Unemployment goes up and more jobs are lost, but the inventory of active Orange County residential real estate for sale continues to shrink. And, there is still no sign of the expected flood of new foreclosures in Orange County. We maintain our by-weekly foreclosure flood watch. In this article, we consider the data for the two weeks ended 10/01/09, 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.
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, falling below the 8,000 mark for the first time since the beginning of January 2006. AS of 10/01/09, the total Orange County inventory of active residential real estate listings totaled 7,917, a 2% drop in two weeks. While a seasonal drop could be expected during this time of the year, the continuous downward trend since the early spring is surprising. One year ago, the inventory stood at 12,940.
The drop in inventory, according to Steven Thomas, of Altera Real Estate, can be explained as follows: “First, homeowners are steering away from placing their homes on the market unless they absolutely have to. They understand now more than ever that they are competing with distressed sellers and that prices have come down off of their overinflated highs. Second, there is definite truth to the fact that there is a shadow inventory of homes that have not been foreclosed upon and if allowed to work their way through the normal foreclosure process, more homes would be placed on the market. Yet, any increase would be rapidly sopped up by the current pent up demand from buyers who have been unsuccessful in purchasing after writing several offers. Third, with values coming down 35% or more from their peak, buyers, investors, speculators and first time homeowners are jumping into the market to purchase homes priced below $750,000. And, finally, with the help of the Federal Reserve, interest rates have reached historical lows that we may not see again in our lifetime. Put all of this together and we have experienced a gigantic drop in the active inventory.”
Just as the inventory was contracting, demand was also decreasing. In what could be a resumption of the normal seasonal trend, during the most recent two week period demand fell by 194 units, or 6%, to a total of 3,270. This is the lowest demand level since early April and breaks out of the narrow range in which demand had been fluctuating since the spring.
Compared to recent years, demand remains high. One year ago, it was 2,847, and two years ago demand was only 1,113.
Since demand dropped at a faster rate then the decrease in inventory, market time went up slightly. For the most recent two weeks, market time was 2.44 months, up from 2.33 during the previous two week period. Last year at this time market time was 4.77 months and two years ago, at the beginning of the market meltdown, market time was 14.73 months.
According to Thomas, “The current expected market time equates to a seller’s market. Homes priced below $750,000, and especially below $500,000, are experiencing multiple offers and are selling very quickly. With so many distressed properties and problems with appraisals, this seller’s market is a bit different as values are not appreciating.”
While distressed sales are holding a lid on price appreciation, the number of distressed homes in the active inventory continues to fall. As of 10/1/09, there were 2,346
Distressed homes in the active inventory, compared to 2,384 two weeks ago. These homes represented 29.6% of the total active listings for both periods. Just like the continuing decrease in total inventory, The number of distressed homes on the market is steadily declining and is far below the levels earlier this year and last year. No sign of a foreclosure flood yet.
Thomas recommends “As a buyer, how should I approach this market? First, get to know the price range and areas that you are interested in. The difference between the lower and upper ranges is as vast as the Grand Canyon. In the lower ranges, expect a ton of competition and the strong chance that you may not obtain the home that you are initially interested in. The better the down payment, the better the terms, the higher the offering price, the stronger the chance of success in purchasing. Distressed properties in higher ranges obtain more activity as well because their motivation is typically really high. So, buyers looking for distressed properties, in general, should just expect competition and the need to write strong offers to purchase. Since the sales to list price ratio for all of Orange County is 98%, bringing in a low-ball offer 10% below the asking price is just a waste of everybody’s time, including yours. Remember, homes are priced according to the most recent comparable sales and pending activity, already a reflection of values that have dropped dramatically from the heydays of a few years back.”
All of the real estate data in this article is from a report published by Steven Thomas of Altera Real Estate.
Our flood watch continues.
