Lack of inventory has been the theme of the Orange County housing market for several years now.

Active Inventory: There just are not that many sellers on the market to start 2016. The Orange County housing market has a bad habit of starting the year off with an anemic inventory. This trend dates back to 2013 when almost nothing was on the market, only 3,196 homes. This year’s start is not quite that low, 4,396 homes, but it means that there are still not enough homes to satiate current demand. Today’s inventory is down 12% compared to just one year ago.

There’s definite pent up demand for homes, but just not enough inventory to match. Typically, that is a recipe for appreciation, low supply and high demand, but not in today’s market. Instead, buyers are approaching the housing market much more cautiously. They are very aware that homes have already appreciated considerably since 2012, so they are careful to not overpay. Today’s buyers are seeking the Fair Market Value for a home.

People often ask what is the Fair Market Value of a home and how does a homeowner ascertain that value for their home? It is the value of a home that is determined by factoring in the most recent comparable sales and pending activity. Active listings in the neighborhood are typically not factored into this value, as most active listings start off overpriced and a bit outside of the realm of reality. It’s not uncommon to find an entire neighborhood that is overpriced. It takes quite a bit of legwork and a seasoned professional to figure out the Fair Market Value of a home. The professional is NOT

Zillow.com or the plethora of other online valuation sites. These sites are so incredibly inaccurate. People used to think the earth was flat too. Today, people believe they can go to a website and it will tell them the value of their home. The professional that can help determine the true value of a home is a REALTOR®. They are able to factor in the condition, amenities, upgrades, and location of a home compared to the most recent closed and pending sales. Does a home have purple tile? Does it back to a busy street? Is there a partial view, panoramic view, or no view? Crown molding, plantation shutters, wood shutters, aluminum blinds, custom drapes, wainscoting, vinyl flooring, green carpet, 5×5 kitchen tiles, granite counters, high baseboards, custom paint, recently upgraded kitchen and/or baths, popcorn ceilings, vaulted ceilings, custom cabinets, outdoor pool and spa, outdoor fireplace, an entertainer’s backyard, garage storage, etcetera, all factor into the price of a home. There are details of a home that add to its value, just as there are features that subtract from value. The professional REALTOR® with the experience to weight everything will blow the socks off a home valuation site.

With buyers carefully approaching the market, it is extremely important that sellers price their homes as accurately as possible to properly take advantage of today’s lack of inventory. Homes that are priced right will fly off the market. The rest will sit until the price is brought more in alignment with the Fair Market Value. This is precisely why the active inventory will continue to grow from now through August; it will be on the backs of sellers who stretch their value.

Homeowners are foolish if they wait to place their home on the market in anticipation of cashing in on future appreciation. Since homes are not appreciating rapidly, waiting until later in the spring or next year will not be as beneficial as many people think. A great time to get a jump on the competition is actually now while the inventory is extremely low. The only caveat is that the home is priced appropriately.

The active inventory increased by 180 homes, or 4%, in the past two weeks and now sits at 4,576. It will continue to rise through August, but won’t really pick up steam until March.

Last year at this time the inventory totaled 5,255 homes, 679 more than today, with an expected market time of 3.29 months, or 99 days, a balanced market that does not favor a buyer or seller. In comparison, today’s expected market time is 2.87 months, or 86 days, an extremely slight seller’s market.

Demand: with not that many homes on the market to start the year, demand remained flat.
Demand, the number of new pending sales over the prior month, dropped by 36 homes, or 2%, in the past two weeks, and now totals 1,593. It’s having a bit of trouble launching because of the lack of new, fresh inventory. For the first couple of weeks of the year, the number of homes to come on the market is down by 14%. More homes will come on the market now as everybody collectively shakes off the holiday fog and New Year’s resolutions drop by the wayside. Expect demand to increase sharply over the next couple of weeks as the number of homes coming on the market increases dramatically as well. This trend will catapult further right after the Super Bowl and start the transition to the most active season of the year, the Spring Market.

Last year at this time there were 6 more pending sales, nearly identical to today.

