There is still no sign of the long expected flood of new foreclosures in Orange County residential real estate. But, the upward creep in the percentage of distressed homes in active real estate inventory continues. With job losses also continuing, we maintain our by-weekly foreclosure flood watch. In this article, we consider the data for the two weeks ended 9/3/09, the most recent report.

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 9/3/09, the total number of homes in the Orange County active residential real estate inventory fell by 169 units, to a total of 8,362. That represents a 2% drop in two weeks. This is the lowest inventory level since the beginning of 2006. Last year at this time, the inventory was at 13,582 and two years ago, it totaled 17,760 units, more than double the current level.

On the demand side, the end of the summer buying season continues to become evident. Demand fell by 3%, from 3,506 for the previous two week period, to 3,403 for the two weeks ending on 9/3/09. Since the 3% decrease in demand was greater than the 2% fall in total inventory, the market time edged up slightly. Market time had been falling steadily since mid March, but that pattern ended during the two weeks ending on July 9. Since then, the market has fluctuated within a narrow range, between 2.69 months and 2.43 months. For the most recent report, the market time was 2.46 months.

According to Steven Thomas of Altera Real Estate, "As the end of summer fast approaches, the Orange County real estate market continues to follow its normal, cyclical path. The active listing inventory continues to drop, demand drops slightly and the expected market time has very little movement. This is typical for this time of year."

As for the expected flood of new foreclosures, it has not happen yet. The total number of distressed properties in inventory as of 9/3/09, fell again, to 2,516. While this is an negligible change from the 2,559 distressed homes in inventory for the two weeks ending 8/20/09, it also does not suggest a flood of new foreclosures coming to market. It appears that the current inflows of new foreclosures is still matched by buyers ready and able to snatch them up. Nevertheless, the drop in distressed inventory is happening at a slightly slower rate than the decrease in total inventory, so the percentage of distressed homes in the total inventory continues to inch upward. As of 9/3/09, distressed homes represented 30.1% of total inventory, up from a recent low of 29.4% which was achieved on 7/23/09.

According to Thomas, "There is tremendous demand for homes priced below $750,000. Below $500,000, the market is extremely hot. Homes are receiving tremendous activity with multiple offers and an average list to sales price ratio of 100%. Even though we are currently experiencing a seller’s market, property values are not appreciating. This is primarily due to the number of distressed properties on the market that continue to suppress values.

The expected market time for properties priced between $250,000 and $500,000 is currently at 1.33 months, levels not seen since the incredible days of 2005. Ask any buyer looking for a home priced below $500,000 just how crazy the market has been and you will quickly find that they are writing offer after offer. Last week, one of our agents stated that his buyer was finally in escrow after writing their fifth offer.

Buyers today do not know how crazy the market is until they lose out on a property or two, learning from the good ol’ school of hard knocks. This is contrary to their perception of the housing market out of the gates due to the constant stream of press on the recession, unemployment and distressed homeowners."

Looking ahead, Thomas continues, "What can buyers expect going into the Autumn Market? Interest rates dropped and remain extremely low. Demand is still extremely hot for homes priced below $750,000. There has been a lot of news regarding the end of the $8,000 first time tax credit, which currently ends with sales on November 30th. However, we can expect an extension to that program coming soon. We can also expect a second extension to the increased conventional loan limit, for Orange County it is $729,750. The government does not want to see a decrease in the current real estate market momentum, and these two programs have helped immensely. So, even though we are entering a cyclically slower time of year, do not expect that much of a change in the current market. There are still droves of buyers still looking for homes. The word out on the street is that agents have pockets filled with buyers and not enough new inventory coming on the market. Any increase in fresh inventory would be welcomed by buyers and their agents alike. However, there just won’t be a lot of new inventory to hit the market until after the New Year."

Your Editors will maintain our foreclosure flood watch, stayed tuned.

All of the data in this article is from a report published by Steven Thomas of Altera Real Estate