Blogging about real estate in Orange County, California

Here's the latest Market Time Report.  For a change, Good News!

As always, if you're ready to find the home of your dreams, call me at 949.468.8405 and let's get started!

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Market Time Report:  First Time Home Buyers are Back

 

April 17, 2008

 

Good Afternoon!

 

Current housing demand continues to outpace last year and the reemergence of first time home buyers is a major factor.  If you listen to or read all the recent reports regarding “sold” statistics for March, one would quickly come to the conclusion that the real estate market is continuing to sputter along at a slow pace.  However, this could not be further from the truth.  Sold activity is a snapshot of the past, about a month and a half in the past to be precise.  So, March “sold” statistics are really a snapshot of the second half of January through the first half of February.  The market did improve during that time but was still extremely anemic as demand, a snapshot of the prior 30 days of escrow activity, grew from 989 escrows in mid-January to 1,630 escrows in mid-February, a gain of 641 escrows.  Since then demand has continuously grown to its current height of 2,374 escrows.  Last year at this time demand was at 1,925 escrows, 449 fewer than today.  This recent escrow activity will translate to sold data reported in the months to come.  The big story will be that the year over year sold statistics will be better for the first time since the Autumn of 2005.  Demand already crossed that threshold two weeks ago.  Some skeptics attempt to discount the uptick in demand, claiming that many will fall out of escrow.  That is simply not statistically true.  The data does not support their claim.  Yes, some escrows do fall out; however, the snapshot of 30 day escrow activity misses some escrows that have already closed because they were less than 30 day escrows.  The average escrow is about 45 days, but we do have one, two and three week escrows that won’t show up in the data for long.  So, the less than 30 day escrows offset most escrows that fall out.  The bottom line: the market is improving.  Market time has dropped from 15.6 months at the beginning of the year to 6.55 months today, not as deep of a buyer’s market.  The active inventory grew by only 82 homes in the past two weeks to 15,556 homes.  The active inventory has not changed much this year and has actually dropped by 61 homes over the past month.  Last year at this time the active inventory was only 745 homes fewer homes than today and it was growing at a rate of 700 homes every two weeks. 

 

The majority of the upswing in demand is in the lower ranges.  Our agents in the trenches are unanimously reporting that there is a large wave of first time home buyer activity.  First time home buyers had been priced out of the market and dwindled in numbers during the last couple years of the housing boom.  But, prices have finally fallen to a point where they can now afford to purchase and that is precisely what they are doing.  One year ago there were only 408 condominiums priced below $250,000 compared to 1,263 today, more than triple. One year ago there were only 343 detached homes priced below $500,000 compared to 2,848 today, more than eight times.  The market time for detached homes below $500,000 is at 4.61 months, a slight seller’s market.  It is not a coincidence that 75.7% of all condominiums and detached homes below $500,000 are either a foreclosure or a short sale.  This fact has provided many opportunities for first time home buyers to finally enter the market.  The first time home buyer activity is the seeds to the rebirth of the Orange County housing market.  That does not mean that the market is going to right itself overnight.  But, it is the first positive step in the recovery process.  It was the lower ranges that were hit hard last March with the beginning of the subprime meltdown and it makes sense that it would be the first to take a step in the right direction.  Many homes and condominiums in the lower ranges are receiving multiple offers.  Foreclosures and short sales are not only securing multiple offers, they are closing above their asking price.

 

The upper ranges remain sluggish due to the financial crunch.  The financial system is still not functioning properly.  Lenders are still having liquidity issues and their lending requirements and interest rates for loans in the upper ranges are too rigid and are deeply cutting into demand.  For example, the market time for homes priced between $1 million and $1.5 million is 10.89 months compared to 7.47 months one year ago.  The upper ranges will remain sluggish until the financial markets start buying pools of mortgages once again.  Since the beginning of the financial crunch in August of 2007, the financial markets have refused to buy any pools of mortgages.  But, there are some signs that their appetite has been growing.  First, a major national lender attempted to sell a pool of only the best of the best loans at the end of January, but the financial markets would only purchase them for a discount.  They repeated their effort in March and the financial markets bought it at “par.”  The logjam in the financial markets should begin to ease by the end of the third quarter, as will the disparity between conventional loans up to $417,000 and the new loan limit of $729,750, as well as jumbo loans above $729,750.  Currently, there are three tiers of mortgages.  The cheapest rates are for loans below the old conventional loan limit of $417,000.  Rates for loans between the old conventional limit and the new $729,750 limit are three-quarters of a point higher.  And, lenders tack on an additional three quarters of a point for loans above the new limit.  As the financial markets’ appetite for pools of loans increases, these disparities will begin to diminish.  This will be the second big positive step towards recovery.  At that point, demand at the upper end of the Orange County real estate market will increase.