Summary:

 

Have a great week.

Sincerely,
Roy Hernandez

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It is tough to be a first-time home buyer in a seller’s market and it is not really student debt that is preventing them from buying.

First Time Home Buyers: first-time home buyers are finding it very difficult to buy in Orange County and student debt is not their biggest hurdle. 

The lack of first-time home buyer activity has been unfairly blamed on strong growth in student debt over the past decade. For all buyers in Orange County, it has been tough to purchase for several years now. The main culprit, that it has been a seller’s market for the past four years. It all started back in 2012 and the same underlying market forces have been driving homebuyers nuts ever since.

The housing supply, the number of active homes on the market, has been well below the long-term average of 8,500 homes. The inventory peaked in mid-August this year, just shy of 7,200 homes. There are less than 5,400 homes on the market today. So, as far as choices are concerned, there are not that many homes for buyers to choose from.

On the other hand, demand has remained extremely strong, resulting in appreciation and restoring the overall health in the Orange County housing market. Due to strong demand coupled with an anemic active inventory, the expected market time has remained very low since 2012, tipping the market in favor of sellers ever since. The last time the tables were turned and buyers were in control of housing dates all the way back to January of 2011. A buyer’s market is when the expected market time, the average amount of time it takes to place a home on the market and into escrow, is more than four months. In 2011, it was the year of equilibrium, not favoring buyers or sellers, an expected market time between three and four months. Last year the housing market experienced equilibrium for the second half of the year, but not this year. It has been a seller’s market ever since the end of January of this year, and will probably remain one through the end of 2015. The expected market time today is at 2.49 months, or 75 days.

What does this mean for buyers? Most buyers do not get their first choice in a home. They need to write offer after offer, especially in the lower ranges, homes priced below $750,000. They need to sharpen their pencils and write offers at the Fair Market Value, or maybe even a bit higher if the price range and neighborhood warrant it. Buyers are simply not in the driver’s seat.

For first-time buyers, the challenges are even greater. Most first time buyers are looking for a home priced under $750,000. For homes priced below $500,000, the expected market time is at a very low 1.68 months, or 50 days, which is an even deeper seller’s market compared to the county as a whole. Between $500,000 and $750,000, the expected market time is at 1.87 months, or 56 days. When the expected market time is below two months, it is a “hot seller’s market” with a lot more competition to buy. Buyers are bumping into each other within these ranges, and the chances of dealing with multiple offers grows considerably.

The issue for most first-time buyers is that they lack a considerable down-payment. Most are looking in the lower ranges where it is still a “hot seller’s market” even in the month of December during the holiday, making it very difficult for first-timers to purchase. If a home is placed on the market in good condition and close to its Fair Market Value, it has a high likelihood of generating several offers. If a home produces three offers all with identical purchase prices where one is a first-time buyer with FHA, 3% down financing, another is at 10% down, and the final one provides 20% down financing, which one would you pick? In talking to agents across Orange County, unanimously, they all said the one with 20% down. This exercise is playing out every day, over and over again, in the lower ranges. First-time buyers have struggled to purchase and have had to write many offers in order to find success.

According to the California Association of REALTORS®, the long-term average for the share of first-time buyers is at 38%. In California, for the past three years it has been around 30%. The drop can be attributed to the continual seller’s market that has made it difficult to purchase for first-timers. Adding fuel to the fire is the lack of inventory and strong demand. Buyers who require low down payment financing often lose out in multiple offer situations, which is quite common in the lower price ranges where most firs-time buyers are looking.

Many believe that skyrocketing outstanding student debt is the reason for the drop in first-time buyer purchases. A study out of Dartmouth revealed that there is only an extremely slight decrease in the probability for someone with student loans to own a home versus someone who has no loans at all. Only if somebody does not graduate and has student debt does it then have a significant impact on owning a home.

