Solvent is sexy, frugal is the new chic, November retail sales were better than expected, consumer confidence improved, and home mortgage interest rates are at their lowest level since the 1940’s. But, many borrowers can’t take advantage of the low interest rates by refinancing because banks are afraid to make loans, the Fed closed three more banks last week, and jobs are few and far between. What does it all mean for Orange County residential real estate? OC180NEWS.com runs the numbers for you—data for the two weeks ended December 10, 2009.

With a plethora of real estate data available—much more than anyone can digest—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.

First, we look at the supply. Until this time of year, the relentless drop in inventory—almost every biweekly reporting period since April--was the big news for the Orange County residential Real Estate scene. The current report continues that steady stream of falling inventory, but it is less remarkable now because it would be expected for the holiday season. Nevertheless, the inventory of active Orange County residential real estate listings, for the two week period ending on 12/10/09, fell by 67 homes, to 7,588. That’s the lowest level of active listings since December 2005.

Looking at the demand side of the equation, the seasonal drop was even greater than it was for inventory. For the period ending 12/10/09, demand fell from 3038 for the previous period, to 2,646, the lowest demand since early March of this year. This decrease is a 13% reduction in demand. The difference between then and now is that back in March when demand was at this low level, the supply, or inventory, was at 11,562, verses the current inventory of 7,588. Last year at this time, demand fell by 12% and two years ago, it fell by 8%. But, those decreases were from much lower levels.

Steven Thomas of Altera Real Estate notes “It will take a couple of weeks into 2010 before buyers and sellers shake the cobwebs off and return their focus to real estate once again. Many are taking a break, as this real estate market is absolutely exhausting. Nothing is easy. Ask the buyers in the lower ranges that have written offer after offer with no success thus far. There is just way too much demand, especially below $750,000, and the buyer competition is fierce. Multiple offers are the norm. Losing to buyers with large down payments or all cash investors is the norm. It is frustrating to be a buyer in today’s market. Most buyers enter the Orange County market with totally different expectations, since all they hear about are homeowners in trouble, sellers upside down in their homes and falling property values. Yet, they get into the cars of Realtors®, and quickly come to the realization that the market is much different. It is actually a Seller’s market, without massive appreciation. It is the short sales and foreclosures that are actually keeping values from appreciating. Demand is HOT, the inventories have fallen appreciably throughout this year, values have already dropped to affordable levels, interest rates are at historical lows, and the government has implemented tax credits for first time home buyers (and now moves up sellers). Today’s market reality is frustrating for buyers. It is no wonder that many buyers will take the holidays off, sit back and relax. It does not help that there simply is not enough new, fresh inventory hitting the market. This is primarily due to the notion that this is not the best time to sell a home. Many want to wait for what they think is the best time to sell a home, the Spring market, which starts after the Super Bowl. But, demand is still strong right now in the lower ranges. During the Spring market, there are more homeowners opting to place their homes on the market along with increased demand. It is actually a good time to market a home, especially if a seller is looking to move up and take advantage of the new tax credit.”

With less than a 1% drop in inventory combined with demand contracting by 13%, the market time increased. Two weeks ago market time was 2.52months. For the most recent report, market time jumped up to 2.87 months. Although still representing a sellers market, this market time is the highest since April of this year. The current level of demand at only 2,646 units, is now well outside the previous range of 3,100 to 3,500 units. Demand stayed in this range from June into November.

Of the five statistics we track for this report, two of them relate to the long forecasted flood of new foreclosures. Those two statistics are the number of distressed homes in the inventory and the percentage these properties represent of the total inventory. Both of these statistics have been increasing for the last few weeks.

There were 2,509 distressed homes in the active inventory as of 12/10/09. This is the highest level since early September. Since the total inventory has been falling while the number of distressed homes has been increasing, the portion of inventory which is distressed properties has been growing steadily.

The distressed percentage hit a recent bottom back in mid September at 29.6%. It has been increasing since then and now stands at 33.1%. This statistic has increased in each of the last 5 biweekly reports. It has not been this high since April of this year. Beware of the rising tide.

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.