The Green Sheet
The Green Sheet is a review written about the current Orange County California real estate market. It is highly accurate and widely read.
Orange County Housing Review: Time to Throw in the Towel?
October 16, 2011
Sellers have to look deep to see if they really have what it takes to be successful in today’s market or they should just throw in the towel.
Sellers Giving Up: in both August and September, 3,370 homes were pulled off the market.
This is the time of year where sellers have to do some soul searching. The best time of the year, the Spring and Summer Markets, are now in the rear view mirror. We have moved into the Autumn Market and will move into the Holiday Market soon. But, hold your horses; that does not mean that the market is dead. Far from it, demand has dropped by only 9% since mid-August. Over the past eight years during the same time period, demand has dropped, on average, 12%. This is part of a normal Orange County and Southern California housing cycle. There’s still plenty of activity in the marketplace, just not at the pace of the best time of the year to sell. With school in full swing again, sellers that have had their homes on the market for an extended period of time come to the realization that the housing season has changed. So, sellers have looked hard into the mirror to ask themselves if they have what it takes to succeed in today’s market. If they have been on the market for a while without success, it is most likely price that has been their stumbling block. The question becomes, do they drop the price to where it will sell, or do they throw in the towel and pull their home off the market. Over the past couple of months, 3,370 homeowners have opted to throw in the towel, representing 34% of the current active market. Since mid-August, the current active inventory has dropped by 9%. Over the past eight years, the average is 3%. Therefore, the current market is fairing pretty well in comparison to prior years. Demand has not dropped as far while the listing inventory has shed a lot of dead weight. That’s a healthy step in the right direction and may be the first sign that 2012 could be a better year than most leading economists are currently forecasting. Currently, in the lower ranges, below $500,000, homes that are priced right will still obtain multiple offers. With sellers carefully pricing their homes, they will continue to sell very close to their asking prices. The 2011 average sales to list price ratio is, and will most likely remain, at 97%, meaning that there is only 3% flexibility in prices. Where do we go from here? Demand will remain pretty close to its current levels for the remainder of the Autumn Market, through mid-November. The active inventory will continue to shed homes slowly. The market will then transition into the Holiday Market, from mid-November through the first few weeks of the New Year. With all of the distractions of the holidays, this is the slowest time of the year for real estate. We can expect both the listing inventory and demand to drop to its lowest levels of the year. It will be a good time to be a buyer. The sellers that remain on the market will be really motivated. With both motivated sellers and historically low interest rates, it’s a great time to be a buyer.
Demand: Demand actually INCREASED by 1% over the past couple of weeks.
Initially demand dropped with the beginning of school and the Autumn Market. Yet, it has since reached a plateau and actually increased over the past couple of weeks, adding an additional 31 homes and totaling 2,899 pending sales. There are 108 additional pending sales this year compared to last year at this time, 4% stronger. Demand will remain at this current plateau until the Holiday market where it will cyclically drop.
The Active Listing Inventory: With so many homeowners throwing in the towel, over the past month the inventory has dropped by 5%.
As is customary for this time of the year, the inventory has dramatically dropped, shedding 522 homes over the past month and now totaling 10,044, poised to drop below the 10,000 mark for only the second in 2011. This year, the inventory did not change much, reaching a height of 11,358 homes at the end of June. The current low for the year was actually achieved at the very beginning of January, 9,987 homes, and the inventory will drop way below that level as the year comes to a close. The current levels are healthier than a year ago, with 1,449 fewer homes, 14% better. This indicates that this year’s sellers, for the most part, are much more realistic. For the overall health of the market, I hope this trend continues.
The Distressed Market: the distressed inventory has stayed the course and has not changed much in months.
Despite all of the reports of the impact of “robo-signing,” the data just does not support that theory here in Orange County. Instead, we started the year with 4,123 foreclosures and short sales on the market, and currently there are 3,544, a 14% drop. Since mid-July, the distressed inventory has dropped by 6%. For the remainder of the year, expect the distressed inventory to not change much. The active distressed inventory decreased by 44 homes in the past two weeks and now totals 3,544. The foreclosure inventory increased by 10 homes in the past two weeks and now totals 693. With an expected market time of 1.76 months, it’s a very HOT seller’s market for foreclosures. There’s tremendous competition to purchase foreclosures and very little supply. They only represent 7% of the active inventory. They sure do get a lot of press though! The short sale inventory decreased by 54 home in two weeks and now totals 2,851, 28% of all active listings in Orange County. The expected market time for short sales is 2.55 months, also very hot.
Orange County Housing Review: Demand Up 10%
August 18, 2011
The first school bell represents the end of the summer housing market in Orange County as we transition into the autumn. The Orange County housing market is taking advantage of the waning days of summer with a surge in demand and a drop in the active listing inventory.
Demand: Looking back over the last month, demand has increased by 10%.
Demand, the number of new pending sales over the prior month, has increased by 300 pending sales over the last month and now totals 3,194. Last year at this time, the wind got knocked out of the sails of demand with the end of the first time home buyer tax credit. It slowed so much; it appeared that many buyers opted to push up their purchase prior to the deadline, which left the second half of 2010 with deflated demand. There are 192 more pending sales today compared to one year ago, 6% better. The gap between today’s demand and last year’s is widening. But, it is important to keep in mind that the summer Orange County housing market is fading, replaced by the autumn market, a bit slower in terms of demand. In ranking the various times of year to place a home under contract, the spring is always the best, followed by the summer, then the autumn, and, finally, the winter/holiday market.
The Active Listing Inventory: The active listing inventory continues to shed homes.
Last year at this time the inventory was growing, continuing right through September. Not this year. Over the past month, the inventory has shed a total of 321 homes and now totals 11,051, poised to drop below the 11,000 mark for the first time since April. Last year, the inventory grew by 415 homes in a month. There were 599 more homes on the market compared to today. In transitioning to the autumn market, more and more sellers are going to realize that they missed the best time of the year to successfully sell their homes. Sellers will have to dig deep and figure out whether or not they have the stomach to do what it takes and continue to market their homes through the coming months. Many will opt to throw in the towel and put off selling for now. As the year comes to an end and the distractions of the holidays set in, the momentum of sellers throwing in the towel will increase. The active listing inventory will continue to drop through the remainder of the year and the rate of homes entering the market will slow.
Expected Market Time – Is it Accurate?: there is a big discrepancy between this reports expected market time and that of most others, but there is a great explanation.
The expected market time for all of Orange County is currently about 3.5 months. For homes priced below $500,000, it’s closer to 2.5 months, a HOT seller’s market. Due to all of the distressed activity in those ranges, it’s a seller’s market without appreciation, just tremendous activity. That’s where there is still multiple offers, cash is king, and sales prices close to or at their asking prices. Even the $500,000 to $750,000 market is heated. The $750,000 to $1 million market is in equilibrium and only 15% distressed. Above $1 million, the market is frigid and is poised to cool down even more as the year comes to a close. So, why is this expected market time so much less than others that are reported, like California Association of REALTORS® (CAR)? They just reported a 7.5 month expected market time for Orange County. The market time that I track is based upon demand, new pending sales. In taking the number of homes on the active inventory and using demand, pending sales, to find how many months it would take to exhaust every home on the market, the result is an extremely accurate gauge as to what buyers and sellers are experiencing in the real estate trenches today. CAR’s statistic is based upon closed sales. Pending sales is a snapshot of what is going on right now within the housing market, TODAY.Closed sales provide a snapshot of activity typically a couple of months ago. A decision based upon past activity is similar to driving by looking through the rear view mirror, not very accurate. It is a fact, not all pending sales close. And, with so many short sales that never seem to close, many fall out of escrow and are placed right back on the market. Currently, about 1 of 5 pending sales falls apart. It’s just a market reality. Yet, using pending sales over the past month tells us what buyers are willing to do most recently. Every single buyer that enters escrow signed a purchase agreement with the intention to buy. Entering into a pending sale with a short sale that requires lender approval may never close, but if lenders started coming back with immediate approvals, the numbers of sold homes would increase and the fallout rate would drop like a rock. So, the sold data just does not tell enough about what is going on today. Pending data illustrates what buyers and sellers are actually experiencing in terms of competition, activity and the ability to succeed in today’s marketplace.
