Orange County Real Estate Demand Surges—Supply Doesn’t Keep Pace—Distressed Properties Creep
Category : Laguna Beach Real Estate
In our last biweekly report on Orange County residential real estate, we reported the first decrease in distressed homes on the market since last fall. As it turns out, that was not the beginning of a trend. As the federal first time home buyer credit expires, demand surged to levels last seen in 2005, and supply expanded only modestly. We run the numbers for the two weeks ending April 29, 2010.
Although the increase was small—much smaller than the increase in total inventory—the distressed properties for sale in Orange County increased by 9 units, to 2,790. Two weeks ago, distressed properties decreased by 32 homes. Thus, this important measurement was at its lowest level since last October, when an unbroken trend of decreases came to an end. The changes for both this report and two weeks ago are small enough to be insignificant, but with three months of job growth in OC, we were hoping the number of people loosing their homes would continue to decrease.
Even though slightly more distressed homes came on the market during the last two weeks, overall demand showed no sign of weakness. Last year the peak in demand for OC residential real estate came in mid June when it hit 3,652. For the two weeks ending April 29, 2010, demand (the number of new pending sales during the last 30 days) surged by 231 units, to 3,979. This is the highest level of demand since June 2005.
According to Steven Thomas of Altera Real Estate, “At the stroke of midnight on April 30th the Federal first time home buyer tax credit will end, but there is just too much demand for it to spell the end to demand. Yes, we have had buyers hurry to cash in on the credits, but there are enough first time home buyers that have been unsuccessful in purchasing thus far that will still be looking. The reports from the trenches are that these buyers are not about to do an about face and leave the market with their tales between their legs.”
The current demand level—well ahead of last year’s, comes with less supply of active listings on the market. At the end of April 2009, there were a total of 10,561 homes on the market in OC. Thus, market time (the estimated average time a home is on the market before it sells) at the end of April 2009 was 2.97 months.
With the inventory of active listings now at 9,351 homes, the market time is 2.35 months. During the last two weeks, the current inventory of active listings increased by 174 units, or 1.7%. Last year, inventory peaked at 11,606 on March 19. It then began a steady downward trend which lasted until January 2010.
Although the increase in inventory in the individual biweekly reports is relatively small, the cumulative increase since the beginning of this year is 31%. Thomas reports “Agents in the trenches are stating that there are more overpriced, unrealistic sellers placing their homes on the market. Prior to the start of the year I forecasted that the discretionary seller would return; however, if more and more homes are placed on the market at unrealistic values, the inventory will continue to rise. This rise in inventory could dampen demand. This is a trend that we will have to continue to watch. If you are a homeowner contemplating placing your home on the market much higher than the most recent comparable sales and pending activity, the current market will not support your line of thinking. Buyers are not willing to pay a sizeable sum extra for a home simply because there is more demand and more competition. There is just too much distress that remains in the market and the distressed market is keeping a lid on appreciation. “
Another factored affecting the market is interest rates. Thomas reported “Buyers are motivated to purchase knowing that the expected rise in interest rates will ultimately make their payments go up. But, it is more than that. As interest rates rise, buyers can afford less of a home. This is best illustrated in an example. For a buyer with an income of $100,000 and putting 20% down, a rise in interest rates from 5% to 6% equates in home affordability from $590,000 to $540,000, a $50,000 drop. With the government no longer committing to purchasing pools of loans, which ended on March 31st, interest rates are expected to rise a full percent over the coming year.”