demand: Over the last 5 years the average drop in demand was 3.2%, this year it was only 2%.
Whatever the reason, the end of school, graduation, the start of summer, demand cyclically drops at this time of year. The only difference this time around is that demand had already dropped 20% due to the end of the Federal first time home buyer tax credit. When demand reached 3,979 pending sales on April 29th, the height for 2010, and the highest threshold in almost five years, there was a rush to purchase by first time home buyers. That segment accounted for 25% of Orange County’s housing activity. With so many of them pushing to purchase by a deadline, it left a void in demand for the six weeks that followed the expiration. It wasn’t until the past two weeks when the normal housing pattern for Orange County reemerged. Earlier in the year, the market followed a normal pattern as well, until March and April. Demand grew by 30% in those two months, and then subsequently, dropped almost 22% in May and June. Demand, the number of new pending sales over the prior month, decreased by 60 in the past two weeks and now totals 3,107. For the second report in a row, demand is less than the prior year with 522 fewer pending sales compared to 2009. From here, demand typically falls in the next two weeks and then climbs at the end of July. With the distraction of the Fourth of July weekend coming up, that sounds fairly accurate.
Active Listing Inventory: The inventory has continued to grow unabated since the beginning of the year.
Last year the inventory dropped by 36%. This year, however, the Orange County housing inventory has grown by 3,034 homes, a 43% increase. In the past two weeks, the inventory has grown by 345 homes, a 3% increase, and now totals 10,469. This is also the second report in a row where the inventory is higher than last year. Last year the inventory was at 9,188 homes, 1,274 fewer than today. The drop in demand is partially to blame for the increase in the inventory, but keep in mind that it was still increasing unabated when demand was at its highest level in years. We have also heard that the market is really hot in lower price ranges, which is true, just ask any buyer. However, all ranges have experienced an increase in inventory, especially homes between $250,000 and $1 million. For homes priced between $500,000 and $750,000, the inventory has increased by 60%. The reason for the increase in inventory is because there are many homeowners who have held off on selling their home, pent up sellers, who have been waiting for the market to turn so that they could take advantage of the market and sell their home. Homeowners have heard about the hot market in the lower ranges with a lot of activity, multiple offers and homes selling for very close to their asking prices, and in many cases, above their asking prices. The problem is that many of these pent up homeowners are placing their homes on the market at unrealistic levels, thousands above the most recent comparable and pending sales. Buyers in today’s market have become “spreadsheet buyers,” pouring over the comparables and not wanting to pay much more than the last buyer. With demand hot, many are willing to pay a bit of a premium to purchase their dream home, but more along the lines of an extra $5,000, not $15,000 or more. As long as the overall economy’s health is in limbo and more distressed homes are hitting the market, buyers are unwilling to pay an extravagant premium to own a home. As a seller, it is imperative to carefully consider all recent comparable sales, taking into account location and amenities, and price accordingly. Then, listen carefully to how the market responds to your home and make any necessary adjustments.
Foreclosures and Short Sales: Since October 1, 2009, the distressed inventory has grown by 37%.
The active distressed inventory has increased from 2,346 homes on October 1st and now totals 3,217, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,919 distressed homes on the market, representing 32% of the active inventory. The number of foreclosures within the active listing inventory increased by 29 homes in the past two weeks from 530 to 559. The expected market time for foreclosures is 1.52 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 108 homes over the past two weeks and now total 2,658. The expected market time for short sales is 2.28 months, still a HOT seller’s market.
Interest Rates: Interest rates are at a 60 year low and will NOT last.
Everybody is so focused on price and the current historically low interest rates have become an expected part of our real estate market. However, with all of the money that the Federal government has poured into our economy, there is a real threat of major inflation on the horizon. One of the only ways to counter the threat is to raise rates. Due to the lackluster economy, the Federal Reserve is currently stuck and unable to raise rates in the short run, but sooner or later they will be forced to make a change. Rates are predicted to increase to 6% over the course of the next year. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in a drop in home affordability from $590,000 to $540,000, a $50,000 drop. Buyers waiting for that “good buy” may find it next year, but at a price, with higher rates and a larger monthly payment.
