It is time for buyers to start focusing on historically low interest rates; they won’t last forever.
Interest Rates: Rates are at ridiculously low levels and seem to be taken for granted.
I have always been fascinated how almost nobody focuses on how rates affect purchasing power. These low rates actually pencil out to be so much better than the $8,000 First Time Home Buyer Tax Credit; yet, the lower rates just have not stimulated demand like the credit. Consider a $500,000, 30 year mortgage at 4.375%. The monthly payment would be $2,496 per month. The same monthly payment at 5.375%, where rates were just one year ago, would be for a mortgage of $446,000. That is a $54,000 difference, almost seven times the tax credit. That’s one way to look at the incredible savings today’s low interest rates offer buyers. Now, let’s take a look at the difference in payment for the same mortgage amount. The payment on a $500,000, 30 year mortgage at 5.375% is $2,800 per month, or $304 per month more compared to the 4.375% rate. In just five years, the savings would be a very impressive $18,240. Over the life of the loan, 30 years, the savings would be $109,440. These numbers are mind boggling. Yet, first time home buyers tripped over each other clamoring to purchase a home prior to the end of the tax credit on April 30th. But, now, in the face of the lowest interest rates in our lifetime, buyers just aren’t rushing to purchase. As soon as the economy starts to improve, interest rates will increase by at least one percent. As a buyer, today’s rates should be very motivating. The best time to purchase is during a buyer’s market with rock bottom rates, not when the market is appreciating again. Unfortunately, low rates don’t seem to sell like an $8,000 credit. So, let’s put phrase it in a way that will sell: “Give yourself an $18,240 tax credit by purchasing now before rates rise just one percent.” For further perspective, rates were at 8% at the beginning of 2000. For a $500,000 mortgage, the monthly payment would be $3,669, an additional $1,173 per month. In 1990, rates were at 10%, which would be $4,388, an additional $1,892 per month. Buyers cannot afford to ignore today’s rates. They should not be taken for granted. As soon as the economy improves, rates will increase and buyer’s purchasing power will begin to erode.
Demand: With the begging of the Autumn market, demand drops 7%.
In looking at demand, the First Time Home Buyer Tax Credit pulled demand forward. To take advantage of the credit, a buyer had to be under contract on or before April 30th. Since reaching the height in demand at the end of April, demand has dropped 32%. Demand, the number of new pending sales over the prior month, dropped by 203 over the past two weeks and now totals 2,690 pending sales, a 7% drop. The incredible rates should spur demand. It will be interesting to see where demand goes over the coming weeks now that the kids have settled in at school.
Active Listing Inventory: It appears as if the listing inventory is climbing towards a peak of 12,000 homes.
The active listing inventory gained 175 homes in the past two weeks and now totals 11,892. The inventory has actually grown unabated since the beginning of the year. If demand was just slightly hotter, the inventory would actually drop. It started the year at 7,165 homes and has increased since by 4,727, a 66% increase. This year marked the exit of the discretionary seller. Instead, the market has been plagued by homeowners who have been sitting on the sidelines anticipating a turnaround in the housing market. With demand artificially stimulated at the beginning of the year by the tax credit, sellers were fooled into thinking that the market had indeed turned around. They took reports of year over year increases in the median sales prices and stories of heated demand and multiple offers as the perfect time to dive into the market. Unfortunately, seller after seller entered the market and anticipated appreciation like just a few years ago and priced their homes at unrealistic levels, thousands of dollars above the last comparable or pending sale. The end result is a ton of homes have been sitting on the market overpriced and the active inventory has increased unabated. A SPECIAL NOTE FOR SELLERS: reduce your home to market value or pull your home off the market immediately and wait for the overall economy to dramatically improve.
Expected Market Time: The lower ranges have slowed but not nearly like the stalled upper end.
For homes priced below $1 million, the expected market time is 3.87 months. This range represents 82% of the active inventory and 93% of demand. For homes priced above $1 million, the expected market time is 12.02 months, the higher the range, the slower the expected market time. This range represents 18% of the active inventory, but only 7% of demand. The slowest range, homes priced above $4 million, has an expected market time of 70 months. The hottest market in Orange County is Foothill Ranch with an expected market time of only 2.38 months and an average list price of $467,000. The slowest market in Orange County is Newport Coast with an expected market time of 12.08 months and an average list price of $4.4 million. The expected market time for all of Orange County is 4.42 months. Last year at this time the expected market time was 2.33 months.
Foreclosures and Short Sales: With demand slowing, the distressed inventory continues to grow.
The active distressed inventory grew by 110 homes over the past two weeks and now totals 4,026 total foreclosures and short sales, levels not seen since April of 2009. The active distressed inventory started the year with 2,555 homes and has since grown by 58%. The distressed inventory now represents 34% of the current active inventory. Last year at this time, there were 2,384 distressed homes on the market, 1,642 fewer than today. The number of foreclosures within the active listing inventory increased by 24 homes in the past two weeks from 684 to 708. The expected market time for foreclosures is 1.84 months, still an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 86 homes over the past two weeks and now total 3,318. The expected market time for short sales is 3.61 months, much slower than 1.53 months posted last April.
Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts
Saturday, September 18, 2010
Tuesday, May 4, 2010
Orange County Housing Report: End of Credit Won’t End Demand
At the stroke of midnight on April 30th the Federal first time home buyer tax credit will end, but there is just too much demand for it to spell the end to demand. Everybody within the real estate trenches, blogs and media have been looking to the end of the tax credit like the infamous Y2K predictions of a little more than decade ago. Remember those days? I had a neighbor who bought a trash can from the local hardware store and filled it with bottled water and canned goods claiming that the end of life as we knew it was upon us. Governments, banks, power companies, airports, traffic systems and more were all supposed to fail on the first day of the year 2000. Nothing really happened. For Orange County real estate, the end of the tax credit is not going to have much of an impact either. Don’t get me wrong; all of the government stimulus has definitely had a profound impact of the real estate market right in our very own backyard; however, it is time to move on. The program has to end sometime and it might as well be during the hottest time of the year, the Spring market. Yes, we have had buyers hurry to cash in on the credits, but there are enough first time home buyers that have been unsuccessful in purchasing thus far that will still be looking. The reports from the trenches are that these buyers are not about to do an about face and leave the market with their tales between their legs. More recently, many buyers saw the credit as a perk. The new California tax credit that starts this Monday is only going to last about a week due to the fact that only 17,500 first time home buyers in ALL of California will obtain the $10,000 credit (spread over three years) before the funds runs out. Yet, when California announced the credit about a month ago, demand was already hot. It did nothing to instigate more demand. The problem has been not enough supply in the lower ranges where first time home buyer activity is the greatest, not a lack of demand. Also, first time home buyer activity has been bumping along at about 25% of total activity. It is not going to drop significantly and there are plenty of non-first time home buyers in the marketplace as well.
Interest Rates: Rates are expected to rise which drops home affordability.
Buyers are motivated to purchase knowing that the expected rise in interest rates will ultimately make their payments go up. But, it is more than that. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in in home affordability from $590,000 to $540,000, a $50,000 drop. With the government no longer committing to purchasing pools of loans, which ended on March 31st, interest rates are expected to rise a full percent over the coming year.
Housing Demand: Demand has not seen these levels since June of 2005
Demand, the number of new pending sales over the prior month, increased by 231 homes over the prior two weeks and now totals 3,979, a 3% increase and the height thus far in 2010. Demand is 347 pending sales stronger than last year at this time and 1,439 stronger than two years ago. Demand should hit a plateau through the remainder of the Spring market.
Active Listing Inventory: The active inventory has continued its gradual climb and just reached levels not seen since June of last year.