The Distressed Market: the distressed inventory increased slightly.
The active distressed inventory increased by 19 homes in the past two weeks and now totals 3,634, but still the second lowest level of the year.The foreclosure inventory increased by 37 in the past two weeks and now totals 699 with an expected market time of 1.68 months, still a very HOT seller’s market. Buyers can expect tremendous competition. The short sale inventory decreased by 18 homes and now totals 2,935, 27% of all active listings in Orange County. The expected market time for short sales is 2.5 months, also very hot. For the remainder of the year, we can anticipate not much change in the distressed inventory.
Orange County Housing Review: Demand up 5%
August 4, 2011
As the end of summer approaches, Orange County housing demand increased, typical for this time of year. It is a great time to be looking for houses on these perfect, Southern California days. People travel from all over the world to enjoy Orange County beaches and the dry summer heat. For those looking to buy, they are purchasing their stake in this enviable paradise.
Demand: August is almost always a last hoorah of buyers taking advantage of purchasing before the end of summer.
Demand, the number of new pending sales over the prior month, has increased by 50 pending sales and now totals 3,044. Demand is not propped by a first time home buyer tax credit and is functioning adequately without any artificial stimulus, unlike the prior two years. As a matter of fact, year over year demand is actually up by 72 homes year. It wasn’t until a month ago when, for the first time this year, demand was higher this year compared to last year. The gap has been growing wider and wider in comparing the two years. From here, expect demand to remain strong until the first school bell rings, signaling the start of another school year, the beginning of the fall market. From there, demand will decelerate a bit, and will drop further during the winter and holiday markets.
The Active Listing Inventory: for the first time this year, the active listing inventory is less than one year ago.
Last year, the active listing inventory was increasing unabated through September. Not this year. Instead, the active listing inventory started to drop a month ago and it is gaining steam. In the past two weeks, the active listing inventory shed 217 homes, or 2%, dropping to 11,103. Last year, the inventory grew by 179 homes. There were 311 more homes on the market compared to today. From here we can expect the active inventory to continue to drop through the end of the summer and throughout the fall and winter markets. The inventory height was achieved on June 23rd at 11,388 homes, 285 more than today.
Median Sales Price Expectations: the lower ranges are hotter this year compared to last, which will skew the median sales price in the months to come.
I have never been a big fan of the median sales price, other than utilizing it as a barometer for potential price direction. Be prepared for year over year drops in the median sales price. That is not necessarily pinned to drops in the actual market value of homes. Instead, in taking a look at demand this year compared to last, it may be higher overall, but most of the activity can actually be found in homes priced at less than $500,000, overall a 12% increase in demand, or 221 additional pending sales. For homes priced above $500,000, with the exception of the $2 million to $4 million range, demand has dropped significantly, an overall 13% decrease, or 148 pending sales. With the current market tilting towards the lower end, in the coming months the number of sales year over year may be more, but the median sales price, the middle value, will be less than 2010. This phenomenon illustrates the inherent flaw in utilizing the median sales price as a true indicator of depreciation or appreciation.
The Distressed Market: the distressed inventory dropped to its lowest level since August of last year.
The active distressed inventory shed 98 homes in the past two weeks and now totals 3,615. That’s not only the lowest level of the year, it’s the lowest level since the first week of August 2010, when there were just 40 fewer distressed homes on the market compared to today. The distressed inventory has dropped by more than 500 homes so far this year. For foreclosures, there are only 662 on the market today with an expected market time of 1.53 months, a very HOT seller’s market. Buyers can expect tremendous competition. There are currently 2,953 short sales on the active market, 27% of all active listings in Orange County. The expected market time for short sales is 2.57 months and they attract a lot of attention. For the remainder of the year, we can anticipate not much change in the distressed inventory.
Orange County Housing Review: A 2011 Midyear OC Housing Update
July 21, 2011
Not a lot is changing in regards to the Orange County housing market, but it looks as if the second half is poised to be better than a year ago. So, how’s 2011 shaping up thus far and where is housing headed from here? Let’s dig a little bit deeper…
Demand: no tax credit this year, but demand is much more predictable and following a normal cyclical pattern.
This is the first time since 2008 where demand has been able to function on its own without an $8,000 first time home buyer tax credit to skew the numbers. In 2009, the credit expired on November 30th. From April 2009 through November 2009, demand remained well above the 3,000 pending sale threshold, enabling 2009 to be the best year in total sales since 2005, prior to the beginning of the current downturn. In 2010, in order to take advantage of the tax credit, a home had to be pending by April 30th. The market sizzled for the first four months of the year, but dropped considerably after the pending sale deadline. The second half of 2010, with no tax credit, demand was off by 8% compared to 2009. Through today, demand is off by 10% compared to last year. Closed sales are off by 10% as well. Naysayers who have followed this housing report have often pointed to the fact that pending sales are not an accurate gauge of the housing market because many pending deals fall out. True, many pending deals do fall through, but that has been going on for years. There’s really no difference in the frequency of unsuccessful pending sales this year compared to prior years. Thus, if there is a decrease in pending deals this year compared to last year, closed sales will decrease as well. Pending sales is the absolute best gauge for knowing what’s going on in the housing market trenches TODAY. So much attention is placed on closing sales, but that is a very accurate gauge for what was happening in the market two months ago. For example, year over year demand has been off up until this month. Today, demand, the number of new pending sales over the prior month, sits at 2,894 pending sales, 24 more homes than last year. That’s not much, but I will bet all the money in the world that year over year closed sales in September will be nearly the same or slightly higher than last year. Where do we go from here? Demand will continue to follow a normal housing cycle and will be just a little bit better than last year’s numbers. The end of the summer market will occur with the beginning of the new school year. We can expect demand to drop slightly during the autumn market, September through the first couple of weeks of November. Demand will drop to its lowest levels of the year during the holiday/winter market, from Thanksgiving through February. Do to all of the distractions of the holidays, the absolute slowest, rock bottom time of the year for demand is from Thanksgiving through the first few weeks of the New Year.
The Active Listing Inventory: after slightly increasing this year, the inventory will continue to drop through New Year’s Day.