 

Buyers, what to do?  First, it totally depends upon the area and price range on the approach.  Naturally, in dealing with foreclosures, short sales and the lower ranges, be prepared for much more competition than any headlines would lead you to believe.  There is a strong probability that you will be competing with other buyers in writing an offer on a home.  In some cases it will take an offer to purchase above the asking price to secure a home.  Due to the sluggishness in the upper ranges, buyers are more in control of their destiny with less competition.  For those buyers looking for a deal in the higher ranges, keep in mind that only 5.7% of all distressed homes, foreclosures and short sales, are found above $750,000.  Be prepared for increased activity on these properties too because every buyer is looking for a “deal.”  Also, it is important to point out that lenders are in the driver’s seat when it comes to foreclosures.  Currently, the market time for foreclosures is 2.05 months, a deep seller’s market.  It is important to point out that the low interest rates should remain intact throughout 2008, but pressure is mounting for the Federal Reserve to raise rates as they grow more concerned about an increase in inflation.  Rates have been favorable for a long time, but do not get comfortable with today’s interest rates, they WILL eventually increase.  As soon as the economy starts humming along again, expect the Federal Reserve to reverse course and push rates up higher.  By the way, for every 1% that interest rates increase, it erases approximately all of the benefits of waiting for property values to decrease 10%.  The payments are virtually identical. 

 

Sellers, what to do?  It is extremely difficult to navigate in the current Orange County real estate market.  Now more than ever it is essential to have an experienced Realtor® guide you throughout the process.  There are numerous variables and market changes to continuously watch for: area short sales, foreclosures, local trends, detached versus attached pricing, etc.  Be prepared to constantly reevaluate your pricing position within the market.  The key ingredients to a successful sale are an excellent price and excellent condition.  In arriving at price, the condition and location increase or decrease the market value.  This market can also test a seller’s patience and you must be as prepared for a showing on day 120 as you were the first week.  Stage your home for success: turn all the lights on, have soft music playing in the background, open all of the shutters and blinds to allow in natural light, turn on the air conditioning on hot days, box up and store all clutter and your home should be neat as a pin from top to bottom. 

The latest Market Time Report is out, and it's good news (but no surprise to regular followers of this blog).  The news media will not pick up on this for another month or so, when sold statistics come in (bearing in mind that escrows often run in the 30-60-day range from opening until closing), but for the first time in over 2 years, demand is actually better than it was a year ago!

It's still not too late to get in while prices are down.  Call me at (949) 468-8405 to start your home search!

Here is the report:

 That title is no joke.  Demand has increased by 121% since the beginning of the year.  Of course, we all know that the real estate year starts at its (hopefully) lowest point, but even taking that into account, this is a significant increase in demand.  Lowered prices, banks finally negotiating reasonably on their REOs (foreclosed-upon homes) and increased FHA loan limits, are all contributing to 2008 being a great time to purchase a home in Orange County.

If you are in the market to buy or sell a home in Orange County, California, I can help!  Call me at (949) 468 8405.  You can also set up your own custom MLS search by clicking here.

Without further ado, I present my company's latest Market Time Report.  These are put out every two weeks by Steven Thomas, our company President, to help keep us on top of the latest activity in the market:

Market Time Report:  Demand Up 121% Since January 1^st

 

March 20, 2008

 

Good Afternoon!

 

Since the beginning of the year, the market has dramatically improved: demand is up, the active inventory is not  growing uncontrollably and expected market time has dropped substantially.  Let’s dive right into the numbers for further explanation.  At the beginning of the year, demand, a snapshot of the last 30 days of escrow activity, was at 944 escrows.  Today, demand has increased by an additional 1,139 escrows to 2,083.  The change in demand is like being stuck in bumper to bumper traffic and then suddenly, without explanation, everybody is moving at the speed limit.  Demand is the real story here.  Even with the liquidity issues, buyers are starting to pour back into the market, especially in the lower ranges where buyers are not affected by the financial crunch.  It is still really challenging and more expensive to obtain a loan above the $417,000 conventional limit; BUT, that is changing right NOW.  Lenders are scrambling in preparation for the new conventional and the FHA loan limits of $729,750, which are just beginning to hit the market.  The new loan limits will have a profound impact on demand.  At 10% down, the old $417,000 limit only covers 37% of the current active inventory.  The new limits now encompass a staggering 75% of the inventory.  And, for those consumers with some credit blemishes and/or a small down payment, the FHA allows 3% down, all of which can be a gift.  It is important to clarify that the FHA is NOT subprime and has been around for years.  The only reason it was not in vogue before is because the Federal Housing Administration refused to adjust the limit beyond its $367,000 level for high cost areas.  At that level, only 23% of the current inventory could be purchased with an FHA loan.  It took a crisis for everybody to see the light.  A lot of this mess could have been avoided with higher FHA loan limits all along.  Needless to say, there will be reverberations in the local housing market, which translates to increased demand. 

