Orange County Housing Report
February 4, 2010

The Super Bowl typically marks the beginning of Orange County's spring real estate market, and this year is proving to be no exception. Demand, the number of new pending sales over the prior month, has increased by 28% over the past two weeks to 3,248, adding 701 additional pending sales. Over the past month, demand has increased by 43%. There are 577 additional pending sales compared to last year and 1,680 compared to two years ago. Last year demand did not reach current levels until April. This is the strongest demand at the beginning of the year since 2005.

Subscribe to the Orange County Housing Report as part of REALTOR® Tony Dove's newsletter. For more real estate news and commentary, visit: Inman News Tony Dove's Local Realty Digest

The active inventory increased over the past two weeks by 177 homes, or 2%, to 7,857. The active inventory last year was at 11,519, 3,662 additional homes compared to today. Two years ago it was at 15,259, 7,402 additional homes. The expected market time for all price ranges in Orange County has decreased from 3.02 months just two weeks ago to 2.42 months today. There is a lot of confusion about the housing market because there are really three markets: price ranges less than $750,000, $750,000 to $1.5 million, and $1.5 million plus.

For all homes priced less than $750,000, the market is ON FIRE with multiple offers and sales prices above the list prices. When the expected market time drops below two months, the market is crazy with a lot of competition. The $750,000 to $1.5 million price range is getting hotter and many homes are attracting multiple offers. There are now more jumbo loan products available to this price range with much more attractive rates. For price ranges above $1.5 million, the market is stagnating, the higher the range, the more stagnant the market. There simply are fewer buyers looking for homes in these price ranges and loan products are much harder to obtain and have much higher interest rates.

The active distressed home inventory, all short sales and foreclosures combined, actually countered a 12 week trend and dropped by 22 homes to 2,651. This does not mean that there are fewer distressed homes coming on the market; rather, it means that the increased demand is eating up the active distressed inventories.

Over the past month, the number of distressed and non-distressed homes being placed on the market has increased, but many are being purchased as soon as they are placed for sale. The number of foreclosed properties available for sale increased in the past two weeks from 355 to 375. The expected market time for foreclosed properties is a sizzling 0.90 months, a deep seller's market. Foreclosures garner so much activity that they are like individual mini auctions and the successful buyer is really the successful bidder. The number of short sales in the active distressed inventory decreased by 69 and now totals 2,249. The expected market time for short sales is 1.63 months, also a deep seller's market. 33.7% of the active inventory is distressed. Last year at this time 44% of the inventory was distressed. In January, 29% of all sales were short sales, 17% were foreclosures and 54% were equity sellers. In January 2009, 19% of sales were short sales, 44% were foreclosures and 37% were equity sellers.

Just because the market is really hot does not mean it is appreciating out of control. Distressed homes are keeping a lid on appreciation. Instead, when setting your price it is very important to take a close look at recent comparable sales and all pending activity. Listed homes do not necessarily help much in pricing, other than to see if somebody is pricing too aggressively. Keep in mind that sometimes homes are placed on the market far below the true market value and they generate so much activity, that the end result is that it sells for the true market value, selling for thousands above the list price. This is a market reality. The higher the price range you are working in, the more careful you need to be in pricing your home. You also need to be patient and in tune with how the market is reacting to your home. Showing feedback is crucial to understanding market reaction.

First, a buyer needs to understand the dynamics of the market they are working with. The price range is the biggest factor. It is very hard for many buyers to comprehend the fact that the lower price ranges are in a deep seller's market. Competing with multiple offers is hardly the expectations of a buyer exposed to current media reports. I have heard story after story about how it often takes losing one or two offers before a buyer sharpens their pencil enough to write a winning offer. Considering that all homes in all ranges sold for 98% of their list prices last month, there is not a lot of flexibility. For lower price ranges and distressed homes, there is even less flexibility and many are selling above their list prices. Some buyers react by withdrawing from the market, anticipating that prices will drop again down the road with the economy still in such disrepair. Others become more realistic and adjust to the unexpected market realities. This year, the market appears to be repeating the dynamics of 2009 with a bit more activity, especially in the lower price ranges.

Source: Steven Thomas, President, Altera Real Estate