Orange County Housing Report
March 4, 2010

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Typically we see a pause in Orange County housing demand at this time of year. Demand, the number of new pending sales over the prior month, has declined by 190 homes over the prior two weeks, now totaling 3,054. However, this is a cyclical anomaly in the data because February is such a short month. Had February been a normal month in length, demand would have remained unchanged from a couple of weeks ago.

Demand is 430 pending sales stronger than last year at this time and 1,161 stronger compared to two years ago. There really has not been much change in the past month, in terms of activity. The storyline remains the same: there are not enough homes being placed on the market in the lower price ranges to meet current demand. There are a number of factors driving this demand, chief among them, pricing and buyer's attitudes. There are many distressed homes on the market. These distressed homes are helping to prevent significant price appreciation. On the other hand, demand in the lower price ranges is helping to prevent price depreciation. If a home is priced well and is priced below $750,000, it will generate more than one offer and sell very quickly. Buyers generally understand that values have already dropped at least 35%, and sense that prices are not likely to drop much further. As well, buyers know that interest rates are low, and most understand that they will not remain low. There is, for 54 more days, the first time buyer's credit. And there is, the fact that cash buyers, or buyers with larger down payments, are snatching up many of the homes as soon as they are placed on the market.

The active inventory of homes for sale increased over the past two weeks by 311 homes, or 4%, to 8,446. The active inventory last year was at 11,562, 3,116 additional homes compared to today. Two years ago it was at 15,412, 6,966 additional homes. With a drop in demand and an increase in the inventory, the expected market time increased from 2.51 months two weeks ago to 2.77 months today. At the current pace, the overall market continues to be a seller's market without much appreciation at all. But, for those sellers in the higher ranges, DO NOT GET EXCITED about the overall numbers. When examining specific price ranges, I find higher the price range, the slower the market. It is slow for all markets above $1 million. Above $2 million, the market is nearly non-existent. The number of active distressed homes on the market, all short sales and foreclosed combined, increased by 64 homes to 2,769. The number of foreclosed homes within the active listing inventory increased in the past two weeks from 380 to 396, a gain of 16. The expected market time for foreclosed homes is a mind numbing 1.14 months, a deep seller's market. Foreclosed homes remain the hot ticket. The number of short sales within the active listing inventory increased by 48 and now totals 2,373. The expected market time for short sales is 1.91 months, also a hot ticket. There are 6,867 total pending sales in all of Orange County. Of those, 4,254 are short sales, 62%. Yet, only 27% of all closed residential resales in February were short sales. Most short sales are simply not closing. They are waiting on lender, or in many cases lenders, approval of the sale. Of the 4,254 pending short sales, only 757 have been pending for less than a month. 1,488 have been pending for over three months. The data does not even capture the short sales where a frustrated buyer walks away after waiting too long. Those are placed back on the market and, often, after generating several offers, quickly become pending sales again.

There are a lot of unknowns regarding the future of the economy, unemployment, a double dip, etc. All of the experts seem to enjoy the debate, and their opinions are all over the map. The Orange County housing market continues to move forward, regardless. First time homebuyers represent about 25% of all purchases. I have been asked: where all of these first time homebuyers are coming from? Many of them are in their late twenties or early thirties and responsibly saved for a down payment, but simply could not afford to buy when prices reached their astronomical heights a few years back. They were priced out of the market for years and waited until prices dropped to a very attractive level along with interest rates. Current demand is strong, and the market would appear even stronger if all of the short sales that are pending would close. This will occur as more short sales are approved in 2010. The federal government now wants the big banks to modify loans first. If that does not work out, then they want the big banks to go the short sale route. Foreclosing is only a last resort. As March rolls along and the spring housing market swings into full gear, we can expect more homes to be placed on the market and that demand will increase. The listing inventory will increase slightly due to higher priced properties being placed on the market where demand is not strong enough to keep up with the increased number of homes made available to sell. The lower ranges will remain feverish.

Source: Steven Thomas, President, Altera Real Estate