 

So, how do the numbers look right now?  Demand increased by from 1,893 escrows just two weeks ago to 2,083 today.  We have not seen demand like this since the beginning of April in 2007.  The active inventory increased in two weeks by 205 to 15,617 homes.  Expected market time improved from 8.14 months to 7.50 months.  It is still a buyer’s market, just not nearly as deep as the 15.60 month market at the beginning of the year.   Current demand at 2,083 escrows is just 112 fewer compared to just one year ago.  The inventory last year was at 13,373 homes and market time was at 6.09 months.  But, the difference is that last year demand was dropping and both the inventory and market time were rapidly climbing due to the subprime meltdown.  On the other hand, this year the market has been improving incrementally every day with increased demand and not as many homeowners placing their homes on the market for the first time.  It will not be long before year over year comparisons in demand will be better this year.  Bank owned foreclosures and short sales, homeowners that owe more on their home than the current value, now account for 33.4% of the active inventory.   Lenders remain in the driver’s seat with a 2.11 month market.  For buyers looking for a “deal” in purchasing a foreclosure, be prepared to compete with other buyers.  Many foreclosures are being sold for their full prices.  I just heard from an associate who wrote two offers for one buyer this week and they lost out on both of them because the buyer was unwilling to pay the full asking price.  Statistically, short sales have an expected market time of 12.05 months.  HOWEVER, I must warn everybody that this figure is grossly understated.  The standard practice for Realtors® out in the field is to keep a home on the market as an active listing even though they have an offer that has been accepted by the seller until they have formal lender approval of the deal.  Because the lender must take less than what is owed, short sales are “subject to lender approval.”  So, when a buyer climbs into a car and finds a short sale home that they want to write an offer on, chances are that the home already has an accepted offer that is somewhere in the “lender approval” process.  This process can take anywhere from a couple of weeks to months.  These homes are not placed into the Multiple Listing Service as a Pending Sale because the agent and seller are willing to take a look at additional offers that may be more acceptable to a lender, typically a higher offer price. 

 

What’s the difference between the condominium market and the detached home market?  The detached home market continues to fare better than the condominium market with a 7.23 month inventory.  For condominiums, there is a 7.98 month inventory, the first time below the eight month mark since April of 2007.  31% of the detached home inventory and 38% of the condominium inventory is either a foreclosure or short sale.  67% of all detached homes below $500,000 are either a foreclosure or short sale.  For condominiums, 47% below $250,000 are distressed and 43% between $250,000 and $500,000 are distressed.

 

Buyers, what to do?  According to a CNN Money article titled “Housing: Best Time to Buy in Four Years,” housing has nearly returned to “long-term norms” and that by the end of 2008 “housing markets could be broadly undervalued.”  Slowly but surely, more and more headlines and articles are touching upon the fact that values have come down so rapidly that they are creating excellent buying opportunities not seen in years.  Increasing demand in Orange County can definitely be attributed to value.  The good news is conditions are perfect to purchase:  motivated sellers, a lot of inventory, rates are low, new loan programs are available and there are great values out there right now.  Buyers need to understand the local conditions and the price range that they are looking at prior to writing their first offer.  In more and more areas, certain price ranges and individual homes can and will attract multiple offers and above asking price offers.  Understanding the market conditions is fundamental to isolating a home.  Everybody is so focused on price and value that changes in interest rates are almost completely ignored.  Buyers rarely focus on a difference in interest rates.  Buyers can ask for a seller to pay a point of their loan and their monthly mortgage payment drops for the life of the loan.  Also, rates will inevitably increase to stave off inflation.  Just as Bernanke and the Federal Reserve are doing everything in their power to increase liquidity in the financial markets, they will just as swiftly and methodically increase rates.  Although we have all grown accustomed to rates staying so low, like gasoline, we will get used to rates increased to 7% or 8% or more when the time comes.  In 2000, conventional rates were 8% and in 1990 they were at 10%.  71% of distressed properties are below $500,000 and 92% are below $750,000. 