The bottom line: there are plenty of first-time buyers who want to purchase; unfortunately, it is not easy to succeed. The secret sauce to success is plenty of patience, tenacity, ingenuity (family pictures and a letter to the seller will go a long way), and a very sharp pencil so that an offer to purchase will stand out. It may take writing many offers, but, eventually, victory will come, and the first-time buyer will be handed the keys to their share of the American dream.

Active Inventory: the inventory dropped by 8% in just two weeks.

The active inventory dropped by 497 homes, or 8%, in the past two weeks and now sits at 5,388. As we dive deeper into the Holiday Market, from Thanksgiving through the first few weeks of the New Year, the inventory drops to its lowest levels of the year. The absolute lowest point will occur on January 1st, and that will be after we drop below the 5,000 mark for the first time in a couple of year.

From there, expect the inventory to slowly rise, but by the end of January it will not even climb to where we are today. The inventory will not start to really rise until March.

Last year at this time the inventory totaled 6,010 homes, 622 more than today, with an expected market time of 3 months, or 90 days, a balanced market that does not favor a buyer or seller. In comparison, today’s expected market time is 75 days, a slight seller’s market. A slight seller’s market means that there is not much price appreciation.

Demand: the Holiday Markets are here and demand dropped substantially in the past couple of weeks.

Demand, the number of new pending sales over the prior month, plunged by 286 homes, or 12%, in the past two weeks, a strong signal that the Holiday Market has finally arrived. Buyers move from touring homes and writing offers to carving the turkey and shopping for holiday gifts. Demand will continue to drop through the end of the year and will not reverse course until mid-January. It will pick up steam right after Super Bowl Sunday.

Last year at this time there were 159 fewer pending sales, 8% less, totaling 2,002.

Summary:

Have a great week.

Roy A. Hernandez
TNG Real Estate Consultants
Cell 949-922-3947
RoyaltyAgent@Gmail.com

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The window of opportunity to take advantage of today’s historically low
interest rates is starting to close.

Interest Rates: after a couple of years of hinting at an eventual hike in rates, the Federal Reserve appears ready to make a move and raise the short term rate for the first time in nine years.
The Federal Reserve has been talking about raising the short term rate for a couple of years now. They kept kicking the proverbial can further down the road. It was supposed to be at the end of last year, then it was going to be the Spring of 2015, then in the Autumn, but they never pulled the trigger.

They have fooled just about everybody, from experts to the average person on the street. They seem to be talking out of both sides of their mouths. By mid-September of this year, the entire world had already factored in an increase in the short term rate. Instead, the Federal Reserve pointed out instability in China and other global markets and decided to maintain the status quo. The U.S. and world stock markets were already volatile and they responded negatively, dropping like a rock.

The following week, Janet Yellen, the Chair of the Federal Reserve, delivered a speech at the University of Massachusetts, and, out of character for the Fed, stated something of profound substance. She said that they were going to raise the rate by the end of the year as long as there weren’t any major changes to the economic landscape. The U.S. and world stock markets soared after her speech.

The reason the world sees a rise in our rates as something good is because it indicates that the Federal Reserve has faith in the U.S. economy. Their lack of action, especially in September, proved to be too much for the worldwide psyche. “Do they know something we don’t know?” They used to change the rate every other month and sometimes in between. It would go up, down, up, up, down, up, down, etcetera. It felt as if somebody was behind the wheel of the U.S. economic bus.

They did not pull the trigger in mid-October, but all indicators are “go” for mid-December. They are looking at a quarter of a percent hike in the short term rate. They are moving off of zero for the first time in seven years and getting back behind the wheel of the U.S. economic bus. The changes in the short term rate will not be as swift as prior Federal Reserve movements in the past, but nonetheless, they are moving in a positive direction. The short term rate effects savings

accounts, CD’s, commercial loans, and the rate at which banks borrow money from the Federal Bank window. As banks are charged more, long term rates, mortgages for homes, eventually go up as well.
An increase of a quarter of a point does not drastically change the monthly mortgage payment. But, as interest rates continue to climb, it certainly will put a dent in a borrower’s wallet. Remember, this is a monthly payment. So, for a $750,000 mortgage payment, the payment increases $109 per month every single month when the interest rate rises by just a quarter of a point. That’s an extra $1,308 per year. And, if the Fed continues to increase rates, we could find rates rising to 4.75% by the end of 2016. If that happens, the monthly mortgage payment for a $750,000 mortgage climbs by an extra $331 per month compared to today, or nearly $4,000 a year. That’s a lot of money. For a $500,000 mortgage at 4.75%, the monthly payment increases by $220 per month compared to today, or $2,640 per year. That’s a lot of money for the middle class family.