Housing Demand: Over the last 5 years the average drop in demand was 3.2%, this year it was only 2%.
Whatever the reason, the end of school, graduation, the start of summer, demand cyclically drops at this time of year. The only difference this time around is that demand had already dropped 20% due to the end of the Federal first time home buyer tax credit. When demand reached 3,979 pending sales on April 29th, the height for 2010, and the highest threshold in almost five years, there was a rush to purchase by first time home buyers. That segment accounted for 25% of Orange County’s housing activity. With so many of them pushing to purchase by a deadline, it left a void in demand for the six weeks that followed the expiration. It wasn’t until the past two weeks when the normal housing pattern for Orange County reemerged. Earlier in the year, the market followed a normal pattern as well, until March and April. Demand grew by 30% in those two months, and then subsequently, dropped almost 22% in May and June. Demand, the number of new pending sales over the prior month, decreased by 60 in the past two weeks and now totals 3,107. For the second report in a row, demand is less than the prior year with 522 fewer pending sales compared to 2009. From here, demand typically falls in the next two weeks and then climbs at the end of July. With the distraction of the Fourth of July weekend coming up, that sounds fairly accurate.
Active Listing Inventory: The inventory has continued to grow unabated since the beginning of the year.
Last year the inventory dropped by 36%. This year, however, the Orange County housing inventory has grown by 3,034 homes, a 43% increase. In the past two weeks, the inventory has grown by 345 homes, a 3% increase, and now totals 10,469. This is also the second report in a row where the inventory is higher than last year. Last year the inventory was at 9,188 homes, 1,274 fewer than today. The drop in demand is partially to blame for the increase in the inventory, but keep in mind that it was still increasing unabated when demand was at its highest level in years. We have also heard that the market is really hot in lower price ranges, which is true, just ask any buyer. However, all ranges have experienced an increase in inventory, especially homes between $250,000 and $1 million. For homes priced between $500,000 and $750,000, the inventory has increased by 60%. The reason for the increase in inventory is because there are many homeowners who have held off on selling their home, pent up sellers, who have been waiting for the market to turn so that they could take advantage of the market and sell their home. Homeowners have heard about the hot market in the lower ranges with a lot of activity, multiple offers and homes selling for very close to their asking prices, and in many cases, above their asking prices. The problem is that many of these pent up homeowners are placing their homes on the market at unrealistic levels, thousands above the most recent comparable and pending sales. Buyers in today’s market have become “spreadsheet buyers,” pouring over the comparables and not wanting to pay much more than the last buyer. With demand hot, many are willing to pay a bit of a premium to purchase their dream home, but more along the lines of an extra $5,000, not $15,000 or more. As long as the overall economy’s health is in limbo and more distressed homes are hitting the market, buyers are unwilling to pay an extravagant premium to own a home. As a seller, it is imperative to carefully consider all recent comparable sales, taking into account location and amenities, and price accordingly. Then, listen carefully to how the market responds to your home and make any necessary adjustments.
Foreclosures and Short Sales: Since October 1, 2009, the distressed inventory has grown by 37%.
The active distressed inventory has increased from 2,346 homes on October 1st and now totals 3,217, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,919 distressed homes on the market, representing 32% of the active inventory. The number of foreclosures within the active listing inventory increased by 29 homes in the past two weeks from 530 to 559. The expected market time for foreclosures is 1.52 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 108 homes over the past two weeks and now total 2,658. The expected market time for short sales is 2.28 months, still a HOT seller’s market.
Interest Rates: Interest rates are at a 60 year low and will NOT last.
Everybody is so focused on price and the current historically low interest rates have become an expected part of our real estate market. However, with all of the money that the Federal government has poured into our economy, there is a real threat of major inflation on the horizon. One of the only ways to counter the threat is to raise rates. Due to the lackluster economy, the Federal Reserve is currently stuck and unable to raise rates in the short run, but sooner or later they will be forced to make a change. Rates are predicted to increase to 6% over the course of the next year. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in a drop in home affordability from $590,000 to $540,000, a $50,000 drop. Buyers waiting for that “good buy” may find it next year, but at a price, with higher rates and a larger monthly payment.
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