Over the past two weeks, the inventory has increased by 174 homes to 9,351, a 2% increase. We started the year at 7,165 listings and have added 2,186 homes to the active inventory to date. Last year, the inventory continued to drop from mid-March to the New Year. The increase seems gradual, but when looked at since the beginning of the year, a 31% increase is pretty profound. Agents in the trenches are stating that there are more overpriced, unrealistic sellers placing their homes on the market. Prior to the start of the year I forecasted that the discretionary seller would return; however, if more and more homes are placed on the market at unrealistic values, the inventory will continue to rise. This rise in inventory could dampen demand. This is a trend that we will have to continue to watch. If you are a homeowner contemplating placing your home on the market much higher than the most recent comparable sales and pending activity, the current market will not support your line of thinking. Buyers are not willing to pay a sizeable sum extra for a home simply because there is more demand and more competition. There is just too much distress that remains in the market and the distressed market is keeping a lid on appreciation.
Expected Market Time: Every price range experienced a drop in the expected market time. The expected market time for all of Orange County dropped slightly from 2.45 months two weeks ago to 2.35 months today. Yet, there still are two distinct markets: homes priced below $1 million, HOT, and homes priced above $1 million COLD. It is important to note that the lower the range, the HOTTER the market. For homes priced below $500,000, the hottest range, the expected market time is 1.6 months. Compare that to homes priced above $4 million where the expected market time is a frigid 29.5 months.
Distressed Inventory: The number of active foreclosures increased while the number of active short sales decreased.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by only 9 homes in the past two weeks and now total 2,790, or 29.8% of the current active inventory. Last year at this time, there were 3,724 distressed homes on the market, representing 35.9% of the active inventory. The number of foreclosures within the active listing inventory increased by 38 homes in the past two weeks from 416 to 454. The expected market time for foreclosures is 1.12 months, an extremely HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, which requires lender approval, decreased by 29 homes over the past two weeks and now total 2,336. The expected market time for short sales is 1.53 months, also a HOT seller’s market. Everybody’s looking for a deal, so there’s a lot of competition in purchasing foreclosures and short sales.
Interest Rates: Rates are expected to rise which drops home affordability.
Buyers are motivated to purchase knowing that the expected rise in interest rates will ultimately make their payments go up. But, it is more than that. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in in home affordability from $590,000 to $540,000, a $50,000 drop. With the government no longer committing to purchasing pools of loans, which ended on March 31st, interest rates are expected to rise a full percent over the coming year.
Housing Demand: Demand has not seen these levels since June of 2005
Demand, the number of new pending sales over the prior month, increased by 231 homes over the prior two weeks and now totals 3,979, a 3% increase and the height thus far in 2010. Demand is 347 pending sales stronger than last year at this time and 1,439 stronger than two years ago. Demand should hit a plateau through the remainder of the Spring market.
Active Listing Inventory: The active inventory has continued its gradual climb and just reached levels not seen since June of last year.
Over the past two weeks, the inventory has increased by 174 homes to 9,351, a 2% increase. We started the year at 7,165 listings and have added 2,186 homes to the active inventory to date. Last year, the inventory continued to drop from mid-March to the New Year. The increase seems gradual, but when looked at since the beginning of the year, a 31% increase is pretty profound. Agents in the trenches are stating that there are more overpriced, unrealistic sellers placing their homes on the market. Prior to the start of the year I forecasted that the discretionary seller would return; however, if more and more homes are placed on the market at unrealistic values, the inventory will continue to rise. This rise in inventory could dampen demand. This is a trend that we will have to continue to watch. If you are a homeowner contemplating placing your home on the market much higher than the most recent comparable sales and pending activity, the current market will not support your line of thinking. Buyers are not willing to pay a sizeable sum extra for a home simply because there is more demand and more competition. There is just too much distress that remains in the market and the distressed market is keeping a lid on appreciation.
Expected Market Time: Every price range experienced a drop in the expected market time. The expected market time for all of Orange County dropped slightly from 2.45 months two weeks ago to 2.35 months today. Yet, there still are two distinct markets: homes priced below $1 million, HOT, and homes priced above $1 million COLD. It is important to note that the lower the range, the HOTTER the market. For homes priced below $500,000, the hottest range, the expected market time is 1.6 months. Compare that to homes priced above $4 million where the expected market time is a frigid 29.5 months.
Distressed Inventory: The number of active foreclosures increased while the number of active short sales decreased.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by only 9 homes in the past two weeks and now total 2,790, or 29.8% of the current active inventory. Last year at this time, there were 3,724 distressed homes on the market, representing 35.9% of the active inventory. The number of foreclosures within the active listing inventory increased by 38 homes in the past two weeks from 416 to 454. The expected market time for foreclosures is 1.12 months, an extremely HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, which requires lender approval, decreased by 29 homes over the past two weeks and now total 2,336. The expected market time for short sales is 1.53 months, also a HOT seller’s market. Everybody’s looking for a deal, so there’s a lot of competition in purchasing foreclosures and short sales.
Monday, March 22, 2010
Orange County Housing Report: Demand Springs Forward
With the return of Southern California sunshine and temperatures in the 70’s, Orange County demand is finally on the rise. Orange County is taking “Spring Forward” to a whole new level with an increase in demand for the first time in six weeks. Demand, the number of new pending sales over the prior month, increased by 216 homes over the prior two weeks and now totals 3,270, the highest level thus far in 2010. Demand is 600 pending sales stronger than last year at this time and 1,187 stronger than two years ago. After looking at developing trends, I had been wondering whether or not demand was going to surge or if it would ignore cyclical market fundamentals. It would not have been the first time that this downturn ignored the conventional Southern California housing cycle. Call it a coincidence, but now that the cool temperatures, clouds and rain have subsided, the Orange County housing market is revving its engine. There are a ton of buyers in the marketplace right now according to REALTORS® in the trenches. The current problem is surprisingly a LACK OF INVENTORY. The expected market time for all homes priced below $1 million is 2.23 months, a deep seller’s market with a very low inventory. These homes represent 78% of the active inventory and 94% of demand. But, for homes priced above $1 million, there is NOT a lack of inventory. Collectively, this range represents 22% of the active inventory but only 6% of demand. The expected market time is 8.99 months, a buyer’s market. To understand how the market has evolved since last year, let’s take a closer look and compare year over year changes in both the active inventory and demand: 
The inventory has dropped significanlty in every range. With the exception of homes priced below $250,000, demand is much stronger in every range. There just are not enough homes on the market in the lower ranges where demand is so incredibly hot. For the lowest range, less than $250,000, the inventory is down 43%, but demand is only off by 10%. It is no wonder that there are multiple offers and homes selling for above their asking prices in the lower ranges. More inventory would actually be welcomed with open arms by both buyers and their REALTORS®. These charts also illustrate how the “jumbo” market between $750,000 and $4 million has actually improved tremendously. Their expected market time has dropped significantly as well. For example, homes priced between $1 million and $1.5 million dropped from an expected market time last year of 16.21 months to 6.55 months today. 6.55 months may be a buyer’s market, but it is not frozen. Anytime the expected market time is above 10 months, double digits, there is just too much inventory and very little demand. Currently, only homes above $2 million have expected market times that are double digits. They represent 10% of the current active inventory, but only 2% of demand. The current market is much different than just one year ago. Just ask all of the buyers who are having trouble purchasing because of a lack in inventory.
