Last week, unemployment came in much better than most experts were expecting and many have said it marks the bottom of the dark times. The stock market rallied in response. But, the naysayers say the good news will be short lived at least, and at worse, only obscures lurking bad news. The torrent of new home foreclosures is still expected, so, our Flood Watch continues.
Not being economic experts, or even real estate experts, your editors simply rely on the supply and demand numbers to get an understanding of what is happening to Orange County residential real estate. when demand goes up, relative to supply, it is generally good for sellers. supply is the inventory of active residential real estate listings in Orange County. Demand is measured by the number of new pending sales in the last 30 days. The relationship between the two, called market time, is the demand divided into the supply. The answer, expressed in months, represents an estimate of the average time a property might be on the market, given the current inventory and demand levels. The higher the market time, the more of a buyer's market, the lower, the more of a seller's market.
First, we look at the supply. As it has done consistently since March of this year, the inventory of homes for sale in Orange County continues to drop. As of 8/06/09, the last biweekly report available, the total Orange County inventory fell by 214 units, to 8,681. This represents less than half of the inventory on the market two years ago, when there were 17,611 homes for sale in Orange County. Last year at this time, the inventory was at 14,348.
According to Steven Thomas of Altera Real Estate, "The continuous drop in the active listing inventory is far from ordinary. Inventories have been dropping across the nation and Orange County is no exception. Since March of this year, the active inventory has been steadily dropping. The inventory has shed 2,925 homes since then, a 25% drop."
On the demand side, the numbers increased moderately, which is typical for this time of year. During the two weeks ending 8/6/09, demand was higher by 165 units, or an increase of 5%, to 3,471 homes.
Thomas reports "Last year demand was at 2,940. So, with an increase in demand and a lower inventory, the market has heated up. The expected market time for all of Orange County is currently at 2.5 months, technically a seller’s market. The lower the range, the hotter the market. All ranges below $1 million are pretty hot, but homes priced below $500,000 are sizzling. The expected market time for homes priced between $250,000 and $500,000 is currently at 1.30 months. When the expected market time drops to such low levels, sellers are busy sorting through multiple offers and buyers are writing offer after offer with no luck. I have been asked many times why the market is not appreciating given all of the activity. The devil is in the details. Even though the distressed inventory has been dropping, 50% of current demand is distressed properties. With so many short sales and foreclosures driving demand, these distressed sellers are keeping a lid on any price appreciation. But, don’t misinterpret me. There may be a lid on appreciation, but in the hotter areas and price ranges there is also a lid on price depreciation. Values have fallen significantly since the start of this downturn, fueled by a consistent supply of distressed properties. So, current values have reached affordable levels where it makes sense again to own versus rent. First time home buyer activity has returned with a vengeance as well. Throw in the return of investor activity and it is no wonder that demand has increased this year."
What about the Flood Watch? Nothing yet, we're still on high ground and the tide of distressed homes on the market is still going out--slowly, very slowly. The inventory of distressed properties--those in foreclosure, or short sales--fell again, this time by 57 units, or 2%. As of 8/6/09, it totaled 2,559, which is 29.5% of all homes on the market. As of 7/23/09, the previous 2 week period, the percentage was ever so slightly lower, at 29.4%. This is the first time in months where the percentage has actually increased and suggests that we might be reaching the point where the percentage of distressed properties to total inventory might be stabilizing at around 30%. This could very well be the forerunner of the expected flood. Since the total number of distressed properties on the market continues to fall--just at a slower rate than total inventory--the tide is still going out, but at a slower and slower rate. Your editors make no attempt to forecast any aspect of the real estate market and here only report historical information. Nevertheless, we will remain vigilantly watching the tide of distressed homes on the Orange County market from our metaphorical lifeguard's chairs and keep our readers posted on any changes.
All of the data in this article is from a report published by Steven Thomas of Altera Real Estate
