Sorry it took me a while to get this posted! Here's the latest Market Time Report:
Market Time Report: PRICE, PRICE, PRICE
October 5, 2006
Pumpkins on doorsteps are a sign that the slower Holiday market from Halloween to mid-January is upon us. The Orange County market time has grown substantially over the past two weeks, rising from 7.1 months to 7.78 months today. The current active inventory dropped by 190 homes in two weeks to 15,482 today. The number of homes placed into escrow within the prior 30 days, demand, dropped in two weeks by 217 homes to 1,991. The drop in the active inventory appears to be similar to the drop in demand; HOWEVER, the drop in inventory represents a 1.3% drop, versus a 10% drop in demand. Attached homes have slowed at a more accelerated rate. The market time for detached homes, 7.39 months, represents a 7.7% increase in just two weeks, versus a 9.6% increase to 8.18 months for attached homes. It is important to remember that homes above the six month mark are considered a slight buyers market and above the nine month mark are considered a deep buyers market with much greater pressure on prices. Only detached homes below $750,000 are not experiencing some sort of a buyers market. More homes must come off the market to compensate for the cyclical drop in demand during the Fall and Holiday markets. Otherwise, market time will rise and the pressure on prices will increase further. 33.5% of all attached homes currently on the market are vacant compared to 24.8% of all detached homes. Overall, 28.3% of all homes, or 4,375 homes, on the market in Orange County are vacant.
Since the beginning of this year, the inventory has climbed by 8,329 homes. Yet, demand, the number of homes placed into escrow within the prior 30 days, is only 184 additional homes today compared to January 1st. Market time was as 4.03 months compared to almost eight months today. Last year at this time, there were only 7,871 homes on the market, 7,611 fewer than today, and 2,868 homes placed into escrow within the prior 30 days, 877 more than today. The inventory was at a 2.74 month supply. The market time was steadily growing. The growth spurt started in August and persisted for 22 straight weeks, ending in the third week of January 2006. The next growth spurt in market time started at the end of February and lasted 20 consecutive weeks, ending at the very end of July. The market time dropped further in August, leveled off in September and then we started October with a giant spike in market time.
I am still very surprised in the number of sellers who have remained on the market. If demand continues at the current snapshot of escrow activity within the prior 30 days, 1,991 homes (which will most likely drop), that means 13,491 sellers will not successfully sell their homes over the next month. The market just is not going to get any better for the remainder of the year. If sellers are not willing to do what it takes to get their homes sold, then they should pull their homes off the market and enjoy the colors of Fall and all of the distractions of the holidays. For sellers, MOTIVATION is the fundamental ingredient to success in today’s market. A lack of motivation is a waste of time for the seller, the seller’s agent and anybody that wastes their time viewing the home. Buyers are extremely cautious and will weigh all of their options carefully before bringing an offer on a home. Buyers are just not willing to pay top dollar for a home anymore.
What can we expect for the rest of the year? Demand, the number of escrows within the prior 30 days, will level off for the rest of the Fall market. The Fall market ends right after the neighborhood kids run door to door dressed in their costumes in eager pursuit of one more piece of candy. That leaves a little less than a month before we transition into the slower Holiday market. For the Holiday market, Halloween through mid-January, we can expect a further drop in demand and a record number of homes being pulled off the market as more and more sellers grow weary of this sluggish time of year. In September we reached a record number of homes pulled off the market (of course many relisted) in recent history, 3,383 homes, eclipsing August’s record of 3,121. With the current gigantic active inventory and low demand, we can expect that we will achieve new records in October and then in November and then again in December. Demand will not start to rise again until mid-January as we start to rev the housing engine in preparation for the Spring market. It looks as if the disparity between detached and attached homes (condominiums) is growing more profound.
How should a seller approach the market? First, sellers must understand that the current market is a buyer’s market. In certain areas and ranges, the buyer's market is even more profound. In a buyer’s market, the greatest emphasis is placed upon the price of a home. If a seller is truly motivated, they will carefully arrive at price and will be willing to make adjustments if necessary. Arriving at the appropriate initial price of a home is also crucial to obtain the highest market value possible. To arrive at price, sellers must scrutinize each and every comparable sale and escrow with extreme care. Older data, typically anything older than three months, is not reliable. Sellers should carefully analyze homes in escrow, recent comparable sales and aggressive listings priced below the most recent sale or escrow in arriving at the price of a home. If a seller overprices their home, they risk chasing the market down in price. With downward pressure on price, the value of a home can drop in time and a simple price reduction to the original recommended price will not be enough. They end up chasing the value down in price and ultimately either pulling their home off the market or selling their home for less than the value they could have achieved by pricing realistically initially. For example, a home should initially be listed for $800,000 but the seller opts to start at $825,000 instead. In the meantime a home listed at $800,000 closes escrow at $760,000. After 60 days, the Seller reduces the price to $800,000, but, because of the new comparable sale, the home continues to stagnate on the market. Given the slower season, either a seller is 100% committed and ready to position themselves for success or they should pull their home off the market immediately. In today’s market, sellers need to pack their patience and be prepared for a long ride. Sellers also must carefully choose their agent, looking for an individual with experience, a great communicator, a fantastic negotiator and someone who has a tremendous grasp of the local market. Do not fall into the trap of selecting an agent based upon a recommended price. In a buyers market with inventories greater than eight months there is just too much competition and significant pressure on prices. In this case, sellers should strongly consider pricing their home below the most recent comparable sale.
How should a Buyer approach the market? It is good to be a buyer in today’s market. There are a lot of choices, enabling buyers to avoid unrealistic sellers and obtain a value less than the most recent comparable sale or escrow. But, buyers are very nervous right now. They do not want to overpay for a home and risk losing value after they close escrow. Uncertainty is in the air. Buyers forget that they are not just purchasing an investment, they are purchasing their HOME. If buyers approach the purchase of their home as long term investments, 5 to 10 years, they will do just fine. Attempting to time the market is a recipe for disaster. Stories abound of buyers who sat on the sidelines trying to time the bottom of the market only to remain on the sidelines and lose out on years of appreciation. Currently, many economists, experts who study the economy as a profession, differ on their opinions as to when the bottom of the current slowdown, the “trough,” will be. If experts have trouble isolating the bottom, how can ordinary buyers expect to time the market perfectly? It appears that Bernanke and the Federal Reserve are not going to do much with the short term rates through the end of the year. From now through the first couple of weeks of January 2007, this is the besttime to buy a home. Sellers are becoming more motivated and more willing to do whatever it takes to get their homes sold. But, Sellers are not going to give their home away either. Sellers know what is going on within their marketplace and have a firm understanding over time of their true market value. To arrive at a fair market value, buyers should scrutinize escrow activity and most recent sales activity and can probably pay a little bit less, depending upon the specific seller’s motivation and the specific local market time, as well.
The following areas have inventories of less than six months: Cypress, Fountain Valley, Lake Forest and Placentia.
The following areas have inventories between nine and ten months: Canyon Areas, Ladera Ranch, Laguna Niguel, Rancho Santa Margarita and homes between $750,000 and $1.5 million.
The following areas have inventories greater than ten months: Corona Del Mar, Coto de Caza, Dana Point, Dove Canyon, Foothill Ranch, Laguna Beach, Laguna Woods, Newport Beach, Newport Coast, San Clemente, Talega, Villa Park and all ranges above $1.5 million.
Have a fantastic weekend.