After a painful 2007 and 2008, homeowners finally understood that the heydays of the earlier 2000’s were gone and were not coming back anytime soon. Those years were marked by a swelling of the active listing inventory and a majority of sellers were simply unsuccessful. In 2007, the inventory blossomed to nearly 18,000 homes on the market. In 2008, it almost reached 16,000 homes. In 2009, after being fooled for two years, the discretionary homeowner emerged. For the most part, homeowners knew that either they had the stomach to do what it takes to successfully sell or they simply did not place their homes on the market. The active listing inventory dropped by 35% that year, finishing the year at just 7,381 homes, levels not seen since 2005. The first time home buyer tax credit that expired in November helped clean up the inventory substantially. But, it was the discretionary homeowner that saved the day that year. In 2010, the discretionary homeowner took a hiatus and from the beginning of the year until mid-September, the inventory grew by an astonishing 63%, erasing all of the progress of 2009. That happened despite the second $8,000 credit. In the trenches, agents were stating that sellers were placing their homes on the market at unrealistic levels. Bank foreclosures, short sales and equity sellers all fell into the trap of being overzealous. With the spring and summer markets gone, the inventory dropped from September through the end of the year by 14%. 2011 started with an active listing inventory of 9,987 homes and increased by 14% until it reached a 2011 peak a month ago at 11,388. In the past month, the listing inventory shed 68 homes, less than 1%. The agents in the trenches state that there are still plenty of unrealistic homeowners. Most successful sellers have to reduce their price at least once. Homes sell due to three factors: price, location and condition. A homeowner can do nothing about changing their location. They do have control over price and condition. In this market, where every buyer is looking for a “deal” and not willing to pay a dime over the market value, price is by far the most important element to success. Buyers do not care what a seller needs to net from their home. They don’t care if a seller thinks there home is the best and has top notch upgrades. Instead, these spreadsheet buyers are going to carefully arrive at price and will walk away if they feel a seller is not being realistic. They would rather wait for another home to come onto the market than overpay. So, where will the active listing inventory go from here? The inventory may even increase a little through August, but will start to drop during the autumn market and at a more accelerated rate during the holiday/winter markets. Many sellers will throw in the towel after being unsuccessful in their attempts to sell, and will avoid the slower seasons. The listing inventory will not start to increase until after the New Year.
Three Distinctly Different Markets: the expected market time is vastly different depending upon the price range.
In terms of expected market time, there are three distinctly different price ranges. For the county as a whole, the expected market time is just shy of four months. But, we need to drill down a little bit deeper to get the real story. The below $500,000 price range makes up 51% of the active inventory and 68% of demand. That means that only 32% of demand can be found in homes above $500,000. The expected market time for homes priced below the $500,000 mark is only 2.95 months, a seller’s market. In that range, buyers can expect a lot more competition, multiple offers and sales prices at or near their asking prices. The average sale is just 2% lower than the asking price. That’s not a lot of room in the price. Buyers in this range often get burned a couple of times before sharpening their pencils and writing very realistic offers to purchase. Many sellers start off too high, but when they come down to realistic levels, sell very fast. The second distinctly different market is the $500,000 to $1 million range. The expected market time is 4.6 months, very close to equilibrium. Realistic pricing is an absolute must and can still take a while to procure an offer. Buyers in this range still should not get too zealous. The average sale is only 3% off of the asking price. That’s a little bit of room, but buyers who desire to submit low ball offers should not waste their time. The final range is homes priced above $1 million. The expected market time is just under a year. The higher the range, the longer it will take to sell. For homes priced above $4 million, 306 on the market today, the expected market time is 51 months. Buyers looking to buy above $1 million need to know that many homes are unrealistically priced. The average sale is 7% off of the asking price. In this range, 7% is sizable. Sellers need to very carefully arrive at price. They also need to know that there just are not enough buyers in the market looking for high priced homes. Even with an accurate price, many sellers need to pack their patience and wait for the right buyer to come along.
The Distressed Market: the active distressed inventory has remained basically the same all year long.
Yes, everybody is looking for a deal, but this market has its share of definite challenges. The active distressed inventory currently sits at its lowest level of the year, 3,713 homes and has shed 404 homes since the start of the year. Everybody has heard of the infamous “shadow inventory,” but that does not mean there is going to be a wave of distressed homes to hit the market. Instead, the market will go up or down only slightly will be very slow to change. For foreclosures, there are only 687 on the market today with an expected market time of 1.73 months, a very HOT seller’s market. Buyers can expect tremendous competition. Short sales appear to be a great bargain, but when they are priced too far below market value, they procure a lot of attention and so many offers, that they often sell way above their asking prices. Then, the waiting game begins. The average short sale takes months to put together as everybody has to wait on the first trust deed holder, all junior loan holders, and, often, a homeowner association attorney. The deal is not put together until all players agree to take less than what is owed. Some short sales that are not as complicated can take just a few weeks for lender approval, while others can take as long as a year to put together. There are currently 3,026 short sales on the active market, 26% of all active listings in Orange County. The expected market time for short sales is 2.83 months and they attract a lot of attention. Expect more of the same when it comes to the distressed market. It’s not going to change much anytime soon.
Orange County Housing Review: Shop by rates- they will not last
June 23, 2011
Everybody is taking for granted that these current historically low level interest rates will last forever… they absolutely will NOT.
Interest Rates: we will not see interest rates like these every again during our lifetimes.
Remember the days when gas prices were below $1.50 per gallon? That was just nine years ago. At this point we would settle for paying $3.00 per gallon. Longing for those days will not make them come back. In fact, I don’t think we will ever see gas prices below $2.00 ever again, and most likely have seen the last of prices below $3.00 as well. Many buyers are going to be kicking themselves for not taking advantage of today’s incredible interest rate atmosphere. As a society, we unfortunately shop for homes strictly by price. Sure, buyers and homeowners want to take advantage of today’s interest rates, but I will bet good money that everybody has forgotten the day when we rejoiced at interest rates that dropped below 8% a decade ago. Very few people believe interest rates could increase dramatically. Yet, interest rates are poised to increase, they HAVE to. The United States government has dumped tons of money into the economy over the past several years in hopes to jump start activity. When the economy is flooded with money, inflation eventually rears its unwelcome head. When that happens, and it will, interest rates will jump. So, why am I making such a big deal about interest rates? I am making a big deal because as interest rates rise, affordability drops just as swiftly. For a $500,000 loan, as interest rates bump up from 4.5% to 6.5%, an inevitable reality down the road, affordability drops by $100,000. If rates increased to 8%, year 2000 levels, the monthly payment for a $400,000 loan increases to $2,935. For a $1 million loan, affordability drops by $200,000 with a 2% increase in interest rates. Since these payments are not going to hold at these historically low levels, for buyers that are waiting for prices to fall further, they risk being able to afford and qualify for a much smaller purchase price. It is time to shop for homes based upon today’s incredible low payments. We all shop for cars based upon the monthly payment, often negotiating to drop the monthly payment by $20. As mortgage rates increase, monthly payments go up by hundreds of dollars. We are worried about saving $20 per month for a car with, it’s time that we start worrying about saving hundreds of dollars and cashing in on today’s “once in a lifetime” historically low mortgage rates. If a buyer plans on holding onto a home for many years, a wise way to approach real estate today, the total savings over time with a lower monthly payment will be staggering.
Housing Demand: Demand dropped slightly over the past couple of weeks.
Demand, the number of new pending sales over the past month, decreased by 40homes in the past two weeks and now totals 3,060 pending sales. Last year at this time demand was almost at the same level with 3,107pending sales. The discrepancy in year over year demand has vanished because last year at this time the first time home buyer credit had expired.
The Active Listing Inventory: There listing inventory grew slightly.
The inventory slightly increased by an additional 51 homes, almost unchanged, and now totals 11,388. Last year, the listing inventory was continuing to grow at an alarming pace. This time last year during the same two week period, the inventory grew by over 3% and totaled 10,462, just 962 fewer homes than today. The year over year gap has dramatically diminished, starting the year with 2,694 home spread and now totals less than a 1,000.
The Distressed Market: the active distressed inventory changed very little this year.
The distressed inventory now totals 3,810 and represents 33.5% of the active inventory. The expected market time for foreclosures is remains incredibly HOT at 1.57 months. There are currently only 670 foreclosures within the active listing inventory, an increase of only two homes in the past month. There are currently 3,140 short sales on the active market, increasing by one home in the past month. The expected market time is 2.83 months for short sales, also a seller’s market.
