Orange County Housing Report
June 10, 2010

The decrease in demand appears to be leveling off. In retrospect, the end of the Federal tax credit definitely had an impact on Orange County housing demand, if in no other way but timing. The ending of the credit prompted many first time home buyers to purchase sooner than they originally planned. Had the credit not been in place, demand would have been somewhat less in both March and April, and somewhat higher in May and June. March and April's surge in demand due to the ending of the housing credit appears to have robbed May and June of normal activity. Housing Demand: The 4% decrease in demand over the last two weeks is significantly less steep than the 12% decrease posted two weeks ago. Demand, the number of new pending sales over the prior month, decreased by 136 in the past two weeks and now totals 3,167. For the first time since March 2008, demand is less than the prior year with 485 fewer pending sales. However, this does not mean that it's going to become easier for buyers anytime soon. The decline in demand is leveling off, and it is anticipated that it will return to normal in July and August. The expected market time for all homes priced below $1 million is still a very hot 2.71 months, even less for properties that can be easily financed. Five to six months is equilibrium. Anything less than five months is a seller's market. You may ask, "How can we have a seller's market without rampant appreciation?" The answer is quite simple: with so many distressed homes on the market, a lid is being kept on any real, significant appreciation. For homes priced above $1 million, the expected market time is 8.89 months - the higher the price range, the slower the market. A market time of more than six months is a buyer's market. If you are a buyer, carefully consider the local market conditions and the price range you are looking to purchase in. For example, for homes priced between $1 million and $1.5 million, the expected market time is 5.59 months, not really considered a buyer's nor a seller's market.

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Last year, after increasing by less than 400 homes in the first three months, the total active inventory experienced a steady decline from a high level of 11,606 homes to 7,381, a 4,225 drop or 36%. This year the Orange County housing market has thus far experienced the exact opposite phenomena, the active inventory has increased unabated by 39% to 10,117. In the past two weeks, the inventory has increased by 278 homes, or 3%. This also marks the first time since April 2008 where the inventory is higher than the prior year. Last year the inventory was at 9,313 homes, 804 fewer than today. What is going on? The answer is quite simple: there are many homeowners placing their homes on the market at unrealistic prices. They have become aware that the market is hot in the lower price ranges with buyers competing for homes, generating multiple offers and ultimately paying full asking price, or very slightly more. However, buyers are not ready to pay substantially more than the last comparable closed or pending sale. Sure, given the heated demand, they may pay $5,000 more than the last buyer, but no buyer is prepared to pay a $40,000 premium for a home. Many of these homeowners have been sitting on the fence, unable to sell, waiting for the market to return to the "old days." The Orange County market was fortunate in 2008 and 2009 to have included discretionary equity homeowners who placed their homes on the market at, and sold them for realistic market values. They knew that buyers would not pay a premium, so whether they chose to sell or had to sell, they placed their homes on the market at prices in line with then recent comparable sales. If a seller's home is not generating enough activity or procuring offers, it is time to take a careful look at the PRICE. Equity sellers should keep in mind that buyers are not going to pay a substantial premium just so that they don't have to deal with all of the hassles of purchasing a foreclosed property or short sale. Many foreclosures and short sales have a lot of upgrades, part of the excess of the last run-up in values. So, as a seller, it is absolutely imperative to do your homework by carefully considering three important factors: location, condition and amenities. A buyer is going to do the same thing.

The distressed inventory continued to slowly increase, adding an additional 89 homes in the prior two weeks for a total of 3,080 homes, a 3% increase. The distressed inventory has not surpassed the 3,000 mark since June of last year. Last year at this time, there were 3,062 distressed homes on the market, representing 33% of the active inventory. The number of foreclosed homes within the active listing inventory has dropped by three homes in the past two weeks from 533 to 530. The expected market time for a foreclosed home is 1.45 months, an extremely HOT seller's market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 92 homes over the past two weeks and now total 2,550. The expected market time for short sales is 2.09 months, also a HOT seller's market.

The number of closed residential resale homes in May totaled 2,789 homes, a 13% increase year over year. But, keep in mind that the tax credit for first time home buyers is for successful contracts that are consummated on or before April 30, 2010, and that must close on or before June 30, 2010. The tax credit may have ended for all buyers still looking for a home, but still applies to buyers who put together a contract prior to April 30th and are still able to close by the end of this month. Just as there was a surge in demand in March and April, there will be a surge in sales in May and June. We can expect headlines to reflect this surge when they report May sales later this month.

Source: Steven Thomas, President, Altera Real Estate