How do the rest of the numbers look? The active inventory increased over the past two weeks by 330 homes, or 4%, to 8,776. The active inventory last year was at 11,606, 2,830 additional homes compared to today. Two years ago it was at 15,617, 6,841 additional homes. The overall expected market time for all of Orange County dropped from 2.77 two weeks ago to 2.68 months today. The total pending count, which includes homes that have been pending for months, increased from 6,869 two weeks ago to 7,049 today. That is the highest level since I started tracking total pendings back in September of 2006. This is primarily due to the mind-boggling number of short sales that are waiting for lender approval (short sales are homes where the outstanding loans exceed the market value of the home and are subject to the lender[s] agreeing to take less in order to close the sale). 4,250 of the 7,049 total pending sales are short sales, 60%. Yet, only 40% of current demand is made up of short sales. On average, short sales just do not close as fast. Instead, they clog the system and buyers are left on the edge of their seats wondering when they will ever be able to move into their new home.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 26 homes to 2,795 and now represent 31.8% of the inventory. Last year at this time, there were 4,673 distressed homes on the market, representing 40.3% of the active inventory. The number of foreclosures within the active listing inventory dropped by two homes in the past two weeks from 396 to 394. The expected market time for foreclosures is an astonishing 1.05 months, a deep seller’s market. Foreclosures are flying off of the market. The number of short sales within the active listing inventory increased by 28 and now total 2,401. The expected market time for short sales is 1.86 months, also a deep seller’s market.
The inventory has dropped significanlty in every range. With the exception of homes priced below $250,000, demand is much stronger in every range. There just are not enough homes on the market in the lower ranges where demand is so incredibly hot. For the lowest range, less than $250,000, the inventory is down 43%, but demand is only off by 10%. It is no wonder that there are multiple offers and homes selling for above their asking prices in the lower ranges. More inventory would actually be welcomed with open arms by both buyers and their REALTORS®. These charts also illustrate how the “jumbo” market between $750,000 and $4 million has actually improved tremendously. Their expected market time has dropped significantly as well. For example, homes priced between $1 million and $1.5 million dropped from an expected market time last year of 16.21 months to 6.55 months today. 6.55 months may be a buyer’s market, but it is not frozen. Anytime the expected market time is above 10 months, double digits, there is just too much inventory and very little demand. Currently, only homes above $2 million have expected market times that are double digits. They represent 10% of the current active inventory, but only 2% of demand. The current market is much different than just one year ago. Just ask all of the buyers who are having trouble purchasing because of a lack in inventory.
How do the rest of the numbers look? The active inventory increased over the past two weeks by 330 homes, or 4%, to 8,776. The active inventory last year was at 11,606, 2,830 additional homes compared to today. Two years ago it was at 15,617, 6,841 additional homes. The overall expected market time for all of Orange County dropped from 2.77 two weeks ago to 2.68 months today. The total pending count, which includes homes that have been pending for months, increased from 6,869 two weeks ago to 7,049 today. That is the highest level since I started tracking total pendings back in September of 2006. This is primarily due to the mind-boggling number of short sales that are waiting for lender approval (short sales are homes where the outstanding loans exceed the market value of the home and are subject to the lender[s] agreeing to take less in order to close the sale). 4,250 of the 7,049 total pending sales are short sales, 60%. Yet, only 40% of current demand is made up of short sales. On average, short sales just do not close as fast. Instead, they clog the system and buyers are left on the edge of their seats wondering when they will ever be able to move into their new home.
The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 26 homes to 2,795 and now represent 31.8% of the inventory. Last year at this time, there were 4,673 distressed homes on the market, representing 40.3% of the active inventory. The number of foreclosures within the active listing inventory dropped by two homes in the past two weeks from 396 to 394. The expected market time for foreclosures is an astonishing 1.05 months, a deep seller’s market. Foreclosures are flying off of the market. The number of short sales within the active listing inventory increased by 28 and now total 2,401. The expected market time for short sales is 1.86 months, also a deep seller’s market.
Friday, March 5, 2010
Orange County Housing Report: An Olympic Pause
National anthems, a record medal haul for the U.S., a spectacular gold medal hockey game, all great distractions of Olympic proportions, but we typically see a pause in Orange County housing demand at this time of year. Demand, the number of new pending sales over the prior month, dropped by 190 homes over the prior two weeks, now totaling 3,054. However, this is a cyclical anomaly in the data because February is such a short month. Had February been a normal month in length, demand would have remained unchanged from a couple of weeks ago. Demand is 430 pending sales stronger than last year at this time and 1,161 stronger compared to two years ago. There really has not been much change in the past
month, in terms of activity. The storyline remains the same: there are not enough homes coming on the market in the lower ranges to satiate the ravenous appetite of current demand. If a home is priced well and is below $750,000, it will fly off the market and generate more than one offer. I am asked over and over why there is so much demand. It is worth repeating over and over again until the general public is acutely aware of the current marketplace. Yes, there are a ton of distressed homes on the market. But, in the lower ranges, they are not eroding pricing any further. Values have already dropped at least 35%. Interest rates are low. There still is the first time home buyer’s tax credit, but its reach is not very far due to the lack of inventory and the fact that cash buyers, or buyers with larger down payments, are snatching up many of the homes that are hitting the market.
How do the rest of the numbers look? The active inventory increased over the past two weeks by 311 homes, or 4%, to 8,446. The active inventory last year was at 11,562, 3,116 additional homes compared to today. Two years ago it was at 15,412, 6,966 additional homes. With a drop in demand and an increase in the inventory, the expected market time increased from 2.51 months two weeks ago to 2.77 months today. At the current pace, the overall market continues to be a seller’s market without much appreciation at all. But, for those sellers in the higher ranges, DO NOT GET EXCITED about the overall numbers. In drilling down to specific ranges, the higher the price range, the slower the market. It is slow for all markets above $1 million. Above $2 million, the market is ice cold. The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 64 homes to 2,769. The number of foreclosures within the active listing inventory increased in the past two weeks from 380 to 396, a gain of 16. The expected market time for foreclosures is a mind numbing 1.14 months, a deep seller’s market. Foreclosures remain the hot ticket. The number of short sales within the active listing inventory increased by 48 and now totals 2,373. The expected market time for short sales is 1.91 months, also a hot ticket. There are 6,867 total pending sales in all of Orange County. Of those, 4,254 are short sales, 62%. Yet, only 27% of all closed residential resales in February were short sales. Most short sales are simply not closing. They are waiting on lender, or in many cases lenders, approval of the sale. Of the 4,254 pending short sales, only 757 have been pending for less than a month. 1,488 have been
pending for over three months. The data does not even capture the short sales where a frustrated buyer walks away after waiting too long. Those are placed back on the market and, often, after generating several offers, quickly become pending sales again.
So, where do we go from here? There are a lot of unknowns regarding the future of the economy, unemployment, a double dip, etc. All of the experts seem to enjoy the healthy debate, but opinions are all over the map. But, the Orange County housing market is trudging forward, regardless. First time homebuyers represent about 25% of all purchases and so do investors. I have also been asked where all of these first time homebuyers are coming from. Many of them are in their late twenties or early thirties and responsibly saved for a down payment, but simply could not afford to buy when prices reached their astronomical heights several years back. They were priced out of the market for years and did not jump into the market until prices dropped to a very attractive level along with interest rates. Current demand is strong. The market would appear even stronger in if all of the short sales that are pending would close. That will change as more short sales are approved as 2010 rolls along. The federal government now wants the big banks to modify loans first. If that does not work out, then they want the big banks to go the short sale route. Foreclosing is only a last resort. As March rolls along and the spring officially begins, we can expect more homes to hit the market and demand to increase. The listing inventory will increase slightly due to more and more higher priced properties hitting the market where demand is not strong enough to keep up with the increased flow. The lower ranges will remain feverish.
