Orange County Housing Report
April 15, 2010

Talk to an Orange County buyer, especially a first time home buyer, and you will quickly find that the real estate market is exasperating. Currently there are two different markets, below $1 million, HOT, and above $1 million, COLD. The below $1 million market accounts for 77% of the total active inventory and 94% of demand. The lower the range, the hotter the market. Most buyers, new to the market and armed with knowledge gained through media reports, become seriously disillusioned. They are expecting the market to be plagued with desperate sellers waiting for a buyer to finally write an offer. They are expecting to purchase at a major discount and obtain an incredible "deal." Instead, buyers find that the inventory of fresh homes for sale is scarce and that they are seriously competing for anything half way decent that hits the market. Properties that are priced well and are in good condition garner tremendous attention and procure mulitple offers. Writing a purchase offer at the list price only to lose to three other buyers that brought in offers above the list price is common. Sales prices above list prices are common. First time home buyers losing out on properties to investors with larger down payments is common. The reality is that if a buyer is looking to bargain and negotiate, they are better off attending the local weekend swap meet. Remember, the value of homes have already dropped significantly, 35% or more. Some economists have argued that values have dropped below where they should be today, which often happens in real estate downturns. Home affordability has returned to the Orange County real estate market. Interest rates are still at historical lows. Throw in buyer income tax credits and we have all of the ingredients for a major seller's market. Buyers entering the fray of today's below $1 million market get a real quick dose of reality and, if they really want to buy, sharpen their pencils real fast. In the lower ranges and in hotter areas, homes are starting to sell for more than the last comparable sale. The only thing that is keeping values from taking off like they did before is the distressed inventory.

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Demand, the number of new pending sales over the prior month, increased by 126 homes over the prior two weeks and now totals 3,748, a 3% increase and the highest demand thus far in 2010. Last year's height in demand was reached in June at 3,652 pending sales. Demand is 195 pending sales stronger than last year at this time and 1,374 stronger than two years ago. It does seem as if demand is beginning to hit a plateau, so we will have to watch and see if that trend continues over the coming weeks.

Over the past two weeks, the inventory has increased by 266 homes to 9,177. We started the year at 7,165 listings and have added 2,012 homes to the active inventory thus far. Last year, the inventory continued to drop from mid-March to the New Year. Toward the end of last year, the drop was probably more in line with the average cyclical drop in the inventory that starts in September and continues until the end of the year. Naturally, during the beginning of the year more homeowners place their homes on the market in anticipation of the strongest time of the year to sell, the spring market. In 2006 and 2007, homeowners often tested the market and attempted to obtain prices above the then current fair market value. There were many overpriced listings that remained on the market and were not successfully sold. Instead, they inflated the inventory until it reached a height in August 2007 of almost 18,000 listings.

In 2008 and 2009, homeowners were no longer testing the market and the true discretionary seller (sellers with equity that do not have to sell) returned. During the second half of 2009, the Orange County active listing inventory continued to recede as fewer homes were placed on the market and REALTORS® had very little fresh inventory to show their buyers. We still lack enough fresh homes for sale to meet demand. However, the active inventory is slowly but surely being replenished in every price range. It remains to be seen if the increase in active inventory will continue. There are currently 1,384 fewer homes on the market today than just one year ago and 6,379 fewer than two years ago.

The expected market time for all of Orange County is currently at 2.45 months, a slight drop from 2.46 months two weeks ago. For homes priced below $500,000, the expected market time is 1.63 months, a deep seller's market. For homes priced between $500,000 and $1 million, the expected market time is 2.84 months, still a seller's market. For homes priced above $1 million, the expected market time is 9.44 months, the higher the range, the slower the market. For homes priced above $4 million, the expected market time is 38.44 months, or over 3 years.

The number of active distressed homes on the market, all short sales and foreclosures combined, decreased by 33 homes to 2,781 and represent 30.3% of the active inventory. Last year at this time, there were 4,006 distressed homes on the market, representing 37.9% of the active inventory. The number of foreclosed homes within the active distressed inventory has decreased by two homes in the past two weeks from 418 to 416. Yes, that is correct. With all of the talk of foreclosures there are only 416 on the market in all of Orange County. The expected market time for foreclosed homes is 1.01 months. Short sales are a different story; there are plenty of short sales in Orange County. Short sales occur when a homeowner attempts to sell a home for less than the total outstanding loans against the home. It requires approval by the lender (or lenders in many cases), acknowledging that they are willing to take less than the full payoff of a loan. Most short sales are not fast like their name would indicate and, on average, take 3 - 6 months to close. The number of short sales within the active distressed inventory has decreased by 31 homes and now total 2,365. The expected market time for short sales is 1.61 months, also a HOT seller's market. Everybody's looking for a deal, so foreclosures and short sales will likely remain a sellers market.

I am still scratching my head trying to understand why California approved $100 million towards a first time homebuyer tax credit. This tax credit is for transactions that close escrow on or after May 1, 2010. The $10,000 credit is spread out over three years. So, when will the $100 million run out? For every buyer, the state is counting $5,700 against the $100 million. This equates to 17,543 first time home buyers. Based upon the current first time home buyer activity, the credit is forecasted to last less than two weeks. And, depending on the number of buyers that have an escrow that is supposed to close at the end of this month but instead are delayed to close after May 1st, the credit may end even sooner.

Source: Steven Thomas, President, Altera Real Estate