Orange County Housing Report
July 8, 2010

The Orange County Housing Inventory has inflated by 48% since the beginning of the year because of unreal fact-based expectations. Unrealistic Expectations: Overpriced homes have flooded the market. Reports of tremendous competition among buyers and rising median prices have fueled unrealistic seller expectations. Reports of multiple offers and homes selling quickly have fueled them as well. Yes, there has been a lot of demand and homes have sold quickly, procuring multiple offers. However, none of this would have happened had it not been for a major increase in home affordability. Additionally, our rise in median prices is primarily due to a change in the mix of homes sold the median is measured against, not actual appreciation. There has been a culture shift in the past few years where people have moved from spending frivolously (and often recklessly) to saving, paying off debt and making sure that every penny counts. Five years ago, home buyers were racing to buy homes at whatever price. Today, buyers have become "spreadsheet" buyers, not wanting to pay much more than the last closed sale, regardless of the amount of competition. Sure, after writing offer after offer after offer a buyer is more willing to up the ante a bit and pay a couple thousand dollars above the most recent comparable sale, but they are NOT going to pay an extra $25,000. In the hottest price ranges (below $500k), buyers have been willing to pay a little bit extra to procure a home. Over the course of the past year, the small incremental increases have amounted to a positive change in pricing. But think about it: a 5% change in pricing did not happen overnight.

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Homeowners have been unintentionally misled by recent media reports and stories of buyer's struggles to purchase a home into thinking the market has not just bottomed, it has recovered. There are many homeowners who have been waiting on the sidelines for the market to recover so that they could finally sell. Many in this pent up supply of sellers have been placing their homes on the market with significantly unrealistic price tags. They mistakenly take an increase of 5% or more in median price over a year to mean that they can price their home 5% or more above the most recent comparable sale. Spreadsheet buyers are just not going to consider purchasing these homes. The economy is too fragile for this line of thinking. Yes, there is a premium to selling a home with equity versus the short sale down the street; HOWEVER, a buyer is not going to pay thousands of dollars more. The bottom line: current sellers and sellers thinking about placing their home on the market really need to take a hard look at their situation, and decide whether or not they can really afford to sell for the real fair market value of their home. If not, they need to remove their home from the market, or avoid placing their home on the market, until they can.

This year the Orange County housing inventory has grown by 3,524 homes, a 48% increase. In the past two weeks, the inventory has grown by 355 homes, a 3% increase, and now totals 10,817. Last year at this time the inventory was at 8,946 homes, 1,871 fewer than today. Every range has experienced growth, but the most substantial growth can be found between $250,000 and $1 million with a 71% increase.

Since artificially peaking at the end of April due to the end of the First Time Home Buyer Tax Credit, demand has dropped 28%. Demand, the number of new pending sales over the prior month, decreased by 247 in the past two weeks and now totals 2,860, levels not seen since January of this year. From here, demand typically rises slightly and peaks at the end of August before slowly declining over the remainder of the year.

With an increase in the active listing inventory and a decrease in demand, the expected market time increased from 3.37 months two weeks ago to 3.78 months today. The overall market is still technically a "seller's market," but the numbers are moving in the wrong direction. At the end of April, the expected market time was at 2.35 months. Last year at this time the expected market time was at 2.66 months.

The active distressed inventory has increased from 2,555 homes at the beginning of the year to 3,307, 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 2,766 distressed homes on the market, 541 fewer than today. The number of foreclosures within the active listing inventory has increased by 19 homes in the past two weeks from 559 to 578. The expected market time for foreclosures is 1.73 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 71 homes over the past two weeks and now total 2,729. The expected market time for short sales is 2.52 months, still a HOT seller's market.

Source: Steven Thomas, President, Altera Real Estate