Keep in mind, historically speaking, 4.75% and 5% are not bad rates. We have just become accustom to ridiculously low rates complements of the Federal Reserve stimulating the U.S. economic engine for nearly a decade. The long term average for interest rates since 1972 is 8.5% and since 1990 it’s 6.6%. Eventually, down the road, interest rates will hit 5% and beyond, most likely topping at around 5.25%. For the $500,000 middle class borrower, a 5% interest rates means an extra $296 per month more compared to today. That’s $3,552 extra every single year, equivalent to a nice Hawaiian vacation every year for the term of the loan if a buyer acts NOW.

That’s right, NOW is the time to take advantage of today’s rock bottom rates. They might not be as low as they were earlier in the year, but the gift from the Federal Reserve is coming to an end.

Active Inventory: the inventory dropped by 10% in the past month.
In the past month, the active inventory dropped by 624 homes, or 10%, and now sits at 5,885. The Holiday Market has officially begun with Thanksgiving just a few days away. This is the slowest season for Orange County real estate. It’s when both supply, the active inventory, and demand, new escrows, drop to their lowest point of the year. The active inventory will continue to fall like a rock and will reach its lowest point of the year on December 31st. The season continues through Super Bowl Sunday, when Orange County begins its transition into the Spring Market.

Last year at this time the inventory totaled 6,484 homes, 599 more than today, with an expected market time of 2.9 months, or 87 days, nearly a balanced market that does not favor a buyer or seller. In comparison, today’s expected market time is 72 days, a slight seller’s market. A slight seller’s market means that there is not much price appreciation, but sellers are able to call more of the shots.

Demand: Demand increased by 5% in the past month.
Demand, the number of new pending sales over the prior month, increased by 114 homes in the past month and now totals 2,447 pending homes. This bump in demand is typical for this time of the year as buyers are poised to take advantage of closing just prior to the New Year, an okay time to move a family while the kids are on Winter Break.

Now that we have entered the Holiday Market, demand will drop to its lowest level of the year by year’s end. It will start to rise at the start of 2016, but will not start its Spring Market surge until after Super Bowl weekend.

Last year at this time there were 213 fewer pending sales, 10% less, totaling 2,234.

Summary:

Have a great week and have a terrific Thanksgiving!

Roy Hernandez

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Today’s sellers and buyers turn to the Internet to determine their
home’s value but forget to look at the fine print.

 

Online Home Valuation Tools: even though sellers and buyers turn to Internet sites to establish the property value of a home, it’s not even close to being accurate.
Everything is on the Internet. Recipes, comparison shopping, product ratings, music, dating, news, financial tips, economic analysis, entertainment, medical information, every business and every person is now on the Internet. With access to so much information, sellers and buyers now feel empowered with the ability to go online to learn as much about the home selling and home buying process as they wish. They can search to their hearts content as everything is now seemingly at their fingertips.

With this access comes the sense that sellers and buyers can control the process. They feel like they are in the driver’s seat. From home searches, to researching about the skillset of a REALTOR®, to looking at payment calculators, they can do a tremendous amount of research from the comfort of their homes. Zillow.com, REALTOR.com, Trulia.com, OCRegister.com, LATimes.com, YahooRealEstate.com, CNN.com, CNBC.com, etcetera, there are plenty of choices to learn more about the local, regional, and national real estate markets. There is a lot of great information available to real estate consumers to help in the process. Unfortunately, there is plenty of misinformation too.