 

Sellers, what to do?  So far I am pleased that most homeowners have not been fooled into placing their homes on the market with the anticipation that it is the Spring market.  Here’s a dose of perspective, given current demand, there are still 13,534 sellers who will not be successful in selling their homes over the course of the next month.  With only 2,083 successes over the past month, that leaves the vast majority waiting another month or months.  So, if you do not have to sell your home, DON’T.  Placing your home on the market takes a ton of patience, a lot of elbow grease, a very good price, and tip top condition.  The more upgrades, the better condition and the better the location, the higher a seller’s chances of successfully selling.  If a home does not have the upgrades or is in need of work or does not show well, it must be reflected in the price.  With the market flooded with so many foreclosures and short sales, a homeowner can compete and achieve a better price by having the best home in the best condition with upgrades that show beautifully.  Be prepared on day 90 with the lights on, music playing in the background and the faint smell of cinnamon cookies in the air.  You never know when the buyer that falls in love with your home is going to walk through the door.

 
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Have a happy Easter, everyone!

My company issued the latest Market Time Report over the weekend.  It sounds a lot like what I've already been saying - right now there are low prices, good interest rates, and a very large inventory with little competition amongst buyers.

As far as the comments about buying now versus waiting till spring, it talks about the difference between the effects of a drop in price versus a raised interest rate.  It's right on the money, however, I think that between now and early spring, "deals" should be analyzed on a house-by-house basis, rather than the market as a whole.  Some of tomorrow's deals that people are waiting for are here today.  The way to approach that is to find a house you like, and try to make a deal on it today before tomorrow's buyers get off the fence.  You can do that confidently, knowing that if the seller will not make the deal with you, there will be plenty more deals to try for.  Remembering that homes are going for an average of around 95% of list price, the trick is to look at the pricing history on the home, as well as neighborhood sale comps, and find one that has already been seriously marked down.  Then make a "reasonable" offer based on their current (very marked down) list price.  Always consider how the price of the home stacks up with recent sales on similar properties (ie: "comps").

Without further ado, here you go:

Here's the latest Market Time Report, put out by my company.  Things are still slow and it's still a less-than-ideal time to be a seller, however, as you'll see below, a "Perfect Storm" is brewing for buyers!  I'm seeing this all around me in terms of pricing, selection, etc.

If you're ready to take advantage of the opportunities created by the current market, contact me and let's get started finding you your next home!



Market Time Report:  The Financial Funk Continues

 

October 4, 2007

 

Good Afternoon!

As both the national and local housing market wait for the Federal Reserve, Congress, the Treasury, the White House and Wall Street, the Orange County real estate market continues its sluggish pace.  Bernanke, the Federal Reserve chairman, testified on Capitol Hill a couple of weeks ago that the conforming loan limit should be temporarily raised from the $417,000 level to mid-$600k; however, he expressed concern that the fix is needed now and not to wait until next March.  Therein lies the problem with our current real estate market and the present financial crunch; the government is just too slow and extremely reactionary versus being visionary in their approach and doing something now.  Debate all they want, but when the lackluster and even deplorable housing numbers are revealed over the coming months, the fire will be reignited and the fix will move away from a debate to immediate action.  We will most likely receive additional rate cuts from the Federal Reserve, an increase in FHA limits, an increase in conforming limits and more.  Unfortunately, it is not going to come overnight.  With mortgage resets peaking just last month, we can expect more foreclosures and defaults for months to come.  Stay tuned!!

 

So far, the recent rate cut has not changed demand in Orange County.  The cut was just the first in a series of moves to stimulate the financial market.  We will have to wait and see what’s in store for the next step.  Demand, the number of new escrows within the prior 30 days, dropped from 1,180 homes two weeks ago to 1,113 today, a 67 home drop.  The current active inventory decreased by 139 homes in two weeks to 17,759 homes, nearly matching the inventory four weeks ago.  Orange County’s market time increased from 15.17 months two weeks ago to 15.96 months today.  Last year at this time, there were an additional 878 escrows within the prior month, the active inventory was at 15,482, or 2,277 fewer homes, and market time was at 7.78 months.  Two years ago, there were 9,888 fewer homes on the market, 1,755 more escrows within the prior month, and the market time was at 2.74 months.

 

After finding a new way to search for short sales and foreclosures on the market and in escrow, the new findings are disconcerting.  Currently, short sales and foreclosures in Orange County account for 12% of the active inventory and 15% of all escrows opened within the prior month.  Two weeks ago, I detailed that foreclosures and short sales accounted for 8% of the active inventory and 10% of the escrow activity.   Of all the short sales and foreclosures currently on the market, 57% are below $500,000 and 92% are below $750,000, virtually unchanged over the past month.