month, in terms of activity. The storyline remains the same: there are not enough homes coming on the market in the lower ranges to satiate the ravenous appetite of current demand. If a home is priced well and is below $750,000, it will fly off the market and generate more than one offer. I am asked over and over why there is so much demand. It is worth repeating over and over again until the general public is acutely aware of the current marketplace. Yes, there are a ton of distressed homes on the market. But, in the lower ranges, they are not eroding pricing any further. Values have already dropped at least 35%. Interest rates are low. There still is the first time home buyer’s tax credit, but its reach is not very far due to the lack of inventory and the fact that cash buyers, or buyers with larger down payments, are snatching up many of the homes that are hitting the market.How do the rest of the numbers look? The active inventory increased over the past two weeks by 311 homes, or 4%, to 8,446. The active inventory last year was at 11,562, 3,116 additional homes compared to today. Two years ago it was at 15,412, 6,966 additional homes. With a drop in demand and an increase in the inventory, the expected market time increased from 2.51 months two weeks ago to 2.77 months today. At the current pace, the overall market continues to be a seller’s market without much appreciation at all. But, for those sellers in the higher ranges, DO NOT GET EXCITED about the overall numbers. In drilling down to specific ranges, the higher the price range, the slower the market. It is slow for all markets above $1 million. Above $2 million, the market is ice cold. The number of active distressed homes on the market, all short sales and foreclosures combined, increased by 64 homes to 2,769. The number of foreclosures within the active listing inventory increased in the past two weeks from 380 to 396, a gain of 16. The expected market time for foreclosures is a mind numbing 1.14 months, a deep seller’s market. Foreclosures remain the hot ticket. The number of short sales within the active listing inventory increased by 48 and now totals 2,373. The expected market time for short sales is 1.91 months, also a hot ticket. There are 6,867 total pending sales in all of Orange County. Of those, 4,254 are short sales, 62%. Yet, only 27% of all closed residential resales in February were short sales. Most short sales are simply not closing. They are waiting on lender, or in many cases lenders, approval of the sale. Of the 4,254 pending short sales, only 757 have been pending for less than a month. 1,488 have been
pending for over three months. The data does not even capture the short sales where a frustrated buyer walks away after waiting too long. Those are placed back on the market and, often, after generating several offers, quickly become pending sales again.So, where do we go from here? There are a lot of unknowns regarding the future of the economy, unemployment, a double dip, etc. All of the experts seem to enjoy the healthy debate, but opinions are all over the map. But, the Orange County housing market is trudging forward, regardless. First time homebuyers represent about 25% of all purchases and so do investors. I have also been asked where all of these first time homebuyers are coming from. Many of them are in their late twenties or early thirties and responsibly saved for a down payment, but simply could not afford to buy when prices reached their astronomical heights several years back. They were priced out of the market for years and did not jump into the market until prices dropped to a very attractive level along with interest rates. Current demand is strong. The market would appear even stronger in if all of the short sales that are pending would close. That will change as more short sales are approved as 2010 rolls along. The federal government now wants the big banks to modify loans first. If that does not work out, then they want the big banks to go the short sale route. Foreclosing is only a last resort. As March rolls along and the spring officially begins, we can expect more homes to hit the market and demand to increase. The listing inventory will increase slightly due to more and more higher priced properties hitting the market where demand is not strong enough to keep up with the increased flow. The lower ranges will remain feverish.
Monday, January 25, 2010
Orange County Housing Report: Regardless of the Rain, the Market is Heating Up
Buyers have jumped right back into the real estate market, not missing a beat since shaking off the holiday cobwebs. What in the world is going on with Orange County’s hot real estate market? First, it is not just Orange County, it is a Southern California phenomena. There are many skeptics and naysayers who believe that the hot market is temporary and totally propped up by the government. Many point to the tax credit, or the low interest rates to explain away the current hot demand. Others point to the pending “shadow inventory” of foreclosures that lurks around the corner and will destroy demand (I dealt with the shadows in detail two weeks ago). With the government potentially ending their purchase of Freddie Mac and Fannie Mae loans, interest rates are going to go through the roof and slaughter demand, according to the skeptics. They talk about a double dip and they are not referring to a soft serve ice cream cone dipped twice in chocolate. I heard recently that the real estate market is starting to inflate into a new bubble. The moral to the story: you don’t have to look very far to find somebody beating down the real estate market. There’s almost a perverse group of people out there that want to see the demise of real estate and values drop to 1995 levels. Bearish blogs and emails with web links to pessimistic articles abound. Those that labeled real estate a bubble back in 2005 were right. Values have dropped substantially. Foreclosures and short sales have flourished. But, what the current naysayers are missing is that values have dropped to levels that have improved affordability substantially. First time home buyers have come out of the woodwork. Interest rates have dropped to ridiculously low levels. Investors have reemerged. Interest rates will increase this year, but that will help reel in current rampant demand. Even though the government is stating that the end of their mortgage purchases is coming, they will not let rates increase much past 6%. They will purchase if they need to, but they do want to see that financial investors reemerge to some degree. And, let’s keep the current interest rates in perspective. They were at 17% in 1980, 10% in 1990, and 8% in 2000. 5% rates have helped resurrect the market, but they can float up and we will still have demand. It’s the incredible drop in prices that has fueled demand. In looking at long term data, values have dropped too much from where they should be today. They were way too high back in 2005, but they are too low in 2010. Does that mean that Orange County real estate is going to appreciate this year? Not with so many distressed properties on the market. Distressed properties are keeping a lid on appreciation for now. Don’t get me wrong; the tax credit has helped fuel demand. So have lower interest rates and government programs. But, basic economics always prevail. As prices fall, demand increases. They eventually fall to a point where demand begins to surge. This surge places a bottom on the drop in values. In the lower ranges, prices have bottomed (and in some really hot areas are actually increasing). Currently, there is almost too much demand. Showing a buyer a home in the lower ranges today is just like the heydays of 2004 and 2005. The problem is that there just is not enough inventory.
So, how do the rest of the numbers look: The active inventory increased over the past two weeks by 387 homes, or 5%, to 7,680. The active inventory last year was at 11,560, 3,880 additional homes compared to today. Two years ago it was at 15,245, 7,565 additional homes.
The current increase is typical for this time of year now that the holidays are behind us. We are at the beginning stages of developing the Spring market. Over the past two weeks demand, the number of new pending sales over the prior month, increased by 12% to 2,547. The Orange County housing market has not seen demand this strong at this point of the New Year since 2004. Last year’s demand was at 2,146, 401 fewer than today. Two years ago it was at 1,219,
1,328 fewer than today. The expected market time is currently at 3.02 months, a slight change from the 3.22 month mark posted two weeks ago. The current OC real estate is essentially made up of three very different real estate markets: - MARKET 1: the below $1 million market. A vast majority of the market is below $1 million. This market represents 77% of the active listing inventory and 93% of current demand. The expected market time for homes priced below $1 million is 2.5 months, a seller’s market with multiple offers that fetch sales above their asking prices. This is especially true below $750,000. This market is sizzling.
- MARKET 2: between $1 million and $1.5 million. This market represents 8% of the current active inventory and 4% of current demand. The expected market time is 5.73 months, which is just about at equilibrium. This market is all about price. Sellers that overprice their homes will sit. Buyers can afford to be more patient, but distressed properties that are priced well are snapped up quickly. This market is tepid.
- MARKET 3: homes priced above $1.5 million. This market represents 15% of the current active inventory, yet only 3% of demand. The expected market time is 18 months. Anything above 10 months is virtually at a standstill, a deep buyer’s market. This market is frozen.
Over the past two weeks the distressed inventory increased by 118 homes to 2,673, levels last seen in July of last year. The number of foreclosures actually dropped from 375 to 355. The expected market time for foreclosures is an unbelievable 0.94 months, a deep seller’s market. If you are a buyer interested in a foreclosure, sharpen your pencil. The number of short sales on the active inventory increased by 138 and now totals 2,318. As I forecasted last month, short sales are going to by KING in 2010. The expected market time for short sales is 2.17 months, also a seller’s market. These too require buyers to sharpen their pencils prior to bringing in an offer to purchase. 34.8% of the active inventory is distressed. Last year at this time 44.2% of the inventory was distressed. Distressed properties are fueling demand as well.
Monday, November 16, 2009
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.
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.