The number one real estate website is Zillow.com. The main purpose of the site is to determine a home’s value, what they more affectionately refer to as a Zestimate®. Tragically, sellers and buyers rely on this site in their attempt to secure the precise value of a home. In looking up the Zestimate® of a home, sellers and buyers feel as if they are tapping into the most complex, accurate real estate program known to man. They enter in an address and Zillow® spits out the exact market value of a home. The problem is that it is NOT accurate at all. The site admits to its own shortcomings on the landing page and states, “Use the Zestimate® as a starting point in determining your current and future home value.” Not too many buyers are going to take the time to read that admission.

Good luck on finding the fine print too. You have to click on the term “Zestimate®,” even though it does not have a hyperlink, to learn more about what goes into their estimate. The fine print can be found by then clicking on “How Accurate is the Zestimate®?” Isolating Orange County is an even further challenge. The numbers illustrate exactly why sellers and buyers cannot rely on this tool to accurately hone in on a home’s value. It also illustrates why they should not even rely on the site as a “starting point” in the home valuation process.

Their numbers are eye opening. Shocking is an even better description when anybody with an economic background takes a closer look. Zestimate® accuracy is computed by comparing the actual final sales price of a home to the Zestimate® that the system originally came up with. In Orange County, only 41% of all closed sales were within 5% of the actual sales price. That means that 59% were off by more than 5%. For proper perspective, let’s take a look at a $700,000 Zestimate®. 5% of $700,000 is $35,000. It could be off by $35,000 more OR $35,000 less. That means that the actual value would be somewhere between $665,000 and $735,000, a $70,000 gap. That is just way too big of a spread to be able to pinpoint the value of a home.

67% of all closed sales were within 10% of the Zestimate®, meaning that 33%, one-third, is off by more than 10%. For the $700,000 Zestimate® example, the actual sales price would be somewhere between $630,000 and $770,000, a $140,000 gap. And, 86% of all closed sales were within 20% of the Zestimate®, meaning that 14% were off by more than 20%. That basically means that 1.4 out of 10 homes is off by a truckload. For the $700,000 Zestimate® example, the actual sales price would be somewhere between $560,000 and $840,000, a $280,000 gap.

To rely on Zillow® to determine the value of a home is nothing short of absurd. Sellers and buyers typically only bring up the Zestimate® when it works in their favor, about a 50/50 chance of that happening. If a home that should really sell for $650,000 has a Zestimate® at $700,000, the seller stubbornly ends up overpricing their home and is forced to reduce in order to find success. As a result of so many sellers feeling empowered to price based upon an online valuation tool, the housing market is plagued with overpriced homes.

There are thousands of valuation tools and some claim to be even more accurate than Zillow®, but that claim doesn’t really say much. Instead, buyers and sellers need to know the fine print which illustrates that while the Internet may be chalk fool of great real estate information, it just cannot be used to determine a home’s value. There are just too many factors that go into the price of each and every home. Every home is unique, making the valuation process too complex for even the most sophisticated computer program.

So, if you cannot use an online program to determine a home’s value, what is the best method in coming up with the Fair Market Value? Sellers and buyers need to turn to their REALTOR® to isolate the value, the true professional. They are able to help factor the condition, location, upgrades, and amenities of a home, something a computer program cannot duplicate.

Active Inventory: the inventory continued its descent, and shed another 3% in the past two weeks.
The Autumn Market inventory drop continued in the past couple of weeks, shedding 220 homes in the past two weeks and 450 over the past month. It now totals 6,509. This is the time of the year when not as many sellers are coming on the market and many unsuccessful sellers are throwing in the towel as we quickly approach the Holiday Market, now just a few weeks away. The inventory will continue its descent through the end of the year.

Last year at this time the inventory totaled 7,174 homes, 665 more than today, with an expected market time of 3.24 months, or 97 days. That’s 13 days longer than today.

Demand: Demand decreased by 2% in the past couple of weeks and 8% in the past month.
Demand, the number of new pending sales over the prior month, decreased by 45 homes in the past two weeks and now totals 2,333 homes. The drop is its lowest since the end of August. Demand stays fairly steady for the next month until it drops further as we dive into the Holiday Market. By the end of the year, it will drop to its lowest level, levels not seen since January.