 

The financial crunch has deepened the disparity between the detached and condominium markets.  Since a majority of detached homes require a jumbo loan, the crunch has affected demand significantly.  The market time for detached homes has blossomed over the past four weeks from 14.94 months to 16.56 months today.  For condominiums, market time has increased from 14.39 months four weeks ago to 15.08 months today.  In a nutshell, the subprime crisis of March of this year had a more severe effect on the condominium market, whereas, the current financial crunch has a more severe effect on detached homes.  Overall 28.6% of the overall active inventory is vacant,  32.9% of the condominium market and 26.0% of the detached market.

 

What can we expect for the remainder of the year?  We will continue to experience inherent demand until Bernanke and the Federal Reserve, congress, the White House and Wall Street start taking additional steps to correct the financial crunch.  One reduction in rates from the Federal Reserve is hardly going to fix the inherent problem of Wall Street’s unwillingness to purchase jumbo loans and other pools of loans.  Regardless of the market, there is always somebody willing to purchase, inherent demand.  It looks as if we will remain at the current pace for the remainder of the Autumn market, which ends on Halloween.  Many homeowners have already have pulled their homes from the market.  This will continue and peak during the Holiday market, Halloween through the first couple of weeks of the New Year.  Demand will remain at its low levels until enough changes enable more buyers to enter the market.  It could be just in time for the beginning of 2008. 

 

How should a seller approach the market?   First of all, remember that long term, Orange County and Southern California real estate is not only home to many, but a fantastic investment.  So, the best advice is to enjoy your home and live in it.  Rest assured that the market will rebound in the years to come.  With demand at its current levels and the inventory so high, if you don’t have to sell, don’t.  If you would like to sell, don’t.   Homeowners should look to sell their homes in this market ONLY IF THEY ABSOLUTELY MUST SELL.  There are 17,759 homes on the market and 1,113 new escrows within the prior month.  Given current demand, 16,646 homeowners will NOT be successful over the course of the next month.  That translates to a 6.3% chance of success.  Sellers must pack their patience, it may take a while.  They also have to price their home to stand out amongst all the competition.  That means after carefully scrutinizing the most recent escrows and comparable sales, consider pricing your home a little bit below that level.  Sellers also need to have the best location and condition in order to stand out.  If a home does not have the best location, the price must reflect that fact.  Dressing a home for success by taking care of all cosmetic fixes inside and out and keeping a home in tip top shape every day regardless of the time it takes to successfully sell a home is essential.  Poor condition necessitates a further reduction in the asking price.  With so much pressure on pricing, do NOT fall into the trap of chasing the market down in price by not pricing a home properly NOW.  This occurs when a seller starts high, then reduces the asking price, only to find that the fair market value has dropped from the original fair market value. 

 

How should a buyer approach the market?   As rates start coming back down to historical lows and prices continue to fall during the Holiday market, THE perfect storm is on the horizon.  There are a lot more motivated sellers in the current marketplace.  Little to no buyer competition and great interest rates is an opportunity to isolate the ideal home for a buyer’s family.  When the market does start to pick up, you can look to the Federal Reserve to restore their rate hikes and the government to remove some of their temporary fixes.  So, buyers should take advantage of the market while it is down.  Sure, prices could go down a bit further, but rates won’t stay down for that long, the inflation pressure is just too high.  Buyers can not only find an asset to call “home,” they will get a great tax write-off and an exceptional, historical long term investment that will undoubtedly erase the current downturn.  Orange County and Southern California along the coast is running out of land to build on.  Scarcity in land will drive up prices long term as well.  Many will accuse me of talking out of both sides of my mouth.  Many will tell you to wait.  Nobody knew that 1995 was the bottom of the last downturn either until a few years later.  Back then I recall many stating that values would drop further.  They didn’t.  That could be the case in looking back at the end of 2007 and the first quarter of 2008.  And, for those that bought in 1994, they had a place to call home, a tax deduction and an investment that more than paid off.  Sure values may have dropped a little further, but they certainly did well long term.  Last, in arriving at a fair offering price, the average current closed sales to list price ratio for Orange County is 97%.  Lowball offers do NOT result in a sale.  So, throw away the 80% or 90% offers and start within reason.   

 

The following areas have inventories of less than thirteen months:   Aliso Viejo, Anaheim Hills, Fountain Valley, Huntington Beach, Irvine, Laguna Woods, Mission Viejo, Portola Hills, San Clemente, Seal Beach and Talega.

