California's unemployment goes up again--from 11.6 in June, to 11.9 for July. More jobs are lost, (35,800 for July), but the losses are at a slower rate. Meanwhile, July home sales and prices are both up over a year ago and over the lows established earlier this year. Many believe the torrent of new home foreclosures is still expected, so, our biweekly Flood Watch continues. In this article, we consider the data for the two weeks ending 8/20/09.
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. As of 8/20/09, the last biweekly report available, the total Orange County inventory fell by 150 units, to 8,531. This represents less than half of the inventory on the market two years ago, when there were 17,881 homes for sale in Orange County. The rate of decline in inventory has slowed, but no biweekly period since March, has gone without a decrease in total inventory. On March 19, 2009, the inventory was at 11,606, the recent high.
On the demand side, with the summer buying season wrapping up, the numbers eked out another small increase . During the two weeks ending 8/20/09, demand was higher by 35 units, to a total of 3,506. Demand has fluctuated in the 3,300 to 3,600 range consistently since mid April. Since we are beginning to enter the seasonal slowdown, which generally hits between the end of October and early January, demand will most likely begin to decline over the next several weeks.
These inventory and demand levels produced a market time of 2.43 months for the most recent two week period. This is down slightly from the 2.5 months of the previous period.
On the flood watch side of things, the total number of distressed homes in inventory was unchanged from two weeks ago. However, since the total inventory continued to decline, the percentage of distressed homes increased slightly. As of 8/20/09 the distressed inventory was at 2,559, representing 30.0 % of total inventory. Two weeks earlier, that same distressed count represented 29.5% and 4 weeks ago, it was at 29.4%. Thus, the previously steady decline in the distressed percentage of total inventory seems to be over.
There are still predictions that the flood is coming, and it might well be headed our way. But so far, the demand for lower priced homes has been more than enough to absorb the new distress properties coming on the market. As long as there are buyers ready to snap up the new market entrants, the expected increase of new foreclosures should not adversely affect the market. If we get to the point when the supply of distressed properties is getting ahead of demand, we will see an increase in distressed inventory. So far, that has not happened.
According to Steven Thomas of Altera Real Estate, "We are currently experiencing a lender controlled seller’s market. Short sales, which are subject to lender approval, and foreclosures, which are lender owned properties, currently have a monopoly on the market. Typically distressed properties are not placed on the market higher than the last comparable sale. And, 54% of active listings below $500,000 are distressed properties. Besides distressed homes fueling demand in the lower ranges, the ability to obtain financing under the conventional loan limit of $729,750 also pumps up demand. Everything above that limit is considered a jumbo loan where tighter financing requirements and higher interest rates keep a lid on demand within the upper ranges. Until the requirements ease, the upper ranges will continue to experience a sluggish market. The higher the price range, the slower the market. Just take a look at homes priced above $4 million. There are 407 homes on the market with demand at only 8 homes. At that pace, it would take a very long time to exhaust the current inventory. Compare that to homes priced from $250,000 to $500,000, where there are 2,031 homes on the market and demand is at 1,522. At the current pace, it would take only 1.3 months to exhaust the current supply. Yes, the market is hot in the lower ranges and buyers that just enter the market are consistently dumbfounded with all of the competition and the need to write offer after offer. No, values are not on the rise, even with incredible demand. Buyers just don’t yet want to pay more than the last buyer that did one month ago. Values are also not falling within the lower ranges like they have in the past as well, there’s just too much competition. The average sales to list price ratio for homes priced below $500,000 is 100%, meaning that sellers (and many of them are lenders) are obtaining their full asking prices."
All of the Orange County real estate data in this article is from a report published by Steven Thomas of Altera Real Estate