Last year at this time there were 118 fewer pending sales, 5% less, totaling 2,215.

Distressed Breakdown: The distressed inventory increased by 23 homes in the past couple of weeks.
The distressed inventory, foreclosures and short sales combined, increased by 12%, or 23 homes, and now totals 208. Distressed homes are quickly reaching pre-Great Recession levels, a normal market.

In the past two weeks, the foreclosure inventory increased by 12 homes and now totals 62, Only 1% of the total active inventory is a foreclosure. The expected market time for foreclosures is 49 days. The short sale inventory increased by 11 homes in the past two weeks and now totals 146. The expected market time is 52 days. Short sales represent just 2% of the total active inventory.

Have a great week.

It seem that every year after we jump into the slower Autumn Market, buyers start talking about a housing price correction.

A Price Correction: Because the median price is within 6% of the record established in June of 2007, many buyers feel a correction is near. As soon as the kids go back to school the housing market shifts gears and we enter a new season, the Autumn Market. The inventory slowly drifts downward as fewer homes come on the market and many sellers throw in the towel; the best time of the year to sell a home is in the rearview mirror. Demand downshifts and slows as well. Buyers are no longer lunging over each other and getting caught up in bidding wars in order to purchase a home.

Buyers often mistaken this slower season as the beginning of a major market slowdown, one that will ultimately lead to a price correction. As we inch closer and closer to the Orange County median sales price record established last decade, their simple logic prevails. The last time prices were this high it lead to a major housing price correction. Logically, prices are about to drop again, right? Not necessarily.

The prior median sales price record was established in June 2007 at $645,000. The median sales price last month was at $610,000. During the Great Recession, the median low hit $370,000 in January 2009. So, August’s level is 65% above the recession low and just 5.4% away from matching Orange County’s record height. Buyers from the trenches are squawking that prices are just too high, so they feel that prices must be on the verge of dropping. Don’t bet on it.

The prior height was established 8 years ago. Even though inflation has been extremely mild, the Consumer Price Index in Orange County has been positive for years. Taking into consideration the slower, mild growth in overall prices, Orange County is closer to 15% off the prior peak, not 5%. Buyers are mistakenly comparing today’s prices to 2007, that’s 8 years ago, a long time ago.

Current data and trends simply do not support a housing correction anytime soon. Yes, we have cooled considerable from the red hot Spring Market. Back in April, the expected market time for homes on the market was a low 1.8 months, or 54 days. Today’s expected market time has increased to 2.7 months, or 82 days. Even with the increase, it is nowhere near a market that favor’s buyers. Last year at this time, Orange County was enjoying a balanced market, 3.33 months, or 100 days, one that did not favor buyers or sellers. A market is balanced when it sits between three and four months of inventory. Even though Orange County is now approaching balance, it is still a slight seller’s market, one where sellers can call more of the shots when it comes to the terms of a contract, but appreciation slows considerably. Home prices only appreciate rapidly when the expected market time drops to one-and-a-half months or less.

Orange County has not experienced a buyer’s market since the beginning of 2011. Back then there were over 10,000 homes on the market and demand was similar to today. The supply of homes was much greater than today. When too many homes are left on the market, there is a lot more competition between sellers. When supply is high and demand is low, the biggest differentiator for a seller to make their home stand out among the competition is price. The more attractive the price, the quicker a home sells. That’s when prices drop. Back in 2007, the active inventory reached 17,898 homes and prices were falling like a rock.

Today there are 6,959 homes on the market, 30% fewer than the 10,000 home level back in 2011. The long term average for the active listing inventory is actually 8,500 homes. The current inventory trend is to drop through the end of the year. Even with an anticipated drop in demand as we approach the end of the year and eventually move into the Holiday Market, the drop in demand will be offset by a simultaneous drop in the inventory. The expected market time is projected to remain relatively flat through the end of 2015. Do not expect any major change in Orange County real estate market trends anytime soon.

