In the same week the feds reported national unemployment fell from 10.0% to 9.7%, the action in the Orange County residential real estate market is really starting to heat up. Even the worrisome distressed sales showed substantial improvement in the most recent data. It seems the tide has started to recede on the long expected flood of new foreclosures. We run the numbers for the two weeks ended Feburary4, 2010.
According to our resident real estate guru, Steven Thomas, of Altera Real Estate, “Last year demand did not reach current levels until April. This is a pretty good start to the spring market for Orange County, the strongest demand at the beginning of the year since 2005.”
The demand to which he is referring is the number of new pending sales during the last 30 days. This is the statistic we use for the demand side of our supply/demand analysis—and it is off to a strong start for 2010. Demand for Orange County residential real estate increased by 701 units, to 3,248. That is a 28% increase in two weeks. At this same time in 2009, demand for OC real estate was only 2,671, and two years ago it was less than half of the current demand.
Not only are there more sales in progress, but the active listings out there for those buyers to choose from are greatly reduced from last year’s levels. The inventory, or the supply side of our supply/demand analysis, is currently at 7,857, compared to 11,519 last year at this time. Compared to two weeks ago, inventory increased by 177 homes for the most recent report.
The supply/demand ratio, aka market time, fell in the most recent reporting period to 2.42 months, down from 3.02 months, just two weeks ago. Last year at this time market time, which is an estimate of the average length of time a home might be on the market, was 4.31 months.
Thomas says “There is a lot of confusion about the housing market because there are really three markets: less than $750,000, $750,000 to $1.5 million, and $1.5 million plus. For all homes less than $750,000, the market is ON FIRE with multiple offers and sales prices above the list prices. When the expected market time drops below two months, the market is crazy with a lot of competition. The $750,000 to $1.5 million range is getting hotter and many are experiencing multiple offers. There are more jumbo loan products available with much more attractive rates. For homes above $1.5 million, the market is as cold as ice, the higher the range, the colder the market. There simply are fewer buyers looking for homes in these ranges and loan products are much harder to obtain and have much higher interest rates.”
So, demand is strong and supply is tight—that leaves distressed homes as the other factor in driving the OC real estate market. When continuing job losses and high unemployment, are combined with greatly reduced home values and mortgages which are in the process of resetting, many have predicted a flood of new foreclosures to hit the market. Until two weeks ago, www.OC180NEWS.com had been tracking a troubling increase in the number of distressed homes on the market, as well as the percentage of active listings which are distressed homes.
In our last biweekly report, we noted the first time since last September the percentage of active listings which were distressed homes fell. Prior to our last report, we had been watching a slow, but steady rising tide of distressed properties on the market and we were beginning to think the long expected flood might be bearing down on us. For the two weeks ended February 4, 2010, the tide seems to be receding. Not only did the distressed percentage fall substantially, dropping from 34.8% two weeks ago, to 33.7% for the current report, but the total number of distressed homes on the market also fell slightly.
The drop of distressed homes on the market was only 23, falling from 2,674 to 2,651. But, it is the first time since the end of October, including the holiday period, when the number of distressed homes on the market did not increase.
Thomas says “That does not mean that there are fewer distressed homes coming on the market; rather, it means that the increased demand is eating up the active distressed inventories. Over the past month, the number of distressed and non-distressed homes to hit the market has been increasing, but many are going off the market as pending sales just as quickly as they are coming on.”
Thomas has this advice for buyers and sellers of Orange County residential real estate:
“If you are a seller, how should you approach the market? Just because the market is really hot, does not mean it is appreciating out of control. Distressed homes are keeping a lid on appreciation. Instead, in approaching pricing, it is very important to take a close look at recent comparable sales and all pending activity. Listed homes do not necessarily help much in pricing, other than to see if somebody is pricing too aggressively. Keep in mind, that sometimes homes are placed on the market far below the true market value and they generate so much activity, that the end result is that it sells for the true market value, selling for thousands above the list price. This is a market reality. The higher the price, the more careful sellers need to be in pricing their homes. They also need to be patient and in tune with how the market is reacting to their homes. Showing feedback is crucial in keeping in touch with how the market is responding to a home. Did the buyer buy something else? What did they like and dislike about the home? Do they have any suggestions in marketing the home? The answers to these questions can help steer a listed home to successfully procuring an offer and ultimately selling the home.
If you are a buyer, how should you approach the market? First, a buyer needs to know the market for the home that they are looking for. The price range is the biggest factor. It is very hard for buyers to swallow the fact that the lower ranges are unbelievably hot. Competing with multiple offers is hardly the expectations a buyer has stepping into the housing market. I have heard story after story that it often takes one or two losing offers before a buyer digs in, sharpens their pencil and writes a strong offer. Considering that all homes in all ranges sold for 98% of their list prices last month, there just is not a lot of flexibility. For lower range and distressed homes, there is even less flexibility and many are selling above their list prices. So, it is better to understand that this hotter market is a reality and has been around since about March of 2009. Otherwise, buyers are left learning the hard way, shaking their heads in frustration.”
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 report on business and jobs of interest to West OC people.