 

The following areas have inventories greater than eighteen months:  Anaheim, Coto de Caza, Cypress, Dove Canyon, Foothill Ranch, Ladera Ranch, Laguna Beach, Laguna Hills, Laguna Niguel, La Habra, Lake Forest, Newport Beach, Orange, Placentia, San Juan, Santa Ana, Villa Park, the price range between $1 million and $1.5 million and all ranges above $2 million.

 

Have a super weekend.

 

 

The latest Market Time Report is out, and what changes have taken place since the last one, whew!  If you would like to take advantage of this market to find your new home, I can help!  Contact me.

 

The latest Market Time Report is out!  These are issued every two weeks by my company to help keep our agents on top of the latest activity in the local (Orange County) markets.  If you are ready to buy or sell your home, contact me by clicking here.  

Market Time Report:  The Market is Holding, Where Now?

 

July 26, 2007

 

Good Afternoon!

The Orange County real estate market appears to be in a Summer holding pattern; but, that may change in August when demand cyclically increases for one last push prior to the Autumn market.   The active inventory increased by only 262 homes in the prior two weeks and 346 homes in the past four weeks, bringing the total to 17,596.  It appears that we are approaching the peak in the inventory.  Actually from last week to this week, the inventory has  dropped by 9 homes.  So, the peak is weeks, if not days, away.  It does not appear as if the active inventory will eclipse the 18,000 home mark.  Last year at this time, the inventory was at 15,735 homes or 1,861 fewer than today.  Two years ago, the inventory was at 6,489 homes or 11,107 fewer than today.  Demand, the number of new escrows within the prior 30 days, is currently at 1,822 homes, 41 more than two weeks ago.  But, the 1,822 escrow level is 413 fewer than last year’s demand at this time and 1,928 fewer than just two years ago.  The market time dropped slightly from 9.73 two weeks ago to 9.66 months today.   The market time last year was at 7.04 months and two years ago it was at 1.73 months. 

 

It appears that many homeowners are not making the mistake of confusing Summer as the best time of the year to place a home on the market (which is actually Spring).  There already is plenty of competition out there, so many homeowners are hesitating in entering the mix.

 

Nothing much has changed recently in comparing the detached home market to the condominium market.  Detached homes continue to fare better than condominiums.  Detached homes are currently experiencing a 9.22 month market compared to a 10.43 market for condominiums.  The hottest price ranges for detached homes are the below $500,000 range and the $750,000 to $1 million range.  Both ranges are currently experiencing market times below eight months and represent a third of all detached home escrows.  For condominiums, not surprisingly the hottest market is condominiums below $250,000, representing only 13% of all condominium escrows.

 

Here’s the big question of the day: where do we go from here?  Demand will actually continue to rise as the active inventory peaks and remains at its current levels through most of August.  It’s “back to school” in September as the market transitions through the Autumn market.  The Autumn market, September through Halloween, is marked by many sellers opting to throw in the towel and pull their homes off of the market.  The active inventory will start to drop as fewer homeowners attempt to begin marketing their homes.  Demand will drop too, but due to the current low levels, it will not be by much.  After Halloween, the market will transition into the Holiday market, Halloween through the first couple weeks of January.  This is the time of year where a surge of sellers pull their homes off of the market.  With holiday distractions, demand drops to its most anemic levels of the year.  With respect to prices, we won’t see major drops reminiscent of the 1990’s because the economic backdrop is so strong.  There will be areas with a higher proportion of subprime loans gone bad, which is reserved primarily to areas with lower average sales prices.  There is currently a standoff between buyers and sellers in many areas.  Buyers are waiting for prices to drop while sellers are holding out for their price.  Because most sellers are not under economic duress, unsuccessful sellers would rather just pull their homes off the market and just sit tight in their homes or lease out their homes as an investment until the market turns sometime in the future. 

 

How should a seller approach the market?   Success for a seller in today’s market takes price, patience and condition.  Let's first take a close look at the dynamics of current competition.  There are 17,596 homes on the market and 1,822 homes that entered escrow within the prior 30 days.  Given current demand, 15,774 homeowners will NOT be successful over the course of the next month.  There is only a 10% chance of achieving success in the next month.  So, sellers must realistically price their home according to the market value and not necessarily what they would like to get out of their home.  That means turning all RECENT comparable sales and all escrows upside down to determine what a buyer would be willing to pay for their home.  Also, sellers must take into consideration any aggressively priced sellers BELOW the recent comparable sales and escrows.  It is not necessary to slash the price to procure an instantaneous sale.  Instead, listen to buyer and agent feedback from all showings and then determine how the market is responding to the home before making any changes.  Sellers need to pack their patience.  When there are fewer fish biting, the fisherman must continue to consistently make the effort to be prepared at all times knowing that perseverance equates to success in the long run.  Sellers also need to make sure that their home shines from top to bottom.  With so much competition, excellent condition is essential to make a home stand out among the crowd.  When a buyer has to do very little to a home but “turn the key” and move in, the higher the chance of success and the less a buyer will discount a home because of work that needs to be addressed.  Taking care of all cosmetic fixes (new carpet, a fresh coat of paint, repairing a leaking roof, etc.) is not only essential in achieving success, but the seller will also receive a higher return on the dollars spent to get their home in proper tip top shape.  Lastly, if sellers are unwilling to do what it takes to get their homes sold or are just testing the market, they should do themselves a favor and enjoy the rest of the summer without any intrusions and pull their homes off the market NOW versus later in the Fall or Holiday markets.