For 2016, the Federal Reserve is posturing to slowly and methodically increase the short term rate, which ultimately affects mortgage rates. Since their moves will be deliberately slower, buyers will continue to flood the market to cash in on today’s historically low rates. Next year promises to be very similar to 2015 with increased demand and an inventory well below the long term average. It will once again be a sellers’ market.

The bottom line: in Orange County, do not expect a correction in home values anytime soon.

Active Inventory:  as is normal for the Autumn Market, the inventory continued to drop.

After peaking a month ago, the active inventory shed an additional 81 homes, or 1%, in the past couple of weeks, now sitting at 6,959. It was only above the 7,000 home mark for two months this year compared to five-and-a-half months in 2014. As we progress deeper into autumn, the days get shorter and the number of homes that come on the market drops as well. Just around the corner are the holidays, the biggest drops in the inventory each year. The inventory typically reaches a new bottom at the turning of the New Year. From there it will begin to rise.

Last year at this time the inventory totaled 7,663 homes, 704 more than today, with an expected market time of 3.33 months, or 100 days. That’s 18 additional days compared to today.

Demand:  Demand decreased by 4% in the past couple of weeks.

Demand, the number of new pending sales over the prior month, decreased by 108 homes in just two weeks and now totals 2,537 homes. Demand was last at this level back in January of this year. Just as there are fewer sellers coming on the market, there are also fewer buyers looking to buy right now.

Last year at this time there were 236 fewer pending sales, totaling 2,301.

Distressed Breakdown: The distressed inventory decreased by 12 home in the past couple of weeks.

The distressed inventory, foreclosures and short sales combined, decreased by 12 homes in the past two weeks, a 5% drop, and now totals 220. The up and down swings of the distressed inventory has continued for a few months now. Even with these fluctuations, there really are not that many distressed homes hitting the market. With only 2.5% of all mortgage homes in Orange County currently upside down, there are far fewer homeowners in a precarious position compared to the days of the Great Recession when 25% of all mortgaged homes were upside down.

In the past two weeks, the foreclosure inventory decreased by 8 homes and now totals 65. Less than 1% of the total active inventory is a foreclosure. The expected market time for foreclosures is 61 days. The short sale inventory decreased by 4 homes in the past two weeks and now totals 155. The expected market time is 48 days. Short sales represent just 2% of the total active inventory.

Have a great week.

 

 

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We have officially transitioned into the Autumn Market, leaving both the Spring and Summer Markets in the rearview mirror.

The Autumn Market: the Orange County housing market just downshifted into a lower gear, part of a normal housing cycle.

The initial school bell just rang and families are getting back into their daily ritual of making lunches, participating in carpools, and getting up at the crack of dawn. That initial bell also indicated the start of housing’s Autumn Market. Buyers and sellers can expect a lot of changes. The key to success is having the right expectations.

First, expect the active listing inventory to drop from today’s level as fewer and fewer homeowners place their homes on the market. Combine that with the fact that many unsuccessful sellers will throw in the towel and pull their homes off of the market. Over the past five years, on average the active listing inventory has dropped by 12% from the end of August through mid-November when we transition into the Holiday Market. A 12% drop would mean that today’s 7,178 mark would decline to 6,308.

Along with the drop in the inventory, expect a significant drop in demand as well. It’s just not the best time of the year to make a move. Families generally want to make a move during the summer months. When you take into consideration that homes can take a couple of months to close, it’s no wonder that so many homes are placed under contract in the spring and close in the summer. It is much easier for kids to transition into a new school with a summer move. Moving in the middle of the school year is a lot more challenging. Over the past five years (from August through mid-November), on average demand has dropped by 10%. That represents a drop from 2,722 pending sales to 2,460.

