In a trend reversal, demand for Orange County residential real estate decreased considerably, while supply—the inventory of active real estate listings—continued its upward climb. As a result, market time—average time a house might be on the market—increased for the first time in five biweekly reporting periods. We run the numbers for the two weeks ending May 13, 2010.

Since the beginning of this year, we have been monitoring the steady, relentless increase in the number of Orange County homes on the market. But, while the expanding supply of homes for sale has been notable, it has been more than offset by a corresponding increase in demand—the number of new pending sales in the last 30 days—more homes for sale; more buyers. That trend came to an abrupt end during the most recent reporting period.

Inventory during the last two weeks increased by 205 homes, consistent with the trend of increases since the beginning of this year. The inventory of homes for sale in Orange County now stands at 9,556 units. At the beginning of this year, there were only 7,293 homes, the lowest level since the current market collapse began back in 2006. The number of homes on the market in Orange County has increased by 2,391 units since the beginning of this year.

“The inventory may not be increasing at the same rate as 2006 and 2007, but a 33% increase thus far {this year} is not healthy for the long term stabilization of the Orange County housing market,” said Steven Thomas of Altera Real Estate. “The word in the trenches is that there are more and more homeowners who are placing their homes on the market at unrealistic levels. The market is great in the lower ranges, but buyers are not ready to pay a premium over most recent comparable sales. Buyers do not want to overpay for a property and are very focused on price. A hotter market does not translate to a willingness to pay 5% more for a home. There is a lot of competition and multiple offers generated on homes that are priced right. The lower ranges may have hit a bottom in terms of value, but there are still a ton of distressed homes that are keeping a lid on real appreciation.”

In fact, the number of distressed homes on the market continues to move upward. A few weeks ago, we reported the first decrease in recent weeks of the number of distressed homes in inventory. Unfortunately, that turns out to have been a one-time dip, rather than the beginning of a new downward trend.

The number of distressed properties in the active listing increased by 104 units, to 2,894 as of May 13, 2010. This is considerably less than at the peak of the market slowdown when the number of distressed homes on the market was much greater than one month worth of sales. Back on February 19, 2009, for example, the distressed homes on the market totaled 4,883 units—and this was at a time when monthly sales were only 2,819 homes.

Now, monthly sales are running around 3,700, while distressed homes on the market are only approaching the 3,000 level. The problem is, of course, the number of distressed properties on the market seems to keep going up, regardless of improving local job market conditions, changes in demand, or total listings. Besides a few minor dips, the number of distressed properties on the market in OC has increased steadily since October 2009, when it had fallen to a recent low of only 2,346 units. The current level represents a 23% increase over the October low.

Demand during the most recent two weeks, at 3,770 units, fell back by 209 homes, to the levels of four weeks ago. Last year the peak in demand came during the two weeks ending
June 11, 2009 when it hit 3,652 homes.

“Two weeks ago there was a rush to place homes in escrow to take advantage of the first time home buyer tax credit. The credit required a buyer to enter into a binding contract by April 30, 2010. There is sure to be a similar blip in closed sales at the end of June because the credit requires that the buyer close by June 30, 2010,” said Thomas. “Over the past month, demand has actually increased by 22 homes. Demand is currently really strong for homes priced below $1 million. It is getting better for homes priced above $1 million, but the higher the price, the slower the market.”

Market time increased during the two weeks ending May 13, 2010, to 2.53 months, up from 2.35 months two weeks ago. While this market time remains low by recent historical standards, and clearly represents a strong seller’s market, the most recent increase ends a string of 5 biweekly reports where market time declined.

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 circumstances of specific neighborhoods. This series is intended to provide information about general countywide trends in supply and demand.

See Related articles below for more detailed stories about West Orange County residential real estate. Next Monday, May 24, 2010, we will publish a detailed look at Seal Beach real estate.

All real estate data in our biweekly countywide real estate trend articles are from reports published by Steven Thomas of Altera Real Estate.

These reports appear on www.OC180NEWS.com every other Monday.