 

How should a buyer approach the market?   The bottom is NOT falling out of the market.  It is worth repeating that the economic backdrop is strong.  That means that there are not enough hardship cases to instigate desperate sales.  The higher the price range, the fewer desperate sellers and foreclosures.  The bulk of all foreclosures are below $500,000.  And, there are very few foreclosure above $750,000.  The sky is not falling.  Prices are not falling off of a cliff either.  The major advantage for buyers is that there are so many choices out there compared to just two years ago.  This IS the market to be a buyer.  Now through the end of the year is the time to buy.  The Orange County real estate market will thrive for years to come just as it has HISTORICALLY.  The dynamics of Orange County are simple.  First, the county is running out of buildable, raw land. Second, the local economy is thriving.  Third, the weather is unbelievable.  Orange County and Southern California is a vacation destination for so many people around the world.  We don't have humidity.  We have the best beaches in the country.  The list goes on and on.  Orange County is not only a great place to live, it is HISTORICALLY a fantastic investment and it will remain a fantastic investment in the long run.  If a buyer is not planning on moving in a year, then what are they waiting for?  Buyers should find the home that best fits their needs and make an offer, keeping in mind that the list to sales price ratio is currently at 97%.  That translates to sellers not falling for lowball offers.

 

The following areas have inventories of less than eight months:   Coto de Caza, Cypress, Dove Canyon, Huntington Beach, Laguna Woods, Mission Viejo, Placentia, Rancho Santa Margarita and Seal Beach.

 

The following areas have inventories greater than eleven months:  Anaheim, Anaheim Hills, Buena Park, Canyon Areas, Dana Point, Fullerton, Garden Grove, Laguna Beach, Laguna Hills, La Habra, Lake Forest, Newport Beach, Newport Coast, San Juan, Santa Ana, Villa Park, Westminster and all ranges above $2 million.

 

Have a fantastic weekend.

With the collapse of the subprime market taking center stage, the Orange County real estate market has slowed considerably.  February 2007 gave every indication that the Spring market was going to be a mirror image of 2006.  Demand was almost identical in year over year comparisons.  However, this month has been marked by news of subprime lending gone bad.  Bankruptcies, lenders closing their doors, lender layoffs, Congressional hearings, fraud, foreclosures and more have all been heavily reported over the past few weeks.  For now, the national spotlight is currently on real estate and it is having an immediate effect on Orange County demand.  As the national attention shifts to the next big news story, will demand bounce back?  We will all have to wait and see.  Keep in mind that only 15% of all outstanding loans are subprime. 

 

The current active inventory increased by 753 homes in the past two weeks to 13,373.  That is a huge jump in the inventory.  Demand, the number of homes placed into escrow within the prior 30 days, dropped by 193 homes in two weeks to 2,195.  In the past four week, demand dropped by 459 homes.  The market time increased from 5.26 months two weeks ago to 6.09 months today.  The market is back in the neighborhood of a buyers market.  The year over year comparisons tell the real story.  Last year at this time, the active inventory was at 12,194 homes, 815 fewer than today.  Demand was at 2,874 homes last year, 679 additional homes.  The market time was at 3.5 months last year versus 6.09 months today.  In comparing this year to two years ago, the differences are even more dramatic.  In March 2005, the active inventory was at 5,040 homes, 8,333 fewer than today.  Demand back then was at 4,090 escrows, 1,895 fewer than today.  The market time two years ago was at 1.23 months.  The two markets are worlds apart.

 

The condominium and detached home markets are still very similar, but the detached market is a bit slower.  For condominiums, the inventory is at 6.03 months compared to 6.12 for detached homes.  There are far more vacant condominiums actively on the market, 31.8%, compared to detached homes, 22.7%.  The effect of the subprime market may equate to tighter lending parameters, which could cut into demand for the entry level market, condominiums below $500,000, which accounts for 59% of all condominiums.  This will play out in the evolution of the market in the coming weeks.