Monday, November 2, 2009
Orange County Housing Report: Lack of Inventory is SPOOKY
Keeping with the cries for “trick or treat,” the Orange County housing market has its own eerie trick, an incredible lack of inventory for homes priced below $1 million. The other day I was asked what one thing spooks me the most about the real estate market right now and the crazy inventory was my answer. There is very little fresh, new inventory. The lower the range, the “spookier” it gets. Properties that are priced right and in great condition are flying off of the market with multiple offers and tremendous activity. Buyers new to the market are dumbfounded by all of the competition. Their expectations are of doom and gloom and the ability to “cherry pick” whatever home they are interested in AND at a discount. Yet, just about every agent has pockets filled with buyers who want to buy but have been unable to purchase after losing out on property after property. For most, it is not the first time home buyer credit that is motivating them, as it is set to expire at the end of November anyhow (there is an extension that is in the works though). Many buyers don’t even qualify for the credit due to income requirements. Affordability, low rates and a fear that rates will increase from their historically low levels has motivated people to jump into the market. On average, agents are writing several offers for every buyer. To top it off, investors are back in the real estate game and pushing out buyers with smaller down payments. FHA (Federal Housing Administration) financing allows for a small down payment, but buyers electing to utilize this program simply are finding it impossible to purchase. We have seen prices increasing in the lower ranges slightly, but distressed properties are keeping a lid on stronger appreciation. The "shadow inventory" of foreclosed properties sitting on the sidelines and not yet on the market due to foreclosure moratoriums, government intervention, or banks careful not to flood the market, has only compounded the problem of a lack of inventory. Even if the strategy were to change and more of the “shadow inventory” hit the market, demand is currently strong enough to quickly sop it up. However, buyers should not expect foreclosures to flood the market all at once, lenders and the government are not interested in eroding values further. Instead, when the market heats up in the spring we can probably expect an increase in foreclosure activity to parallel an increase in demand. This housing downturn has been full of surprises and this year's "spooky" twist has been an unexpected drop in the inventory.
So, how do the numbers look? The market really has not changed much over the past few months. The past two weeks are definitely no exception. There have been no surprises other than the continued descent in the housing inventory. The active listing inventory decreased by 174 homes over the past two weeks, totaling 7,749. We have not seen the inventory this low since the beginning of January 2006. That’s 5,041 fewer than last year and 9,705 fewer than two years ago. The inventory has dropped by 4,093 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year. Demand, the number of new pending sales within the past month, dropped by 31 in the past couple of weeks to 3,166, a 1% drop. Last year’s demand was 703 fewer and two years ago was 1,925 fewer. For the remainder of the year, as we enter the Holiday market, we can expect demand to continue to slowly drop as the distractions of Thanksgiving, unwrapping presents and ringing in a New Year sets in. The expected market time for all of Orange County decreased ever so slightly in the past couple of weeks from 2.48 to 2.45 months. The expected market time last year was at 5.19 months and two years ago it was at 14.06 months. That’s correct. The current expected market time for the entire market, including the sluggish upper end, is two-and-a-half months. For homes priced below $1 million, the expected market time is 1.89 months. For homes priced above $1 million, the expected market time is 9.27 months. That’s because that range represents 29% of the active listing inventory, BUT just 8% of demand. There is actually okay activity up to $2 million, nothing to write home about, but some movement. For the 1,039 homes priced above $2 million, the expected market time is in the double digits, a crawl. After increasing for the first time this year two weeks ago, the number of distressed properties on the market decreased by 9 homes. 31% of the active inventory is distressed compared to 43% last year. There are currently only 314 foreclosures in all of Orange County, a decrease of eight in the past two weeks. The numbers have not really changed much since July. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.69 months. Last year the expected market time was at 1.22 months. Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. Buyers should be aware that it is a feeding frenzy out there for foreclosures. Realistic expectations are that the more qualified borrower able to bring in a strong offering price is going to ultimately prevail. Buyers with smaller down are going to find it difficult to compete. There are currently 2,075 short sales on the active market, a decrease of just one home in the past two weeks. Short sales currently represent 27% of the active listing inventory, a major player in today’s marketplace. The expected market time for short sales is currently at 1.85 month versus 6.92 months one year ago. Remember, there is nothing “short” about a short sale. Short sales, where the homeowner owes more than the home is worth, are subject to loan approval and can take anywhere from weeks to months to secure that approval.
Tuesday, August 18, 2009
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.”
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.”
Tuesday, July 14, 2009
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.
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.
Monday, May 4, 2009
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.
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.
Monday, April 6, 2009
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.
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.
Monday, March 9, 2009
Orange County Housing Report: A Stimulating Pause
As all of the details of the various stimulus plans are slowly making their way to Main Street, the Orange County housing market has slowed as well. The tax credit for first time home buyers (individuals who have not owned within the prior 3 years), the increased conventional loan limit to $729,750, the unveiling of the details to help instigate lenders to refinance loans for homeowners who are as much as 5% upside down in their homes, and the unveiling of the finer points to help promote loan modifications, are only just beginning to make their way to the experts and professionals that work within the real estate and lending industries. It is no wonder that there has been a pause in recent Orange County demand as buyers are just not yet aware of how all of the recent fanfare applies to them. Also, there has benn recent news of even more stimulus to come to help resurrect the dormant financial engine that keeps our economy in gear. The frozen financial markets are only moving because the U.S. Treasury is purchasing pools of loans to keep lending flowing. The government is working on incentives to motivate investors to enter the game as well. They are looking to help purchase “toxic assets,” a term that simply means “bad loans,” to help instigate lenders to lend again. The problem thus far has been that lenders have received billions of dollars from the government only to clamp down further on lending. Part of the problem is that for every loan that is bad, they have to have a certain threshold of capital set aside. With so many bad loans on the books, lenders have had to maintain hordes of capital in the form of reserves and they cannot use that money for new loans. So, this is what the government is sifting through in the background to repair out financial markets and restore confidence in the U.S. financial system once again. As more and more of these programs are unveiled there will be a slight delay until it trickles down to the Orange County marketplace. Similarly, the new higher conventional loan limits that were unveiled in February of 2007 took over a month until it finally hit Main Street in the form of new loans. The latest round of stimulus was only unveiled in the third week of February of this year, but the real estate and financial industries are still ironing out all of the details. With all of the stimulus and record low interest rates, each program is going to slowly trickle down in the form of increased demand in real estate in weeks and months to come.
So how do the numbers look? In the past two weeks, demand, the number of new pending sales within the prior month, decreased by 195 homes to 2,624. Last year at this time there were 731 fewer pending sales, totaling 1,893. Two years ago there were 2,388 pending sales, 236 fewer than today. The affects on demand from the stimulus plan should probably start to play out within the Orange County real estate marketplace over the next month. The active listing inventory has remained relatively unchanged so far this year, increasing by only 43 homes over the past month, bringing the current total to 11,562. Last year the active inventory was at 15,412 homes, 33% higher. Two years ago there were 996 additional homes on the market, totaling 12,558, 10% higher. The current expected market time increased from 4.09 months two weeks ago to 4.41 months today. Last year the expected market time was 8.14 months. Two year ago the expected market time was 5.26 months. Total Orange County pending sales is at a much healthier level compared to the last two years. Currently, total pending sales is at 4,408, an increase of 67 pending sales in the past two weeks. This is the highest level for total pending sales since I began tracking this figure back in September of 2006. Last year at this time, total pending sales totaled 2,524, 1,884 fewer than today. Two years ago it was at 3,419, 989 fewer compared to today. Today marks the first time that the distressed inventory is lower compared to the prior year, after falling by another 99 foreclosures and short sales over the prior two weeks to 4,408. One year ago today, the distressed inventory was at 5,057, 649 more than today. Since peaking on August 7th at 5,950, the distressed active inventory has dropped by 20%; that is 1,166 fewer distressed homes on the active market. The distressed inventory represents 41% of the total active inventory, dropping from 42% two weeks ago. The number of pending sales that are either a short sale or a foreclosure remained at 62%. The expected market time for foreclosures increased slightly from its record low of .99 months two weeks ago to 1.08 months today. Foreclosures remain the hottest category of homes within the Orange County marketplace today. The expected market time for short sales dropped ever so slightly from 5.16 months to 5.14 months today, a record low for the current housing downturn.