Orange County Housing Review: A Perfect Time to Buy?
June 9, 2011
Last week we hear of a double dip in housing, and then this week we hear of a perfect time to buy. Which is it? It depends.
Perfect Time to Buy: Ultimately buying depends upon the location and how long a buyer is going to stay in the home.
According to the Case-Shiller home-price index the United States dropped 4.6% year over year for the first quarter of 2011, prompting them to identify the current market as a double dip. Immediately it was all over the Internet, newspapers, blogs, newscasts, CNN. Now that we are in the “too much information” age, the news of a “double dip” was everywhere instantly. In performing a Google search, the term “housing double dip” resulted in 782,000 results since May 30th, less than two weeks ago. What received very little news was the fact that the index tracts Los Angeles and Orange County combined and it posted a drop of just 1.7% year over year. Also receiving very little attention was the fact that the national 4.6% drop was hardly the pace of the downturn of the first quarter of 2009, when it posted a record 18.9% drop. It took a week, but more and more articles started to surface, indicating that NOW may be the perfect time to buy. Here are a few trends that point to buying being a really smart decision:
- Home Prices are Low: it is not surprising that buyers search the web and climb into agents’ cars in search of the perfect “deal.” The lower the price range, the quicker a buyer comes to the realization that if a home is priced right, it flies off of the market, often times generating multiple offers and offers to purchase at or close to their asking prices. There’s a lot of activity because prices have already dropped considerably. The average home in Orange County has dropped about 35%. So, prices are already attractive in most cases and the worst of the pricing declines are in the rear view mirror.
- Interest Rates are at Historical Lows and are Poised to Increase: not enough consideration is paid to interest rates and the impact on payments and affordability as they rise. Buyers should not be focusing on prices, they should focus on rates. Prices may drop a little bit more, but rising rates impact what a buyer will be paying every single month. Car buyers focus on payments, haggling over saving an additional $20 per month; yet, homebuyers don’t pay much attention to changes in interest rates, which ultimately impact a much larger monthly payment. An increase of just a half of a percent for a $500,000 mortgage is a difference of $150 per month, EVERY SINGLE MONTH. It is time to focus on cashing in on today’s incredibly low interest rates. They WILL rise; it’s just a matter of time. We will never see interest rates at these levels ever again during our lifetimes.
- Rents are Primed to Rise: the number of renters has swelled because of the large number of foreclosures and short sale sellers needing a place to live. Combine that with the reluctance of many renters to purchase and the result is a rental market with a lot of demand and not enough inventory. That is precisely why recent data illustrates that rents are rising. Payments are fixed for home buyers and are not subject to yearly increases like renters.
Yes, it is a great time to buy for those buyers who are planning to stay in their homes for many years. The heydays of owning a home for a few years and then cashing in are gone. Home values will definitely rise, in time. Home ownership has proven to be an excellent historical investment over the long run. When we talk so much about numbers and homes being an investment, many of us lose sight of the importance of owning and all of the psychological benefits that go along with it. It’s YOUR HOME. You get to make the decisions on color of paint, planting a tree, adding a chair rail or crown molding. It’s all up to you. Your home is a place to raise your family and create memories that will last a lifetime. It’s hard to put a price on all of the benefits of owning a home, but that’s why there is so much satisfaction in home ownership. The data says it is a great time to buy, but it’s not just about the data.
Housing Demand: Demand slightly rose over the past couple of weeks.
Demand, the number of new pending sales over the past month, increased by 48 homes in the past two weeks and now totals 3,100 pending sales. Last year at this time demand was almost at the same level with 3,167 pending sales. The discrepancy in year over year demand has almost vanished because last year at this time the first time home buyer credit had expired.
The Active Listing Inventory: There is still very little change in the listing inventory.
The inventory slightly increased by an additional 118 homes, a 1% increase, and now totals 11,337. Last year, the listing inventory was growing at an alarming pace. This time last year during the same two week period, the inventory grew by 3% and totaled 10,117, eclipsing the 10,000 home mark for the first time in over a year.
The Distressed Market: the active distressed inventory increased by 36 homes in the past couple of weeks.
Not much has changed within the distressed market this year. The distressed inventory now totals 3,844 and represents 33.9% of the active inventory. The expected market time for foreclosures is remains incredibly HOT at 1.69 months. There are currently only 689 foreclosures within the active listing inventory, an increase of 20 homes in the past two weeks. There are currently 3,155 short sales on the active market, increasing by 16 homes in the past two weeks. The expected market time is 2.78 months for short sales, also a seller’s market.
Orange County Housing Review: Double Dip Hype
May 26, 2011
I don’t know about you, but I love a double dip… in chocolate! Pundits and the media are transforming something I love into a buzzword based on conjecture and sensationalism.
Double Dip: Searching on Google for “Double Dip Housing” yields 1,175,000 results
Let’s take a closer look. There are 72,000 results for a double dip in housing in just the last 24 hours, 281,000 in the last week, and 924,000 in the last month. So, what constitutes a “double dip.” I don’t know about you, but the term sounds so negative, it gives the impression that we may be in store for a second round of price drops equal to the first huge drop. Let me be the first to tell you… NO WAY. The First Dip: the average home in Orange County dropped about 35% in value. The latest statistic that has received tremendous press is the Standard & Poor’s/Case-Shiller home-price index for Los Angeles and Orange counties, where the combined counties dropped 2.1% year over year. Orange County’s current median sales price, $432,000, is 1.6% off from a year ago. Those numbers do not indicate a housing dip. They are part of market fluctuations. Demand and prices have been a little subdued in 2011 thus far. Everybody, including me, tried to explain and rationalize the housing market behavior. I have finally put my finger on it: too much hype about a double dip. The hype may have subdued demand a bit, but it’s not responsible for the latest reports of a drop in the median price. It all stems from the expiration of the first time home buyer tax credit in the spring of last year. The market in 2010 was HOT through the end of April. In order to take advantage of the credit, a property had to be under contract by April 30, 2010. Demand dropped precipitously from May 1st on. It made for a much slower market through December 2010. Essentially, the credit pulled a lot of sales forward to the beginning of the year. With lower sales, year over year prices dropped a little bit. With that drop, the headlines and media talked about the possibility of a double dip. That was enough to slow down shell shocked consumers and move many buyers to the fence. Yet, prices have already dropped 35%. A 2.1% drop is a giant yawn in comparison. Some economists are forecasting a slight INCREASE in prices for the remainder of the year. Either way, focusing on any kind of dip is silly, given that it will not be a giant dip like in ROUND 1. Instead, buyers should be focusing on record low interest rates. We know that rates will rise, and when they do, mark my words, they will rise fast, erasing any gains in waiting for prices to dip. As a matter of fact, buyers will be paying more in terms of a monthly mortgage payment even if prices dip a little.
Housing Demand: Demand has continued to cool.
Demand, the number of new pending sales over the past month, increased for the first time in two months, adding an additional 10 homes and now totals 3,052 pending sales. Last year at this time demand was at 3,303 pending sales. It was still under the influence of the first time home buyer tax credit. Many buyers that wanted to buy and take advantage of the credit couldn’t because they lost out on several multiple offer situations. Some buyers that fell into this category walked away, but many opted to still buy despite no government subsidy. Today’s demand is not under the influence of a government subsidy. As buyers begin to understand that today’s incredible interest rates are not here to stay, demand will ultimately increase. That may not come until interest rates start to rise because of inflation, which it inevitably will. The likelihood of consumers ever seeing rates like this again during their lifetime is equivalent to the likelihood of gas prices returning to $2.00 per gallon.
