Orange County Housing Report: Housing is Revving Its Engine
By Steven Thomas – Reports on Housing – OC Register
The Orange County housing market is finally shaking the effects of a slow Holiday Market and beginning its transition into a much busier Spring. Demand: Demand increased by 31% in the past two weeks. From Thanksgiving until mid-January, the real estate market was muted as buyers and sellers alike, for the most part, took the holidays off. The holidays are notoriously the slowest time of the year for real estate. Compared to the prior year, it was much slower. During that market, if a home popped on the market, it was greeted by a throng of buyers and would generate immediate offers despite the season. But, that is not normal for the time of year. This time around, the housing market was what you would expect; if a home was placed on the market, it would still generate a few showings in a week, but immediate offers were out of the question unless it was aggressively priced to generate instant action.
Within the last couple of weeks, the Orange County housing market engine has been revving. During the holidays, it was as if the market was in a 5 mile per hour zone. Now, it has reached the 25 mile per house zone, where it will quickly accelerate to 45 in the coming weeks. It will continue to accelerate through February, March and April. In April, housing will be humming along at its quickest pace of the year at freeway speeds.
Orange County and all of Southern California are unique, as our Spring Market really begins right after the Super Bowl. That is mainly due to our incredible weather. With the holidays over a month in the rearview mirror, there are not many excuses that could potentially prevent buyers and sellers from entering the fray. We are not experiencing a harsh, brutally cold winter like most of the country. We do not have snow; for that matter, our roads are barely wet. We have a Holiday Market, when housing pauses to celebrate the season. Most of the country has a Winter Market. It is hard to show homes in a blizzard or when there is a lot of snow on the ground. Black ice? Snow blowers? Frozen locks? Many Southern Californians have never experienced the consequences of a brutal winter, especially this year.
Until the official start of spring, over six weeks away, housing will continue to improve. Spring is the best time of the year for housing for a very good reason: if a family would like to move during the summer, when the kids are out of school, contracts need to be written during the spring. This is precisely why demand peaks around the end of April. Contracts written at that time are typically looking to close in June, when the kids get out of school. That will give the entire family time to adjust to a new neighborhood and meet new friends prior to resuming school in the fall.
Demand, the number of new pending sales over the past month, increased by 485 pending sales in the past two weeks and now totals 2,043. Last year demand was at 2,596 pending sales, 553 more than today. In 2013, the year over year statistics have not told the complete story. The chart that illustrates the difference was intentionally left off this report because it gave the wrong impression. Embedded in prior year demand curves were a ton of short sales. Unfortunately, even if you had a willing and able buyer and a seller who wanted and needed to sell, a successful closed sale was at the mercy of the dreaded “subject to lender approval.” Only about half of all short sales ever closed on time. Many were so complex that they would take months to get all of the appropriate approvals. By that time, many buyers had moved on, necessitating finding another interested buyer. Demand in prior years resulted in fewer sales because they included so many short sales.
In the past 30 days, only 175 of the 2,043 pending sales were short sales. Last year it was 594 of 2,596, and two years ago it was 1,367 of 3,553. Demand in prior years was so inflated that you really could not compare year over year statistics as we began to move to a predominantly equity seller market, regular every day folk with equity in their homes. With fewer short sales, looking at 2014 compared to 2013 is starting to make sense. From the numbers, we can finally tell that this year’s demand compared to last will result in fewer sales in the coming months compared to 2013.
Active Inventory: The inventory barely moved in the past two weeks. With the holidays behind us, more homes are coming on the market at a faster pace; and, more homes are coming off the market as demand increases. As a result, in the past two weeks, the active listing inventory increased by only 10 homes and now totals 5,087. Last year at this time there were 3,276 homes, 1,811 fewer than today.
There is quite a bit of buzz in the real estate trenches, though, with homeowners getting ready to place their homes on the market. The fate of a seller’s success today depends upon their willingness to carefully price their homes. Today’s buyers want to pay the Fair Market Value of a home. They are no longer willing to pay thousands of dollars over the most recent closed sale. So, sellers who price their homes right will sell. Many achieve success after reducing their asking prices, but the smart strategy is to price accurately as soon as they come on the market. Homes receive the most activity within the first few weeks after the for-sale sign goes up in the front yard. There is less fanfare after a price reduction.
The active inventory is most likely going to rise in the coming months on the backs of overpriced, overzealous sellers pricing their homes too high over the Fair Market Value. Success will not be achieved until those homes realize that a price reduction is the only answer.
Distressed Breakdown: The distressed decreased by 6% in the past two weeks.
The distressed inventory, foreclosures and short sales combined, decreased by 17 in the past two weeks homes and now totals 258, a 6% decrease. Only 5% of the active listing inventory and 11% of demand is distressed. Compare that to last year when it represented 11% of the inventory and 28% of demand, and two years ago when it represented 30% of the inventory and 52% of demand. Unlike prior years, the distressed market today is not a drag on the overall housing market.
In the past two weeks, the foreclosure inventory decreased by 5 homes and now totals 53. 1% of the inventory is a foreclosure. The expected market time for foreclosures is 30 days. The short sale inventory decreased by 12 homes in the past two weeks and now totals 205. The expected market time is 35 days. Short sales represent just 4% of the total active inventory.
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