The condition of the Orange County real estate market really depends upon the price range. Of course, 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 1.95 months. However, there are only 321 detached homes within the detached active home inventory out of 6,966 total, less than 5%. The second hottest range is detached homes between $250,000 and $500,000 with an expected market time of 2.46 months. There are 1,905 detached homes within that range, 27% of the detached inventory.
It will be interesting to witness the ramifications of increased demand in the lower ranges. The lower ranges are already hot and there have been reports from the trenches that a bottom in pricing has been achieved in many areas where prices have not changed over the course of the past few months. As a stronger bottom is established in the lower ranges throughout Orange County, and the flow of financial system is restored, the strength in the market will eventually start to trickle up to the higher ranges.
So how do the numbers look? In the past two weeks, demand, the number of new pending sales within the prior month, decreased by 195 homes to 2,624. Last year at this time there were 731 fewer pending sales, totaling 1,893. Two years ago there were 2,388 pending sales, 236 fewer than today. The affects on demand from the stimulus plan should probably start to play out within the Orange County real estate marketplace over the next month. The active listing inventory has remained relatively unchanged so far this year, increasing by only 43 homes over the past month, bringing the current total to 11,562. Last year the active inventory was at 15,412 homes, 33% higher. Two years ago there were 996 additional homes on the market, totaling 12,558, 10% higher. The current expected market time increased from 4.09 months two weeks ago to 4.41 months today. Last year the expected market time was 8.14 months. Two year ago the expected market time was 5.26 months. Total Orange County pending sales is at a much healthier level compared to the last two years. Currently, total pending sales is at 4,408, an increase of 67 pending sales in the past two weeks. This is the highest level for total pending sales since I began tracking this figure back in September of 2006. Last year at this time, total pending sales totaled 2,524, 1,884 fewer than today. Two years ago it was at 3,419, 989 fewer compared to today. Today marks the first time that the distressed inventory is lower compared to the prior year, after falling by another 99 foreclosures and short sales over the prior two weeks to 4,408. One year ago today, the distressed inventory was at 5,057, 649 more than today. Since peaking on August 7th at 5,950, the distressed active inventory has dropped by 20%; that is 1,166 fewer distressed homes on the active market. The distressed inventory represents 41% of the total active inventory, dropping from 42% two weeks ago. The number of pending sales that are either a short sale or a foreclosure remained at 62%. The expected market time for foreclosures increased slightly from its record low of .99 months two weeks ago to 1.08 months today. Foreclosures remain the hottest category of homes within the Orange County marketplace today. The expected market time for short sales dropped ever so slightly from 5.16 months to 5.14 months today, a record low for the current housing downturn.
The condition of the Orange County real estate market really depends upon the price range. Of course, 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 1.95 months. However, there are only 321 detached homes within the detached active home inventory out of 6,966 total, less than 5%. The second hottest range is detached homes between $250,000 and $500,000 with an expected market time of 2.46 months. There are 1,905 detached homes within that range, 27% of the detached inventory.
It will be interesting to witness the ramifications of increased demand in the lower ranges. The lower ranges are already hot and there have been reports from the trenches that a bottom in pricing has been achieved in many areas where prices have not changed over the course of the past few months. As a stronger bottom is established in the lower ranges throughout Orange County, and the flow of financial system is restored, the strength in the market will eventually start to trickle up to the higher ranges.
Monday, February 9, 2009
Orange County Housing Report: Demand Takes Off
Even though the United States is waiting on the stimulus package, demand for Orange County real estate is beginning to take off. In the past two weeks, demand, the number of new pending sales within the prior month, increased by 24% to 2,671 pending sales, an increase of 674 homes. Last year at this time there were 1,103 fewer pending sales, totaling 1,568. Two years ago there were 2,463 pending sales, 208 fewer than today. After slowly increasing in demand during the first few weeks of the New Year, demand has surged and is following a course similar to 2007. It will be interesting to see what happens to demand as the Obama stimulus package is passed in the coming weeks. In the past two weeks, the total active inventory decreased by 41 homes to 11,519. Last year there were 3,740 additional homes on the market, totaling 15,259. Two years ago there were 464 additional homes on the market. The current expected market time dropped from 5.39 months two weeks ago to 4.31 months today. Last year the expected market time was 9.73 months and two year ago it was 4.87 months. Total Orange County pending sales is at a much healthier level compared to the last couple of years. Currently, total pending sales just eclipsed the 4,000 pending sale mark and now stands at 4,019. Last year, total pending sales did not surpass the 4,000 mark until June. Last year at this time, total pending sales climbed to 1,969, 2,050 less than today. Two years ago it was at 3,026, 993 fewer compared to today. There has not been much of a change along the distressed property front. The total number of distressed homes on the market, both foreclosures and short sales, dropped by 31 homes in the past couple of weeks and now stands at 5,073, 44% of the total active inventory. 63% of all pending sales are either a short sale or a foreclosure. The expected market time for foreclosures dropped to the lowest level of the current downturn, 1.08 months. Foreclosures are HOT and are selling almost as fast as they are placed on the market. Many buyers looking for a deal are fooled into thinking that they can purchase a foreclosure at a massive discount, only to find that multiple offers are generated on foreclosures and the average sales to list price ratio is 101%. That’s right, on average foreclosures are selling for above their list price. The expected market time for short sales also dropped to their lowest level of this downturn, 5.78 months. Foreclosures and short sales have driven prices down to levels where affordability has improved tremendously fueling an increase in first time home buying and overall demand. Lastly, the upper end market is still extremely stagnant and will remain so until the economy improves and something is done about jumbo financing. Currently, jumbo financing begins at $625,500, has a much higher interest rate, and qualifying is a lot more difficult than conventional financing.
So, where is the real estate market going from here? The real estate market is going to dramatically improve with the right stimulus package. The Obama administration and Congress is feverishly working on a major stimulus package and should be passed within the coming week. Let’s examine some of what they are strongly considering:
· Reduce interest rates to at least 4.5%
· Increase the conventional loan limit for high cost areas from $625,500 back to $729,900
· Eliminate repayment of the $7,500 first time home buyer tax credit and make it available to all buyers
The Federal Reserve and the FDIC are working on programs to prevent foreclosure and increase loan mitigation. Out in the real estate trenches, the topic of the day is “loan modifications.” The industry is acutely aware that all eyes are on decreasing the flow of foreclosures and finally putting a bottom under the housing market. In terms of units, Orange County housing bottomed out between the fourth quarter of 2007 and the first quarter of 2008; just take a look at current demand compared to demand last year, 70% higher. Pricing is a different story, and only with a bump in demand are we going to experience a true bottom in pricing. With historically low interest rates, an increased conventional loan limit, a buyer tax credit, foreclosure abatement and other forms of stimulus, the end result will be an increase in housing demand and a high probability of reaching a bottom in pricing around mid-year.
The final whistle of the Super Bowl marked the beginning of the Spring real estate market. Sure enough, there already was a considerable increase in demand. From here, demand will continue to rise and will most likely receive an “Obama bounce” with the passing of the stimulus package. With demand increasing and a return of the discretionary homeowner opting to keep their homes off of the market unless they really have to sell, we can expect the active listing inventory to remain flat or even slightly fall. The expected market time will fall as well to levels not seen in quite some time. The undercurrent of foreclosures and short sales will continue to fuel supply; but, depending upon the reach of the stimulus package, this flow may begin to ebb. Up to this point, the Orange County real estate market has been controlled by lenders (foreclosures and short sales). However, it has come to the point that not only the Orange County real estate market, but the entire national real estate market, is in the hands of our government. They know that the first step to turning around our economy is to stop the fall of real estate values and the flow of foreclosures and short sales. Stay tuned… round one is going to be signed by President Obama within a week.