The Active Listing Inventory: There has been very little change in the active listing inventory over the past month.
In the trenches I am told that there isn’t a lot of fresh inventory. Unlike last year, the inventory has not been growing at an alarming, unrealistic pace. Sellers’ expectations are more in check and much more discretionary compared to last year. Over the past month, the active inventory has only grown by 88 homes, now totaling 11,219. Last year at this time, the inventory grew by 488 homes within the prior month and totaled 9,839 homes, pushing its way to the 10,000 mark by the first week of June.
The Distressed Market: the active distressed inventory increased by 10 homes in the past couple of weeks.
Contrary to everybody’s expectations, the distressed inventory has actually dropped by 303 homes. Not much has changed within the distressed market. The distressed inventory now totals 3,808 and represents 33.9% of the active inventory. The expected market time for foreclosures is remains incredibly HOT at 1.63 months. There are currently only 669 foreclosures within the active listing inventory, an increase of five homes in the past two weeks. There are currently 3,139 short sales on the active market, decreasing by five homes in the past two weeks. The expected market time is 2.84 months for short sales, also a seller’s market.
Orange County Housing Review: The market realities are much different than buyer expectations when it comes to distressed homes.
April 17, 2011
Foreclosures and Short Sales: 44% of all sales in March were either a foreclosure or a short sale.
Understandably, every buyer is looking for a deal in today’s market. Nobody sits across from a REALTOR® for the first time and asks to pay fair market value for a home. No way! The market is way down from its height in the mid-2000’s, they should be able to secure a “deal.” That is how the logic flows for buyers today. In reading newspaper articles or watching the news, when it comes to real estate, it is easy to see where everybody arrives at the misconception that it must be a buyer’s market. Buyers gravitate to foreclosures and short sales in search of that proverbial deal. With so many buyers flocking to distressed properties, there is tremendous competition. For the market as a whole, the expected market time is 3.36 months, a slight seller’s market. That’s right, a “seller’s market.” So, if it is a seller’s market, why aren’t home values appreciating right now? The answer is simple; with so many distressed properties on the market, they are keeping a lid on appreciation. Buyers simply do not want to overpay for a home, even if there is a lot of competition with multiple offers. Instead, values are holding steady in the lower ranges, homes below $750,000. Who ultimately is the winning bidder on a home? It is not necessarily the “all cash” buyer. In a multiple offer situation, when two offers are identical, cash beats out a buyer in need of financing. Most homes are sold to buyers that have been burned once or twice before they finally believe that is not a buyer’s market. In order to finally secure a home, they sharpen their pencil and are ready to pay the fair market value for a home. There are plenty of Lowball Larry’s out there writing tons of offers at deep discounts in hopes that somebody out there has to be desperate enough to take their offer. Those buyers ultimately just end up wasting a lot of people’s time, especially the REALTOR® that they are working with. For foreclosures, the expected market time is a sizzling HOT 1.39 months, a deep seller’s market. Buyers should expect the most competition in dealing with foreclosures. Short sales, sellers who owe more than the current market value of their home and require lender approval of any sale, have an expected market time of 2.52 months, also a hot seller’s market. With so many buyers turning to distressed homes to chase after that misleading “deal,” it is no wonder that it is the hottest segment of the market. There are not enough foreclosures to go around, either. They represent only 6% of the current active inventory and 20% of all sales in March. Short sales represent 29% of the active listing inventory and 24%of all sales in March. Yet, there is a disconnect when it comes to short sales. Almost 40% of demand is made up of short sales, but they only make up about 25% of closed sales. The trouble is that, on average, short sales take a very long time to close, and, in many cases, they fall out of escrow and have to secure a new buyer. Short sales are the most complex transaction. Often there are multiple lenders, delinquent property taxes, and delinquent homeowner association dues. When the homeowner falls too far behind in association dues, attorneys often get involved, making the process even more complicated. The sell requires the approval of all lenders and the association and the property taxes need to be paid current. Arriving at a successful close requires a lot of perseverance and patience.
Housing Demand: Demand cooled a bit in the past couple of weeks.
Demand, the number of new pending sales over the past month, decreased by 2%, shedding 76 pending sales and now totals 3,282. That’s still much stronger than the beginning of the year. It will be interesting to see if cooling demand was related to unusually cooler weather and rainstorms or the first sign of a new trend. I am going to go out on a limb and state that it is most likely just a temporary blip on the radar screen.
The Active Listing Inventory: With slightly slower demand, the active listing inventory grew.
Typically, demand increases during this time of the year. Since it actually dropped a little, there weren’t as many pending sales to eat into the active inventory. Instead, the listing inventory increased by 272 homes in the past two weeks and now totals 11,028. That’s the first time that the inventory has surpassed 11,000 homes since November 2010. Last year, the active listing inventory grew unabated as unrealistic homeowners flooded the market. Unrealistic homeowners become unsuccessful sellers until they finally reach the conclusion that the price needs to be dropped to the fair market value or they need to simply pull their homes off the market and throw in the towel. Thus far this year, for the most part, homeowners are figuring it out again: market your home if and only if you have what it takes to get the home sold. Carefully arriving at the fair market value is fundamental to successfully selling.
Orange County Housing Review: Housing Demand is Back?
February 5, 2011
A Normal Housing Cycle: Demand may not quite be at where it was in the mid-2000’s, but it is finally following a normal cyclical pattern. Absent housing rebates, the real estate market is finally functioning on its own. It is easier to gauge where the market is heading. Demand is not being propped up like it was last year in the spring or 2009 in the winter with the first time home buyer tax credits. So, what does a “normal” housing cycle mean to Orange County? After taking down the holiday decorations, stuffing them into their corresponding boxes and then putting them away in the attic, everybody has been able to turn their attention to life as usual. That includes the return of buyer demand. Demand surges at the end of January, levels off in February and then swells to its highest point of the year from March through May, the spring market. At the same time, many sellers know it’s the best time of the year to sell, so a larger number of homeowners place their homes on the market. WARNING TO SELLERS: just because it is the best time of the year to sell, that does NOT mean that buyers are willing to pay a premium for a home in today’s market. Buyers today are “spreadsheet buyers,” meaning they are going to concentrate on the most recent comparable and pending sales to carefully arrive at price. They do not want to overpay for a home and will patiently wait for realistic sellers to negotiate with. My fear for the Orange County housing market is that a number of unrealistic sellers, and even unrealistically priced bank foreclosures, will hit the market like they did last year. I am holding out for a return of the discretionary seller. Sellers should only place their homes on the market if and only if they are ready to do what it takes to sell their home, starting with carefully arriving at price just like buyers. For the spring, expected market time will fall to its lowest point of the year. From June through August, the summer months, the second best time of the year to sell a home, demand will fall slightly, yet the steady stream of homes coming on the market will continue. Many sellers mistake the summer as the best time of the year to sell a home. Expected market time will rise slightly during the summer market. With the kids starting school, purchasing a home is not as convenient, so demand begins to decelerate further and so does the stream of homes placed on the market. The expected market time during the autumn market remains about the same as the summer. With goblins and ghosts running from door to door chanting “TRICK OR TREAT,” the Orange County housing market transitions to the slowest time of the year, the holiday market. With all of the distractions of the holidays, demand decelerates until it reaches its lowest point of the housing cycle, New Year’s Day. The stream of homes that hit the market slows considerably. Buyers in the marketplace often complain of “nothing new” to look at. The expected market time during the holidays typically rises slightly. This is an outline of a normal housing cycle in Orange County. We have not witnessed a normal cycle in years. There is something refreshing about normal.
