The housing market has gone from one extreme to another in the blink of an eye.
It was not too long ago when home buyers had their way. They called the shots. There were too many homes on the market with a disproportionate number of distressed homes, both foreclosures and short sales. Buyers could sit back and take their time in approaching the purchase of a home. There was no sense of urgency.
Flash forward to today, the housing market has shifted to the opposite extreme. Now, when a home is priced right, buyers are lining up to see it, many writing offers sight unseen.
Buyers no longer call the shots, realistic sellers do. There are too few homes on the market with the number of distressed homes dropping. Buyers cannot jump fast enough to make an offer to purchase.
It is important to emphasize that homes need to be priced right. Yes, many sellers are jumping the gun and I am hearing every day about homeowners that want to list their homes at ridiculous, overpriced levels. The inventory may be at absurdly low levels, placing pressure on pricing, but that does not mean that the market is ready for 20% jumps in value. It is appreciating slowly, but buyers are quick to curb their enthusiasm when an overpriced home pops onto the market. A sure sign that a home is overpriced is when a home does not fly off the market and no offers close to the asking price are generated.
The expected market time for all of Orange County is only 39 days, a low not seen since May 2005. It tends to increase with the transition from the Summer to Autumn Market, but not right now. Instead, it has been continuously dropping for the past three months. Let’s put the current market into proper perspective. A balanced market has an expected market time right around five months.
At just 39 days, it is a deep sellers market. At that level, the only thing keeping homes from appreciating out of control, similar to the bubble years of the early to mid-2000’s, are all of the distressed homes that are still on the market. Even though the percentage of closed sales that are distressed has been slowly dropping, it still makes up 31% of all closed sales. They too are flying off the market, but buyers are unwilling to grossly overpay for these homes. Instead, they are keeping a lid on the housing market from appreciating out of control.
The most ridiculous expected market time during the heydays was achieved in February 2005, at just 34 days. That was just a little bit hotter than today’s sizzling market. The market was plagued by too few homes on the market, tremendous demand, homes that flew off the market at or above their asking prices, and frustrated buyers writing offer after offer and coming up empty handed. It was no different than today, crazy markets.
The Orange County active inventory shed an additional 260 homes in the past two weeks, an extraordinary 6% drop, the largest percentage drop so far this year. It now totals just 4,416. There simply are not enough homes for sale. REALTORS® have pockets filled with buyers and nothing to show them. They need homes to sell, yet it is the Autumn Market, typically a time when the housing market and inventory downshifts a bit from the best times of the year for real estate, both Spring and Summer.
Last year at this time there were 10,353 homes on the market, well over double the current inventory. The active inventory stood at 8,114 homes at the beginning of the year, 3,698 more than today.
When will the unprecedented unabated drop stop? It has not stopped dropping since June of last year. This year has been full of surprises, and the fact that the inventory has shown no signs of reversing course is baffling. October? November? At this point it is anybody’s guess. This is the time of year when unrealistic, overpriced sellers throw in the towel. With such a limited inventory, fewer homes will venture down this path.
Demand: Not much of a change in demand within the past couple of weeks.
Demand, the number of new pending sales over the prior month, has finished decelerating from its summer highs, and actually slightly increased in the past two weeks. It increased by 36 pending sales and now totals 3,366.
Last year at this time there were 498 fewer pending sales, a 17% difference. Demand, as defined by pending sales, would actually be much higher if there were just more homes for sale to match the swelling number of buyers waiting for a fresh supply of homes to be placed on the market.
The current level of distress, both foreclosures and short sales, is now at 633, dropping an additional 88 homes in the past month, a 12% drop. About six weeks ago, after dropping by only 2%, it appeared that the distressed inventory had started to slow; instead, it was just taking a brief breather. It too has ignored conventional wisdom, but will eventually have to stop dropping, just like the active listing inventory. Currently, distressed homes are flying into escrow as quickly as they are coming on.
For buyers holding out for a wave of foreclosures, it simply is not going to materialize. There will BE NO WAVE. The banks have a strategy of slowly, but surely, handling the distress at a methodical and preplanned rate. At the current rate, it appears as if the distressed backlog will be depleted in about three years.
The distressed inventory has not been this low since June 2007. It currently represents just 14% of the total active inventory and 37% of demand. Last year it represented 35% of the inventory and 50% of demand. In the past two weeks, the foreclosure inventory increased by 14 homes, totaling 149, and has an expected market time of 23 days. The short sale inventory decreased by 44 homes in the past two weeks and now totals 484. The expected market time is only two weeks and continues to be the hottest segment of the housing market.
For questions about buying and selling real estate in Orange County, contact Scot Campbell. He is the President of The Scot Campbell TEAM at Coldwell Banker-Campbell Realtors in Huntington Beach, CA.
He has been a licensed broker for over 21 years and has brokered over 1000 homes and just about every type of transaction imaginable. Read his profile and client reviews at www.ScotCampbell.com
He can be reached at 714-960-0700 at the office, 714-336-0394 on his mobile number or via email at Scot.Campbell@ColdwellBanker.com