Sunday, January 25, 2009
Orange County Housing Report: Waiting on Stimulus
With only a small change in the past two weeks, the official beginning of the Spring market will most likely be delayed until the MAJOR stimulus package that the Obama administration and Congress are currently working on is revealed. The stimulus package is targeted for a mid-February launch. Currently everybody seems to be cautiously waiting for change. The stimulus package promises to be nuclear in its reach, and it needs to be to begin to turn around the current economic situation. In 2009, the United States government is poised to be vigilante and relentless in their pursuit to turn things around. We will see foreclosure aid, more financing aid, job creation, tax breaks, small business incentives and more. Legislation and Federal Reserve involvement will be aimed at reducing interest rates and narrow the spread from the low rate that banks borrow money to the much higher interest rates that are passed onto consumers. The good old fashioned pendulum has been out of control. For years, lenders were carelessly lending with no restrictions and now they have battened down the hatches to the point that only the best of the best can qualify for anything outside of a government backed conventional or FHA loan, loans up to $625,500. So, the lending pendulum has swung from out of control lending to too many restrictions and hurdles to adequately meet real lending demand. That is the crux of the issue that our government is painstakingly trying to change. In sticking with the pendulum analogy, the financial market would be much healthier somewhere in between. The real question is just how long it is going to take for the financial markets to thaw and restore the backbone of our economy. One thing is for certain, the government is about to apply a relentless full court press until they have applied enough stimulus to turn the tide. Stay tuned, the government is working on giving the ailing economy a major Valentine’s Day gift.
So, what do the current numbers look like? In the past couple of weeks, the active inventory has increased by 273 homes to 11,560. Last year at this time there were 15,245 homes, a difference of 3,685. Two years ago there were 11,895, 335 additional homes compared to today. Demand, the number of new pending sales within the prior month, increased by 138 in the past two weeks, sitting today at 2,146 pending sales, an increase of 7%. Last year, demand was at 1,219, 927 fewer than today. Two years ago, there were 216 fewer pending sales, totaling 1,930. The expected market time dropped slightly in the past couple of weeks from 5.62 months to 5.39. Last year, the expected market time was at 12.51 months, and two years ago it was at 6.16 months. One thing is for certain, all of the numbers today illustrate a much better start to a New Year compared to both 2007 and 2008. Here’s how Orange County compares to the rest of Southern California:
The number of distressed homes, foreclosures and short sales, dropped by 14 homes in the past two weeks, totaling 5,104, 44.2% of the active listing inventory. Here’s a county comparison of distressed sales:
In Orange County, distressed homes are fueling a majority of the current activity. 77% of all distressed sales are below $500,000 and 90% are below $750,000.
The government is basically underwriting most of the current demand since they are propping up conventional and FHA financing, loan limits up to $625,500. All homes below $750,000 account for 71% of the current active inventory and 91% of demand. So even though 29% of the active inventory is above $750,000, it accounts for only 9% of demand. This is primarily due to the current financial crunch where financing outside of conventional and FHA loans has become very difficult to obtain. Since the government is currently doing nothing to help jumbo financing, these loans are sitting on a lender’s balance sheet. With conventional and FHA financing, the government is currently purchasing these loans to revitalize the flow of financing below the $625,500 limit. Investors are virtually sitting on the sidelines; only the government is currently propping up demand. Homes that fall within jumbo financing parameters, above $750,000, are suffering from no government intervention. This phenomenon will continue until either investors’ confidence is restored or the government steps in. The higher the price range, the slower the market. For homes between $750,000 and $1 million, the expected market time is 8.87 months. For homes between $1 million and $1.5 million, the expected market time is 17.88 months. For homes above $4 million, the expected market time is 116.67 months. There are 350 homes on the market above $4 million and demand is only at 3. In 2008, this range posted its best expected market time in March at 17.67 months. Until jumbo financing improves through government intervention or investor confidence is restored, the upper ranges can expect only slight improvements.
What can we expect in the Orange County real estate market from here? The Spring market will most likely take off after the major stimulus package is passed in mid-February. Demand will continue to improve, the inventory will rise slightly, and the expected market time will drop. Good news for the health of the real estate market is the fact that discretionary homeowners are not being fooled by aspirations of a strong Spring market; instead, most are choosing to not compete. Historically low interest rates will fuel demand as well, and we can expect rates to eventually remain in the mid-4’s, which is unprecedented. Distressed sales will also continue to fuel demand as more and more new distressed properties hit the market. We can expect strong numbers of distressed sales throughout 2009 with the distressed inventory falling slowly but surely. With so much stimulus, low interest rates and increased affordability, the current down cycle, now going on its third year, has a strong chance of bottoming as early as the middle of the year.
So, what do the current numbers look like? In the past couple of weeks, the active inventory has increased by 273 homes to 11,560. Last year at this time there were 15,245 homes, a difference of 3,685. Two years ago there were 11,895, 335 additional homes compared to today. Demand, the number of new pending sales within the prior month, increased by 138 in the past two weeks, sitting today at 2,146 pending sales, an increase of 7%. Last year, demand was at 1,219, 927 fewer than today. Two years ago, there were 216 fewer pending sales, totaling 1,930. The expected market time dropped slightly in the past couple of weeks from 5.62 months to 5.39. Last year, the expected market time was at 12.51 months, and two years ago it was at 6.16 months. One thing is for certain, all of the numbers today illustrate a much better start to a New Year compared to both 2007 and 2008. Here’s how Orange County compares to the rest of Southern California:
The number of distressed homes, foreclosures and short sales, dropped by 14 homes in the past two weeks, totaling 5,104, 44.2% of the active listing inventory. Here’s a county comparison of distressed sales:
In Orange County, distressed homes are fueling a majority of the current activity. 77% of all distressed sales are below $500,000 and 90% are below $750,000.
The government is basically underwriting most of the current demand since they are propping up conventional and FHA financing, loan limits up to $625,500. All homes below $750,000 account for 71% of the current active inventory and 91% of demand. So even though 29% of the active inventory is above $750,000, it accounts for only 9% of demand. This is primarily due to the current financial crunch where financing outside of conventional and FHA loans has become very difficult to obtain. Since the government is currently doing nothing to help jumbo financing, these loans are sitting on a lender’s balance sheet. With conventional and FHA financing, the government is currently purchasing these loans to revitalize the flow of financing below the $625,500 limit. Investors are virtually sitting on the sidelines; only the government is currently propping up demand. Homes that fall within jumbo financing parameters, above $750,000, are suffering from no government intervention. This phenomenon will continue until either investors’ confidence is restored or the government steps in. The higher the price range, the slower the market. For homes between $750,000 and $1 million, the expected market time is 8.87 months. For homes between $1 million and $1.5 million, the expected market time is 17.88 months. For homes above $4 million, the expected market time is 116.67 months. There are 350 homes on the market above $4 million and demand is only at 3. In 2008, this range posted its best expected market time in March at 17.67 months. Until jumbo financing improves through government intervention or investor confidence is restored, the upper ranges can expect only slight improvements.
What can we expect in the Orange County real estate market from here? The Spring market will most likely take off after the major stimulus package is passed in mid-February. Demand will continue to improve, the inventory will rise slightly, and the expected market time will drop. Good news for the health of the real estate market is the fact that discretionary homeowners are not being fooled by aspirations of a strong Spring market; instead, most are choosing to not compete. Historically low interest rates will fuel demand as well, and we can expect rates to eventually remain in the mid-4’s, which is unprecedented. Distressed sales will also continue to fuel demand as more and more new distressed properties hit the market. We can expect strong numbers of distressed sales throughout 2009 with the distressed inventory falling slowly but surely. With so much stimulus, low interest rates and increased affordability, the current down cycle, now going on its third year, has a strong chance of bottoming as early as the middle of the year.