Housing Demand: In the last two weeks, housing demand surged.
Demand, the number of new pending sales over the prior month, increased by 26% in the past two weeks, adding an additional 564 homes, and now totals 2,718 pending sales. Thus far this year, demand is a mirror image of 2009, prior to any artificial government stimulus. Last year, there were 530 additional pending sales; but, remember that demand was being propped up by the $8,000 first time home buyer tax credit.
The Active Inventory: the inventory is rising at the same pace as last year.
Two years ago, sellers approached the market with extreme caution. Last year, everybody threw caution into the wind and replaced it with unwarranted optimism. They fell for news of year over year increases in the median sales price and multiple offers on many listed homes. The problem with the median sales price is that it is not an accurate gauge of appreciations or depreciation. It will give an overall feel for where house values are headed, but is not precise. Stack up all sales in a month and take the exact middle value and you get the median sales price. If all of a sudden there is an increase in the number of upper range homes sold, the median sales price is skewed upward. When values were falling like a rock at the end of 2007 and beginning of 2008, only the lower range was selling, the median sales price was skewed lower. Unwarranted optimism is my number one concern for the housing market in 2011. Only realistic homeowners will succeed in today’s marketplace.
In the past two weeks the active inventory added an additional 164 homes and now totals 10,389 homes. Last year at this time there were 2,532 fewer homes on the market.
Expected Market Time and Price Ranges: the expected market time increases as the price range increases.
For Orange County as a whole, the expected market time has dropped in the past month from 5.10 months to 3.82 months today, a slight seller’s market. For homes priced below $750,000, 76% of the active listing inventory, the expected market time is a robust 3.37 months. Even though it is technically a seller’s market, do not expect appreciation. There are just too many distressed homes in the marketplace, keeping a lid on appreciation. For homes priced between $750,000 and $1.5 million, the expected market time is 4.91 months, technically a market in equilibrium. From $1.5 million to $2.5 million, the expected market time is actually at its lowest level in several years. Still a buyer’s market, the expected market time is 9.43 months. For homes above $4 million, there are 277 homes on the market and only 2 pending sales within the last month. That’s an expected market time of just over 138 months. That is most likely an anomaly, but a strong indicator that the highest priced homes on the market should be prepared for a slow 2011.
The Distressed Market: there’s still not much change in the distressed market.
In the past two weeks the active distressed inventory, both foreclosure and short sales, dropped by 13 homes. Not much has changed since last September, growing by only 65 homes, now totaling 4,104. There are 726 foreclosures on the market, adding just two homes in the past two weeks. The expected market time for foreclosures is 1.64 months, a HOT seller’s market. There are currently 3,378 short sales on the active market with an expected market time of 2.85 months, also a seller’s market. Expect the distressed inventory to slightly increase as the year progresses. Do not expect a wave of new distressed activity.
Orange County Housing Review: HAPPY NEW YEAR!!!
January 2011
Now what does that mean for Orange County Real Estate?
First, it is important to clarify that forecasting draws from historical data to predict the future. The fact that forecasts from experts and leading academic institutions have been all over the map is indicative of the uncertainty of the current housing and economic environment. At this point, those that predict the weather are doing a far superior job compared to economists. Forecasting at this point is more of art than an exact science, but strong inclinations are that the market is not going to change that much. It is going to be a lot more of the same with some minor tweaks. Here’s how it looks as 2011 will unfold:
Demand: unlike 2010, demand is going to follow a normal cyclical pattern. Demand was HOT for the first half of 2010 due to the first time home buyer tax credit, and then it fell off a cliff for the second half without any government stimulus. In 2011, there is not a government stimulus program to monkey with demand. For the lower ranges, below $750,000, which accounts for 75% of the listing inventory, the market will become really hot quickly as we roll into the spring. On homes that are priced well, expect a lot of competition with multiple offers and purchase prices very close to their asking prices. This market will remain hot until the market cools in the autumn. For homes priced between $750,000 to $1.5 million, 15% of the active inventory, the market will heat up during the spring, just not as much as the lower ranges. Pricing will be key, as this range tends to be too optimistic right when they first hit the market. For homes priced above $1.5 million, 11% of the active inventory, the market will remain very cold with very little competition. Price is absolutely everything in this range. Unfortunately, this range is made up of the most unrealistic sellers. The problem is that there are just way too many homes on the market all vying for a small pool of potential buyers.
Pricing: as pointed out above, there are three distinctly different markets in Orange County. As a result, the expectations of pricing should be based upon each price range and not the market as a whole. Regrettably, everybody hangs their hat on the reported median sales price as the best barometer of home values. With three different markets, the median sales price, the middle value, is flawed. In the lower ranges, we can expect very little change in pricing. Keep in mind, that’s 75% of the market. In some really hot areas, the market may even slightly increase. Distressed properties, 49% of the active inventory in the lower ranges, will keep a lid on any real appreciation. For the middle ranges, we can expect slight depreciation in prices. But, with only 17% of this range distressed, the pressure on pricing is not that great. In the upper ranges, distressed properties are not the problem, only 6%. The problem is that there are just too many sellers and not enough buyers. The higher the range, the slower the market. Only those willing to aggressively price their homes will be successful. The pressure on price is greatest in the upper ranges. In this downturn, values in the lower ranges dropped like a rock almost overnight. In the upper ranges, prices have been a lot stickier with fewer distressed homes and a lot more unrealistic homeowners. In 2011, prices will be most volatile in the upper ranges.
The Active Listing Inventory: the housing market in 2010 was marred by unrealistic homeowners overpricing their homes and sitting on the market. Sellers with equity, sellers without equity and bank foreclosures all fell victim to overpricing. Reports of year over year increases in the median sales price along with reports of tremendous activity and multiple offers mislead everybody in thinking that the market had finally turned. There just are too many distressed homes, high unemployment and uncertainty of the future for values to rise. Instead, buyers have become spreadsheet buyers, pouring over comparable and pending sales, unwilling to pay a premium in order to purchase a home. In 2009, the active listing inventory dropped by 4,000 homes. In 2010, the inventory blossomed, erasing all of the improvements from the year before. In 2011, expect homeowners to have learned their lesson and only enter the market if they really have to sell. The return of the discretionary seller will keep a lid on a rise in the active inventory. This is fundamental to the overall health of the Orange County housing market.
The Distressed Market: even though the shadow inventory is real, do not expect a wave of distressed properties to hit the market. It was two years ago that many were calling for a tsunami of foreclosures as the government was meeting with banks and the buzz of foreclosure moratoriums was in the air. Yet, it never materialized. There just were too many for the banks to liquidate all at once. A flood of foreclosures would have eroded values even more, more banks would fail and the problem could have snowballed into something much bigger. Ultimately, the banks and the government chose not to go that route. Yes, there are a tremendous number of homeowners who have not paid their mortgages. They just have not materialized as foreclosures. Instead, there is a definite process. Many attempt loan modification, which takes months for an answer. Others try the short sale route, which also takes months for an answer, and can be very complicated to put together. Still, there are others who choose to do nothing, and the banks have been slow to respond. The bottom line, it takes a very long time for distressed properties to move through the system. In the end, it will take years to work our way through the distressed backlog. For 2011, we can expect more of the same, a slight methodical increase in the number of short sales and foreclosures, but no dramatic shifts. Buyers should keep in mind that there is increased competition for distressed properties since all buyers are looking for a deal.
