Stocks are up—no, wait, they’re down—the recession is OVER—but, wait, there are still no jobs—home prices are up—not really, depends on your zip code, or does it?--what does it all mean for Orange County residential real estate? Last week, the Los Angeles Times carried an article with this headline—“Feared flood of foreclosures in California may be averted”. All we can do is watch the numbers, so we maintain our by-weekly foreclosure flood watch of supply and demand. In this article, we consider the data for the two weeks ended October 29, 2009, the most recent report.
Your Editors believe in the basics and when that comes to any market driven item, it means supply and demand. 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.
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.
First, we look at the supply. The inventory of active Orange County residential real estate listings continued its steady decrease, falling by another 174 units, to 7749 homes for sale. That’s the lowest level of active listings since January 2006. With only one very small exception when it was nearly unchanged, this remarkable decline in inventory has run unbroken since April 2009.
According to Steven Thomas, of Altera Real Estate, “There is very little fresh, new inventory. The lower the range, the “spookier” it gets. Properties that are priced right and in great condition are flying off of the market with multiple offers and tremendous activity. Buyers new to the market are dumbfounded by all of the competition. Their expectations are of doom and gloom and the ability to “cherry pick” whatever home they are interested in AND at a discount. Yet, just about every agent has pockets filled with buyers who want to buy but have been unable to purchase after losing out on property after property.”
On the demand side, there was only a modest change. For the two weeks ending 10/29/09, countywide demand slipped by a negligible 34 units, to 3,166 homes.
This change was small enough to cause a slight decrease in market time, which fell from 2.48 months two weeks ago, to 2.45 for the most recent period. The current level of demand is well within the recent range of 3,100 to 3,500 units.
The stability of demand, which has been within this range since early July of this year, suggests that there has not been a significant impact from the first time home buyer tax credit. This would presumably lead to the conclusion that neither the end of the credit, or its extension, if so granted by the congress, would significantly impact the demand for OC residential real estate.
The most evident change this year in the demand pattern for OC real estate occurred back in April. For the first part of this year, demand hovered around 2,600 to 2,800 units, then for the two week period ending 4/5/09, demand jumped from 2,670, up to 3,247 homes. The largest change in a two week period so far this year.
The heighten demand level continued to expand until it peaked at 3,652 homes for the two week period ending 6/11/09. Since then, while still remaining strong, demand has gently settled back to the lower 3,000 ranges. The run up in demand during the spring and early summer would fit seasonal expectations, but demand has remained well above the winter levels seen at the beginning of the year.
The current demand level, at 3,166 units, also is well above where it stood at this time last year and two years ago. One year ago, demand was at 2,463 and two years ago, at a paltry 1,241, it was well less than half the current level. According to Thomas, “For the remainder of the year, as we enter the Holiday market, we can expect demand to continue to slowly drop as the distractions of Thanksgiving, unwrapping presents and ringing in a New Year sets in.”
What about prices? There have been several press reports about recent price increases in certain zip codes. Some zips have reported price appreciation and some have not. However, the other aspect of price change trends is the price ranges.
Thomas says “Affordability, low rates and a fear that rates will increase from their historically low levels has motivated people to jump into the market. On average, agents are writing several offers for every buyer. To top it off, investors are back in the real estate game and pushing out buyers with smaller down payments. FHA (Federal Housing Administration) financing allows for a small down payment, but buyers electing to utilize this program simply are finding it impossible to purchase. We have seen prices increasing in the lower ranges slightly, but distressed properties are keeping a lid on stronger appreciation. The "shadow inventory" of foreclosed properties sitting on the sidelines and not yet on the market due to foreclosure moratoriums, government intervention, or banks careful not to flood the market, has only compounded the problem of a lack of inventory. Even if the strategy was to change and more of the “shadow inventory” hit the market, demand is currently strong enough to quickly sop it up.”
So, what about the flood watch? The number of distressed homes in the active inventory barely changed, falling from 2,398 to 2,389 for the most recent two week period.
Since total inventory also fell slightly, the percentage of distressed homes in the active inventory remained under 31%. Although the incremental change is almost imperceptible, there is a slight upward trend. The current percentage of distressed homes in the active inventory is now at 30.8%. The last time it was this high was in July of this year when it hit 30.9%. Prior to that, there was a steady decline in the distressed percentage. Since July, it has stayed in the 29% to 31% range, and currently remains within that range.
Thomas reports “Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. Buyers should be aware that it is a feeding frenzy out there for foreclosures. Realistic expectations are that the more qualified borrower, who is able to bring in a strong offering price, is going to ultimately prevail. Buyers with smaller down are going to find it difficult to compete.” Thus, although the foreclosure tide stopped receding back in July, there is still no sign of a foreclosure flood yet. We remain in our lifeguard’s tower as our flood watch continues.
All of the real estate data in this article is from a report published by Steven Thomas of Altera Real Estate.