Monday, January 12, 2009
Orange County Housing Report: A Much Better Start
The Orange County housing market is in a much better place in starting 2009 compared to the last couple of New Years. Prices are down, affordability is up and interest rates are at historically low levels. The housing market and the financial markets have the attention of every corner of the government. The Federal Reserve, Congress, the Bush Administration, the incoming Obama Administration, Democrats and Republicans alike, everybody has their collective eye on the ball, putting a bottom underneath the housing market, thawing the financial markets and reversing the trend of unemployment. With all of that in mind, many buyers have already taken advantage of the Orange County housing market despite the slowest season of the year for real estate, the Holiday market. After President-Elect Obama is sworn into the office in about two weeks, we will have officially left the distractions of the holidays behind and entered into the beginning stages of the Spring market. The Spring market this year will be marked by increased demand and an inventory that will prove to be slow to grow. So, where are we right now? First, let’s take a look at the current active inventory. The inventory has shed just over 1,100 homes in the past month and now sits at 11,287 homes. Last year, we started 2008 with 14,944 homes on the market, 3,657 more than today. In 2007 there were 11,643 homes on the market, 356 additional compared to right now. Don’t be fooled by the similarities in these numbers because 2007 was much different than today. Today we have discretionary sellers who expect tremendous competition from distressed properties, both short sales and foreclosures. In 2007, many homeowners expected the Spring market to be hot and homes coming on the market outpaced demand considerably; thus, the inventory grew. In 2008, the discretionary seller knew what to expect and the number of homes that came on the market kept up with demand. In 2009, we can expect it to be quite similar to 2008. Due to the distractions of the heart of the holidays, demand, the number of new pending sales over the course of a month, took a cyclical drop of 314 homes over the past four weeks to 2008. But, this is typically the low point of the year for demand. At this time last year, demand was at 998 pending deals, 1,010 fewer than today. Demand is 101% stronger than last year… incredible! Two years ago demand was at 1,496 pending sales, 512 fewer than today. Three years ago demand was at 1,573 pending sales. The expected market time is currently at 5.62 months. Last year’s expected market time was at 14.97 months, and it was at 7.78 months two years ago. The distressed inventory, foreclosures and short sales, dropped by 401 homes over the past month, bringing the total to 5,118, its lowest point since March of last year. That’s a 7.2 % drop. Distressed properties now make up 45.3% of the inventory, a slight drop over the past couple of weeks. 69% of all pending sales are distressed sales right now. Obviously, the distressed inventory is helping fuel demand. 79% of all distressed homes are isolated below $500,000 and 92% are found below $750,000. It is no wonder that the lower end of the market has been a lot hotter than the rest of the market. All homes, distressed and the non-distressed traditional homeowner, below $500,000 make up 53% of the active inventory and 73% of demand. The lower ranges are also hotter than the rest of the market due to the fact that the government is backing all conventional financing and FHA financing up to $625,500. That does not mean that there are not great deals in the upper ranges; it means that it there are a few more hoops to leap through in financing above the $625,500 loan limits.
So, if you are a buyer, how should you approach this market? It is a great time to be a buyer. It has been more than worth the wait for the patient buyers that have been sitting on the fence. Now, I am hearing again of so many buyers trying to predict the bottom of the housing market. It absolutely astounds me at the number of buyers that flocked to purchase back in 2005 after tremendous appreciation year in and year out. Real estate booms and busts are cyclical and it could not last forever. After tremendous depreciation in housing, this is the time to purchase. This is the time to flock to real estate, when prices are down. Why buy near a peak in appreciation? The time to buy is somewhere near the bottom of the trough of a downturn. Would it be so bad if the market continued to drop for another year? Not really. Prices have already dropped considerably to this point, and most of that drop took place when we bottomed in demand from August of 2007 through February of 2008. The bottom line, if you find the home that best meets your family’s desires and budget, and you are not planning to move in a couple of year, than BUY. This is Orange County, a very desirable place to live with a shortage of buildable land, plenty of great weather and beaches and historically an excellent long term housing investment. Buyers in this market need to be aware that there is plenty of competition for distressed properties and homes in the lower ranges. The sales to list price ratio for foreclosures is currently 101%, meaning that, on average, they are selling for slightly above the list price. The sales to list price ratio for short sales is currently 97%, meaning that offers written for 10% less than the asking price have a much less chance of success. Know the market that you are considering and utilize the expertise of an experienced real estate agent to guide you through the myths and hurdles of Orange County housing in 2009.
So, if you are a seller, how should you approach the market? If you are a homeowner and you absolutely, unequivocally have to sell, than do not hesitate to place your home on the market immediately at the best price and in the best condition. Homes that are priced well and in great condition have a much better chance in successfully selling in a shorter amount of time. So, carefully arrive at price by placing the most emphasis on current pending sales and recent comparable sales, sales within the prior 90-days. Major discounts from the prior sales are not necessary, but do not “pad” the asking price because there is a dollar amount that you are looking for. Unfortunately, the market does not care what you need to net from your home. Be prepared to make any changes or modifications to the asking price or condition based upon new pending and closed sales and buyer showing feedback. Sellers too need to know their market and utilize the expertise of an experienced real estate agent to achieve success. The area expert may not be the best choice. Instead, look to the real estate agent that knows and understands the current market with a track record of success, a market expert.
So, if you are a buyer, how should you approach this market? It is a great time to be a buyer. It has been more than worth the wait for the patient buyers that have been sitting on the fence. Now, I am hearing again of so many buyers trying to predict the bottom of the housing market. It absolutely astounds me at the number of buyers that flocked to purchase back in 2005 after tremendous appreciation year in and year out. Real estate booms and busts are cyclical and it could not last forever. After tremendous depreciation in housing, this is the time to purchase. This is the time to flock to real estate, when prices are down. Why buy near a peak in appreciation? The time to buy is somewhere near the bottom of the trough of a downturn. Would it be so bad if the market continued to drop for another year? Not really. Prices have already dropped considerably to this point, and most of that drop took place when we bottomed in demand from August of 2007 through February of 2008. The bottom line, if you find the home that best meets your family’s desires and budget, and you are not planning to move in a couple of year, than BUY. This is Orange County, a very desirable place to live with a shortage of buildable land, plenty of great weather and beaches and historically an excellent long term housing investment. Buyers in this market need to be aware that there is plenty of competition for distressed properties and homes in the lower ranges. The sales to list price ratio for foreclosures is currently 101%, meaning that, on average, they are selling for slightly above the list price. The sales to list price ratio for short sales is currently 97%, meaning that offers written for 10% less than the asking price have a much less chance of success. Know the market that you are considering and utilize the expertise of an experienced real estate agent to guide you through the myths and hurdles of Orange County housing in 2009.
So, if you are a seller, how should you approach the market? If you are a homeowner and you absolutely, unequivocally have to sell, than do not hesitate to place your home on the market immediately at the best price and in the best condition. Homes that are priced well and in great condition have a much better chance in successfully selling in a shorter amount of time. So, carefully arrive at price by placing the most emphasis on current pending sales and recent comparable sales, sales within the prior 90-days. Major discounts from the prior sales are not necessary, but do not “pad” the asking price because there is a dollar amount that you are looking for. Unfortunately, the market does not care what you need to net from your home. Be prepared to make any changes or modifications to the asking price or condition based upon new pending and closed sales and buyer showing feedback. Sellers too need to know their market and utilize the expertise of an experienced real estate agent to achieve success. The area expert may not be the best choice. Instead, look to the real estate agent that knows and understands the current market with a track record of success, a market expert.
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