Interest Rates: about a month ago, I thought the big surprise of 2011 was going to be a rise in interest rates. It turned out to be the big surprise to the end of 2010. Interest rates will still be the big surprise of 2011, with rates reaching the 6% mark. There’s a ton of pressure on rates to increase. An increasing deficit with the Fed printing money at warp speed, a government unwilling to cut spending, and no leader anywhere in the world willing to come up with a definitive game plan to get us out of this pickle, translates to mounting pressure on interest rates. If anybody is in the market to buy, they should pencil out the sizeable increase in monthly payments when rates jump 1%. It illustrates how taking advantage of low rates more than offsets any risk in falling values. Unfortunately, not enough buyers shop for homes based upon monthly payments; instead, they focus on price. It really should be the other way around with rates poised to increase.
Closed Sales: in 2010, there were about 5% fewer residential resales compared to 2009. For the first half of the year the artificial government stimulus made it appear as if the number of sales was going to rebound for the first time since the downturn began in the autumn of 2005. After the stimulus ended, the market dramatically slowed and the market improvements and momentum faded. In 2011, there will be very close to the same number of sales, just not as lopsided as 2010. Instead, the market will follow a normal Orange County housing cycle: a strong spring market, a slightly cooler summer market, an even cooler autumn market and then the slowest time of the year, the holiday market.
Overall, it looks as if 2011 is going to be a lot like 2010. As a society, the American people are getting all caught up in forecasts and numbers. But, when it comes to housing, we are talking about a place to call “home.” There needs to be a return to finding the right place to call home for years, if not decades. In the past decade, we got caught up in taking out 30-year loans only to refinance every few years, or sell and purchase another, and another. It is time to return to carefully isolating the perfect “home” that best fits our needs, lock in the best interest rates in years, and enjoy life in one of the best places to live in the country. Historically, in the long run, a home is a great investment, especially in Orange County.
Orange County Housing Review: Giving Thanks
December 2010
It is the time of the year to reflect and give thanks. Regarding the Orange County housing market, there’s still a lot to be thankful for.
Thanksgiving Reflection: Even though the housing market is extremely frustrating, there is plenty to be thankful for.
I am thankful that lenders are approving short sales and that they are closing.
That’s right. I am thankful that lender approval is eventually bestowed upon some short sales, enabling homeowners to escape the nightmare process of selling their underwater homes. I think everybody can agree, including the lenders that they are still falling way below the bar in terms of making a decision in a reasonable amount of time. There is tremendous room for improvement. The average number of monthly closed short sales this year is 574. Yet, there are 3,045 pending short sales. Most short sales take months for an answer. And, the more complex the short sale, second liens, unpaid homeowner association dues, unpaid property taxes, and mortgage insurance companies, the longer and more challenging it is to successfully close the sale. Yet, I am thankful that some short sales are closing. Lenders are allowing upside down homeowners in dire straits to move on. In turn, they obtain a home typically in better condition and save a lot more money compared to the alternative, foreclosure.
I am thankful that real estate agents are still selling homes despite the tremendous obstacles and frustrations in this market.
Despite misguided public perception, real estate agents in today’s market work ten times harder than any modern era real estate cycle and are paid much less compared to the boom years. Throw on top of that no change in the agent population locally here in Orange County despite the downturn. Here are some of the obstacles they face: tremendous competition, extremely tight credit, short sales that take forever to close, frustrated buyers, sellers in unfortunate situations, and unrealistic expectations of buyers and sellers. Yes, this market has been extremely frustrating, but real estate agents continue to pick themselves up and take great care of their buyers and sellers.
I am thankful that unrealistic sellers are finally figuring it out: if they don’t drop the price, they must pull their home off the market and stop wasting everybody’s time.
The listing inventory blossomed this year, growing from 7,165 homes at the beginning of the year until it peaked in mid-September at 11,892 homes. That’s an increase of 4,727 homes, or 65%. Since peaking, the listing inventory has shed 1,056 homes, or 9%. Unfortunately many homeowners were extremely unrealistic in their expectations of the housing market. They heard about year over year increases in the median sales price, buyers competing to buy homes, multiple offers, and sales price at or above their asking prices. They did not realize that buyers in the most competitive markets were only willing to pay a few thousand dollars above the last asking price, NOT thousands upon thousands of dollars more. Buyers are spreadsheet buyers, meaning they will pour over comparable and pending sales data to arrive at a comfortable price. So, many homeowners placed their homes on the market overpriced and waited and waited with no results. Most homes on the market had to decrease their prices to achieve success. For those unwilling to reduce their asking prices, pulling their homes off of the market is the only other alternative. Distressed properties are keeping a lid on any appreciation. There are still many homeowners that remain on the market at unrealistic levels; however, I am thankful that many of them will be continuing to pull their homes off as the Holiday market progresses.
I am thankful that the market is theoretically a seller’s market, based upon the expected market time.
For a seller’s market, the expected market time must be less than five months. At its best this year, the expected market time dropped to 2.53 months in mid-May. It is currently at 4.02 months, still a seller’s market. But, with so many distressed listings, there is very little appreciation, if any. As long as Orange County’s expected market time indicates a seller’s market, prices will not depreciate. And, it looks as if 2011 is poised to be a seller’s market as well, great news for values.
Active Listing Inventory: The listing inventory continued to drop, shedding 3% in just two weeks.
The active listing inventory continued its decent, dropping 589 homes over the last month, now totaling 10,836. That’s a 5% drop in just four weeks. Many unrealistically priced sellers are starting to realize that throwing in the towel is their best option. Last year at this time there were 3,181 fewer homes on the active inventory compared to today.
Demand: Demand continued its trend of not changing.
In the past month, demand, the number of new pending sales over the prior month, increased by 21 homes, virtually unchanged. Last year at this time demand was at 3,038 pending sales, fueled by a first time home buyer tax credit that was expiring at the end of November 2009.
Foreclosures and Short Sales: It seems as if the plateau in distressed homes on the market has continued.
The active distressed inventory increased by only 40 homes over the past month and now totals 4,101 foreclosures and short sales. The distressed home market is not changing much, adding less than 1% in the past month. It is apparent that the distressed inventory has hit a peak for the year. The distressed inventory now represents 38% of the current active inventory. Last year at this time, there were 2,496 distressed homes on the market, 1,605 fewer than today. The number of foreclosures within the active listing inventory increased by 17 homes in the past two weeks, from 719 to 736. The expected market time for foreclosures is 1.61 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 20 homes over the past two weeks and now total 3,365. The expected market time for short sales is 3.62 months, not as hot as foreclosures, but better than the Orange County housing market as a whole.
Orange County Housing Review: Wrong Expectations
November 2010
Many buyers and sellers alike have the wrong expectations when it comes to the Orange County housing market.
Wrong Expectations: Many buyers expect GIANT discounts while a lot of sellers overvalue their homes. This IS a perfect time to buy: record low interest rates, prices down 30% off of their peaks, less competition during the holidays. However, this does not translate to writing up an offer at 10% off of the asking price. It just ends up being a giant waste of time for everybody involved. Similarly, overpricing a property is a major waste of time for all involved as well. Many homeowners, who heard that homes were flying off of the market in the lower ranges, multiple offers were the norm and that the year over year median price had increased, translated that it was the perfect time to sell. The bottom line remains the same; the more realistically priced homes will sell near their asking prices. Most buyers and sellers have just had the wrong mindset in their approach to the housing market. It is time to take a close look at the facts:
FACT: for all homes sold in October, the average sales price was 3% less than the asking price. For a home listed at $500,000, that’s a sales price of $485,000.