 

What can we expect in the coming months?  What was once seen as the market stabilizing and revving up for the Spring has evolved into something completely different.  This week Bernanke and the Federal Reserve left rates unchanged and are beginning to change their posture on increasing rates in the future due to the housing market.  It just depends upon whether or not the housing market begins to affect the overall national economy.  For the rest of the Spring, now through May, demand is dependent upon the national and local spotlight diverting their attention to the next huge story and how far lenders will ratchet down their lending requirements.  We can expect demand to increase in April, but by how much is the true question.  We will have to wait and see how the market digests the coming weeks.  With so many sellers banking on a decent Spring market, the active inventory could blossom substantially like it did in the prior two weeks.  We could reach the 16,000 mark, the height of the active inventory in 2006, in May, and then set a new record for 2007 in August.  At the current rate of demand, we can expect more of the same in the Summer, flat demand around 2,000 homes placed into escrow per month.  In the Autumn, demand will soften when the kids go back to school and the active inventory should begin to drop as frustrated sellers throw in the towel and pull their homes off of the market.  After Halloween, the market will transition into the slowest time of the year, the Holiday market.  The Holiday market is marked by the lowest demand of the year as the inventory continues to drop with more sellers pulling their homes off of the market.  Demand may be buoyed by a decrease in rates during the second half of the year by Bernanke and the Federal Reserve. 

 

How should a seller approach the market?  With the market slowing dramatically, sellers need to take a real hard look in the mirror and ask themselves if they have what it takes to sell.  With so much competition it is most likely going to take time to sell a home.  In many areas, it is taking over a half of a year to achieve success.  Be careful to NOT look at days on market (DOM) as an indicator of how long it will take to sell a home.  Days on market is skewed on the low end because many agents “refresh” a listing by reloading it into the multiple listings service, bringing the days on market back to zero.  Also, as more and more new sellers place their homes on the market, the average begins to drop.  A true reflection of market time is taking the number of homes on the market and dividing by the number of homes placed into escrow within the prior 30 days, demand.  For example, if there are 100 homes on the market in an area and 10 were placed into escrow within the prior 30 days, the inventory would be at 10 months (100 divided by 10).  What if most of the other 90 were placed on the market over the prior two months?  Market time is a true barometer of what is currently going on in the marketplace.  In the current market, sellers must realistically price their homes.  This can be established by pouring over the most recent comparable sales, the prior 3 months, and all escrow activity.  Also, it is important to watch for aggressive sellers priced below the most recent sales and escrows.  But, proper pricing does not guarantee a sale.  Sellers must pay close attention to all market changes.  The market is constantly evolving.  Currently there is pressure on pricing, so revisiting price throughout the process is imperative to achieve success.  Also, the condition of a home is important in differentiating it from the rest of the market.  The better the condition and price of a home, the better the opportunity to achieve success in a reasonable amount of time.  Sellers should have their home in showing condition with lights on, clean from top to bottom and clutter boxed up and put away.  There are 13,373 homes currently on the market and 2,195 homes placed into escrow within the prior 30 days.  Based upon current demand, 11,178 sellers will not be successful over the course of the next month.  If a seller is truly motivated to sell, then they should do what it takes to sell their home. 

How should a Buyer approach the market?  With so many options and less competition from other prospective buyers, buyers can afford the time to patiently approach isolating the home that best matches their individual wish list.  Once a buyer finds the right home, they should offer a realistic price according to the most recent comparable sales and escrows.  They should not hesitate to write; otherwise, they invite competition from other buyers and they could ultimately pay more for a home or lose the home altogether to another buyer.  Buyers should not attempt to time the bottom of the market.  Very few experts predicted the current slowdown to occur right now in the middle of the Spring market.  The experts will also be unable to predict the precise bottom of the market.  Instead, they will be able to report on when it occurred in the past.  In attempting to time the market, buyers run the risk of waiting on the sidelines as the market passes them by.  Buyers should also take great comfort in the fact that Southern California has historically been a fantastic investment for homeowners besides a great place to live.

 

The following areas have inventories of less than or equal to five months:  Aliso Viejo, Anaheim Hills, Brea, Cypress, Dove Canyon, Foothill Ranch, Fountain Valley, Fullerton, Huntington Beach, Mission Viejo, Portola Hills, Rancho Santa Margarita and Villa Park.

 

The following areas have inventories greater than eight months:  Anaheim, Canyon Areas, Corona Del Mar, Costa Mesa, Laguna Beach, Newport Beach, San Clemente, Santa Ana, Talega and all ranges above $2 million.