Taking into consideration he drop in both the inventory and demand, the expected market time for newly listed homes in Orange County is expected to change very little from its current 2.64 month mark, or 79 days. That means that the overall feel of the housing market is not going to change much from where it stands today. It will remain HOT in the lower ranges, below $500,000, a seller’s market. For homes priced between $500,000 and $1,000,000, it will be a slight seller’s market towards the bottom of that range, but will be very close to a balanced market towards the top of the range. A balanced market does not favor buyers or sellers. For homes priced above $1,000,000, it will be a slow go. The expected market time is currently at 8.5 months and will not change much over the course of the Autumn Market.

The best approach for sellers is to know the current landscape of the local housing market. It’s also a given, the higher the price, the longer the home is going to take to sell. Homes are no longer flying off the market like they did months ago. There are fewer buyers looking to buy, so there will be fewer showings. There may be fewer sellers to compete with, but that will be offset by softer demand.

For sellers, it boils down to price and condition, the two factors that they have control over. For the rest of the year, many overzealous sellers will learn the hard way that they will not find success without carefully honing in on price, bringing the price as close to their Fair Market Value as possible. With less buyer competition, buyers really do not want to pay much more than the last comparable sale. Multiple offers will no longer be the norm, so buyers will not be tripping over each other to purchase a home like they did in May. Since many new sellers will hit the market overpriced, ignoring basic market fundamentals and the slower autumn season, they will sit on the market with very few showings and no offers.

The best approach for buyers is to understand that while there are fewer buyers competing to purchase, it is NOT a buyer’s market. On the contrary, for all of Orange County, it is still a slight seller’s market and will remain that way for the remainder of the year. Buyers cannot afford to be too uncompromising in their quest to find a deal. During this time of the year many buyers mistakenly feel that because it is no longer the spring or summer that it is the best time to buy, the best time to “get a deal.” Buyers that make it their mission, like so many do every year, will not be able to achieve their goal in isolating a home. The housing market is far too healthy for sellers to make exceptions and start discounting the price just because housing is not as hot as earlier in the year.

Instead, buyers really need to stick to the sound strategy of isolating the home that best fits their needs and then offering to pay close to the home’s Fair Market Value. Remember, there will still be plenty of overpriced, overly optimistic sellers looking to get a lot more than the last closed sale. They too will not find success until they lower the price and succumb to being a bit more realistic. Until then, ignore these homes and continue the search.

Ultimately, buyers and sellers will find success by being realistic and not trying to overreach. There will be plenty of buyers and sellers who will find success for the remainder of the year, but that is predicated on having the right approach.

 

Active Inventory:  It looks as if the active inventory has reached a peak for the year.

In the past two weeks, the active inventory has grown by only 11 homes and now sits at 7,178. Now that school has started, this level is most likely the peak for the inventory in 2015. We can expect the inventory to slowing drop over the coming months as fewer sellers enter the fray and many sellers who have not found success will ultimately throw in the towel, pulling their homes off of the market.

Last year at this time the inventory totaled 8,084 homes, 708 more than today, with an expected market time of 3.16 months, or 95 days. That’s 16 additional days compared to today.

Demand:  Demand decreased by 1% in the past couple of weeks.

Demand, the number of new pending sales over the prior month, decreased by 40 homes in the past two weeks and now totals 2,722 homes. Even with the increase, February levels. Demand will slowly drop for the rest of 2015.

Last year at this time there were 223 fewer pending sales, totaling 2,499.

Distressed Breakdown: The distressed inventory decreased by 7 home in the past couple of weeks.

The distressed inventory, foreclosures and short sales combined, decreased by 7 homes in the past two weeks, a 3% drop, and now totals 219. Two weeks ago, the inventory grew by 24 homes, but that turned out to be more of an anomaly than a trend, as it quickly reversed course this week. Year over year, there are 21% fewer distressed homes today.

In the past two weeks, the foreclosure inventory increased by 4 homes and now totals 64. Less than 1% of the inventory is a foreclosure. The expected market time for foreclosures is 64 days. The short sale inventory decreased by 11 homes in the past two weeks and now totals 155. The expected market time is 56 days. Short sales represent just 2% of the total active inventory.

 

Have a great week.

 

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