FACT: short sales ultimately sell for less than traditional sellers who have equity in their homes. Short sales, on average, take months to sell. If a home takes six months to close and it is not until the fifth month that short sale approval is granted, a buyer is going to want a discount in order to wait that long for an answer. The trouble with short sales is that a close date cannot be determined upon writing an offer. Also, most short sale sellers are cash strapped so there is typically deferred maintenance.
FACT: foreclosures sell for less than traditional sellers who have equity in their homes because most are in need of TLC. When buyers need to replace the carpet, paint, replace a dilapidated roof, repair the plumbing, replace missing fixtures or appliances, they are ultimately going to want to pay less for a home. Foreclosures are priced accordingly.
FACT: for all foreclosures sold in October, the average sales price was 2% less than the asking price. For a foreclosure listed at $500,000, that’s a sales price of $490,000.
FACT: for homes sold in October, the average seller had to reduce the asking price by 3% prior to procuring a successful offer. Most sellers are being overzealous in placing their homes on the market initially. It ultimately is a waste of market time. It is better for sellers to take the time in arriving at the price, carefully scrutinizing the most recent comparable sales and pending sale activity. Active listings do not carry much weight in pricing unless the home is underpriced.
FACT: homes in poor condition, or poor locations, sell for less than homes in good condition or a good location. Successfully selling in any market is determined by a home’s price, location and condition. Sellers cannot change their location, so they only have control over the asking price and the home’s condition. Homes that back to busy streets or power lines sell for a lot less than a home that is in the center of a subdivision.
The housing market would be a lot simpler if buyers approached the market with the knowledge that the market will not budge much off of asking prices. In turn, sellers need to be aware that their unrealistic original, initial asking prices will only result in future reductions until ultimately successfully achieving their goal of selling.
Active Listing Inventory: The listing inventory continued to drop, shedding another 2% in two weeks. The active listing inventory continued its decent, dropping slightly over the last two weeks by 274 homes, now totaling 11,151. After peaking in mid-September, the inventory has dropped by 741 homes, or 6%. Last year at this time there were 3,432 fewer homes on the active inventory compared to today.
Demand: In the past couple of weeks, demand has remained unchanged.
After shedding 4% a couple of weeks ago, demand, the number of pending sales over the prior month, dropped by only two pending sales since then and now totals 2,670. Last year at this time demand was at 3,241 pending sales, fueled by a first time home buyer tax credit that was expiring in November 2009.
Foreclosures and Short Sales: In the past two months, the active distressed inventory increased by only 38 additional homes.
The active distressed inventory increased by 3 homes over the past two weeks and now totals 4,064 foreclosures and short sales. The distressed home market is not changing much, adding less than 1% in the past month. It is apparent that the distressed inventory has hit a peak for the year. The distressed inventory now represents 36% of the current active inventory. Last year at this time, there were 2,462 distressed homes on the market, 1,602 fewer than today. The number of foreclosures within the active listing inventory increased by 31 homes in the past two weeks, from 688 to 719. The expected market time for foreclosures is 1.68 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, decreased by 28 homes over the past two weeks and now total 3,345.The expected market time for short sales is 3.47 months, not as hot as foreclosures, but better than Orange County housing market as a whole.
Orange County Housing Review: A Great Time To Be A Buyer
October 2010
Buyers Market: Buyer’s should not wait for a seller’s market to purchase. Markets go up and markets go down. Isn’t it odd that buyer’s rush to purchase when the market is climbing in fear that they will be left behind. They enter a market where there is tremendous competition and, often, they feel rushed to settle on a home that may not fulfill their wish list. Yet, as markets climb, affordability drops until it finally reaches a point where demand drops, cooling price appreciation. The current market is completely different. It’s a buyer’s market where prices have already dropped over 30%. Affordability has been restored and interest rates are at all time lows. Current interest rates improve home affordability dramatically. The historically record low rates translate to the lowest possible monthly payments. Unfortunately, buyers just don’t shop based upon the monthly payment. Too much emphasis is paid on the purchase price and not enough on payments. People shop for cars based upon the monthly payment. Why not homes? As new homeowners mail off their monthly mortgage payment, wouldn’t they rather pay a few hundred dollars less? How about $1,000 less? Cashing in on today’s rock bottom interest rates saves anywhere from hundreds of dollars to over a thousand dollars per month, depending upon how high interest rates will climb. As the market improves interest rates WILL GO UP. This is the absolute best time to purchase, during a buyer’s market. The buyer’s market will not be around forever.
Market Changes: The real estate market will move along its normal cyclical pattern, but don’t expect abnormal changes. Regardless of what you hear or read in the news, the market is not going to drop off a cliff or skyrocket anytime soon. What you see is what you get, a lot more of the same. For the coming years, the real estate market is not going to change much at all. As a buyer, holding out for another 10% drop is not wise. Values have already dropped over 30% and today’s affordability has propped up demand, keeping values stable. Likewise, for sellers that need to sell and are waiting for real price appreciation, they may have to wait a few years. Boring is the new normal. The market will slow during the Holiday market, from Halloween through the first few weeks of the New Year. It will pick up in the Spring, cyclically the best demand of the year. Then it will cool a bit during the summer. There are no more surprises. It will take a few years to exhaust the infamous shadow inventory of homeowners in default. The market has already been slowly working its way through the shadows already. As a buyer or seller, expect more of the same.
Active Listing Inventory: The listing inventory dropped by 3% in just two weeks. After increasing for the entire year, the active listing inventory finally dropped a couple of weeks ago. Two weeks ago, the inventory dropped substantially more, shedding an additional 311 homes and now totals 11,493 homes. This is the time of the year when fewer homes are placed on the market and unsuccessful sellers throw in the towel and pull their homes off the market. The net result, the inventory dropped. Last year there were 3,570 fewer homes on the market.
Demand:Increasing slightly, demand continues its recent trend of improving. Bucking the normal cyclical patter for the Autumn market, demand, the number of new pending sales over the prior month, increased slightly by 35 homes and now totals 2,791. It looks as if demand has finally restored to more normal levels, after the end of the first time home buyer tax rate temporarily cooled first time home buyer activity. Slowly but surely more and more first time home buyers will enter the market, lured by increased affordability and incredible interest rates. This could be the beginning of a surge in first time home buyer activity. Only time will tell. All of the ingredients are there: low prices, historically low interest rates, more realistic sellers. Last year at this time demand was at 3,197 pending sales, fueled by a first time home buyer tax credit that was expiring in November 2009.
Foreclosures and Short Sales: Once again, the distressed inventory remained unchanged. The active distressed inventory dropped by only 9 homes over the past two weeks and now totals 4,030 foreclosures and short sales. Over the past month, the inventory has grown by 4 homes. It is apparent that the distressed inventory has hit a temporary peak for the year. With foreclosure moratoriums due to “Robo Signing”, the inventory will probably stay right around the current levels or drop slightly. The distressed inventory now represents 35% of the current active inventory. Last year at this time, there were 2,398 distressed homes on the market, 1,632 fewer than today. The number of foreclosures within the active listing inventory increased by 22 homes in the past two weeks, from 698 to 720. The expected market time for foreclosures is 1.89 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, decreased by 31 homes over the past two weeks and now total 3,310. The expected market time for short sales is 3.09 months, not as hot as foreclosures, but better than the Orange County housing market as a whole.
This page contains specific information regarding the Orange County housing review Green Sheet for visitors of SoCalOceanViews.com. I can easily assist you in your search for homes in Orange County as not only do I sell and promote Orange County but I live here as well.
