Orange County Housing Report
June 24, 2010
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Orange County Housing Report Archives
Demand Dynamics Appear Normal Again
After dropping nearly 22%, Orange County housing demand dynamics now appear to be entering a normal summer cyclical pattern.
Housing Demand: Over the last 5 years the average decrease in demand was 3.2% for this time of year. This year it decreased only 2%.
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Whatever the reason - the end of school, graduation, the start of summer - demand typically drops at this time of year. The only difference this year is that demand had already dropped 20% due to the end of the Federal first time home buyer tax credit. When demand reached 3,979 pending sales on April 29th, the height for 2010 and the highest threshold in almost five years, there was a rush to purchase by first time home buyers. The first time buyer's segment of the market accounted for 25% of Orange County's housing activity. With so many of them pushing to purchase by a deadline, it left a void in demand for the six weeks that followed the credit expiration. It wasn't until the past two weeks that the normal housing pattern for Orange County reemerged. Earlier in the year, the market was following a normal pattern as well, until March and April. Demand grew by 30% in those two months, and then subsequently, dropped almost 22% in May and June. Demand, the number of new pending sales over the prior month, decreased by 60 in the past two weeks and now totals 3,107. For the second report in a row, demand is less than the prior year with 522 fewer pending sales compared to 2009. Demand will typically fall at the end of June and the beginning of July, and then begin to climb again at the end of July. With the distraction of the Fourth of July weekend coming up, this seems fairly accurate.
Active Listing Inventory: The inventory has continued to grow unabated since the beginning of the year.
Last year the inventory dropped by 36%. This year, however, the Orange County housing inventory has grown by 3,034 homes, a 43% increase. In the past two weeks, the inventory has grown by 345 homes, a 3% increase, and now totals 10,469. This is also the second report in a row where the inventory is higher than last year. Last year the inventory was at 9,188 homes, 1,274 fewer than today. The drops in demand is partially to blame for the increase in the inventory, but keep in mind that it was still increasing when demand was at its highest level in years.
All price ranges have experienced an increase in inventory, especially homes between $250,000 and $1 million. For homes priced between $500,000 and $750,000, the inventory has increased by 60%. The reason for the increase in inventory is because there are many homeowners who have held off on selling their home while waiting for the market to turn around. Homeowners have heard about the hot market in the lower ranges with a lot of activity, multiple offers and homes selling for very close to their asking prices, and in many cases, above their asking prices. The problem is that many of these same homeowners have also heard the median price in Orange County has increased, and are placing their homes on the market at unrealistic price levels, thousands above the most recent comparable and pending sales. Median prices have increased, but more as a matter of the mix of homes the median is taken from, than real appreciation.
Buyers in today's market have become "spreadsheet buyers," pouring over the comparables and not wanting to pay much more than the last buyer. With demand hot, many are willing to pay a bit of a premium to purchase their dream home, but more along the lines of an extra $5,000, not $15,000 or more. As long as the overall economy's health is in limbo and more distressed homes are hitting the market, buyers will be unwilling to pay an extravagant premium to own a home. As a seller, it is imperative to carefully consider all recent comparable sales, taking into account location and amenities, and price accordingly.
Foreclosures and Short Sales: Since October 1, 2009, the distressed inventory has grown by 37%.
The active distressed inventory has increased from 2,346 homes on October 1st and now totals 3,217, levels not seen since May of 2009. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,919 distressed homes on the market, representing 32% of the active inventory. The number of foreclosed properties within the active listing inventory has increased by 29 homes in the past two weeks from 530 to 559. The expected market time for foreclosed properties is 1.52 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 108 homes over the past two weeks and now total 2,658. The expected market time for short sales is 2.28 months, still a HOT seller's market.
Interest Rates: Interest rates are at a 60-year low that will NOT last.
Everybody is so focused on price and the current historically low interest rates have become an expected part of our real estate market. However, with all of the money that the Federal government has poured into our economy, there is a real threat of major inflation on the horizon. One of the only ways to counter the threat is to raise rates. Due to the lackluster economy, the Federal Reserve is currently stuck and unable to raise rates in the short term, but sooner or later they will be forced to make a change. Rates are predicted to increase to 6% over the course of the next year. As interest rates rise, buyers can afford less of a home. For example, a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in a drop in home affordability from $590,000 to $540,000, a $50,000 drop. Buyers waiting for that "good buy" may find it next year, but at a price, with higher rates and a larger monthly payment.
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Source: Steven Thomas, President, Altera Real Estate
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