All of the five key residential real estate statistics we track for you here at www.OC180NEWS.com went in a negative direction for this reporting period, but never fear, our real estate guru; Steven Thomas says it’s all seasonal, and much better than recent years. In fact, he says “This is the best start to a New Year for the Orange County housing market in years.”  We run the numbers for the two weeks ended January 07, 2010.

We keep it simple by focusing on 5 numbers: 1) supply (the number of homes in the active inventory, aka, inventory), 2) demand (the number of new pending sales in the last 30 days), 3) the market time (supply divided by demand, yielding an estimate of the number of months a property might be on the market), 4) the number of distressed properties in the active inventory (includes foreclosures and short sales—sales where the mortgage is greater than the property’s value), and 5) the percentage of active inventory which is distressed properties.

Once again the inventory of active Orange County residential real estate listings fell. This time, the drop was only 88 homes, compared to the drop of 207 units for the previous report.
The inventory now stands at 7,293. But, Steven Thomas of Altera Real Estate reports “This is just normal cyclical behavior for the beginning of a year. What stands out is that the inventory is at its lowest start in five years. In 2009, the active listing inventory started the year at 11,287. Two years ago it was 14,944.”

But for the non-real estate pros among us, we look to the relationship between the inventory and the demand. In fact, we would almost go so far as to say that the level of inventory, taken alone, doesn’t really tell us much. It is only when compared to the demand, or the level of sales activity, that we can make any sense of the situation. Or, to say it differently, if nobody is buying, does it really matter if the inventory is at 7,000 or 14,000?

But, people are actually buying homes—even during the holidays. In fact, a total of 2,265 new pending sales of Orange County residential real estate have been recorded during the last 30 days. But, this level of demand is down by 10% or 250 units from the previous report, which was for the two weeks ending December 23, 2009.

Thomas says “a giant drop after the New Year is a common cyclical phenomena year in and year out. More telling is that current demand is the highest initial posting since January of 2004. Last year demand was at 2,008 and two years ago it was at 998.”

So, compared to recent previous Januarys, supply (inventory) is way down, while demand is higher. Thomas says “With a smaller inventory and higher demand, the expected market time is currently at a healthy 3.22 months. That is much better than 5.62 months in 2009 or 14.97 months in 2008. So, the Orange County housing market is in a much better position right out of the 2010 gates compared to the last several years.”

Before we get too optimistic, however, we must consider the number of distressed properties on the market. Continuing a trend which began with the end of September, the portion of the active listings which are distressed (foreclosures and short sales) keeps increasing. In this latest report, 35.0% of the inventory was comprised of distressed homes. That is up from a low of 29.4% last July. The percentage of distressed properties in the inventory has not been this high since last April, and the percentage has increased in each of the last 7 biweekly reports.

Nevertheless, Thomas reports “Everybody is talking about distressed properties in one way or another. The constant drone about the “shadow inventory” is deafening. However, the “wave of foreclosures” has not materialized in the past 12 months that everybody has been talking about it. WARNING: DO NOT GRAB YOUR SURFBOARD BECAUSE THERE IS NO WAVE. If you think that lenders are suddenly going to unleash a massive number of foreclosures onto the market, you are fooling yourself. The wave is not going to materialize.”

Rather than expecting a flood of new foreclosures to suddenly hit the market, there is evidence that the supply of distressed homes has already been rolled into the current level of active listings. Foreclosures represent only about 14.7% of the distressed inventory, the rest are short sales.

According to Thomas, “Short sales are going to dominate the distressed market in 2010. If homeowners do not qualify for loan modifications, then the government wants the big banks to turn to short sales and streamline the process. Foreclosures will become the option of last resort. When all else fails, the banks will foreclose.

With a giant drop in values over the past several years, many homeowners owe more than their homes are worth. If a homeowner cannot afford their payment or they lose their job, they must sell their home as a short sale to minimize any credit damage. Yet, only a few lenders are able to make a decision quickly. On November 30, 2009, the Treasury outlined the short sale process for Fannie Mae and Freddie Mac loans. FHA loans followed suit with a guideline in the middle of December. Many banks are preparing, or have already prepared, a streamlined short sale process. 2010 is the year of the short sale and we will undoubtedly witness a lot more successful short sales compared to foreclosures.

But, not every sale is going to be distressed. Last month, 17% of the closed sales were foreclosures, 25% were short sales and 58% were equity sellers. The distressed market is a large part of our current market, but there are still plenty of sellers with equity.”

In this article series we report on the numbers for Orange County in total. Real estate is very local and any buying or selling decisions should be based on the circumstances of the specific neighborhood involved. This series is intended to provide information about the general countywide trends in supply and demand.

All of the real estate data in this article is from a report published by Steven Thomas of Altera Real Estate.

This report appears in www.OC180NEWS.com every other Monday, alternating with our biweekly West Orange County Business and Jobs report.