Hey folks, here's the latest Market Time Report from my company. As always, if you want to buy or sell a home in Orange County, drop me a line!
Market Time Report: Coming off the market to enjoy the Holidays
November 16, 2006
As the grocery lists grow longer in preparation for the Thanksgiving feast, many sellers are opting to enjoy the holidays and forget about real estate for now. In the past four weeks, demand has remained unchanged with 1,987 homes placed into escrow within the prior 30 day. Demand has only dropped four homes in six weeks. That is exceptionally steady demand. The active inventory has shed 564 homes over the past two weeks and 1,098 homes in the past four weeks. The active inventory sits at 14,165 homes today. On August 24th, the Orange County active inventory reached its peak for 2006 at 16,006 homes. That’s a difference of nearly 2,000 homes. With demand remaining steady and so many homes coming off of the market, market time has dropped significantly over the last four weeks, dropping from an inventory of 7.59 months to 7.13 months today. Many sellers know that the Holiday market, now through the first three weeks of January 2007, is cyclically the slowest time of the year. The distractions of the holidays are just about to kick in. So, sellers who don’t really have to sell are pulling their homes off of the market. They are pulling down their “FOR SALE” signs and getting down their holiday decorations from the attic.
With so many homes coming off the market, the detached market is faring better than condominiums (attached homes). The market time for detached homes dropped from 7.3 months two weeks ago to 6.87 months today. The market time for attached homes, on the other hand, has remained virtually unchanged, moving from 7.58 months two weeks ago to 7.53 months today. For detached homes, all ranges between $500,000 and $1.5 million realized significant improvements in their market respective market times. For example, the $1 million to $1.5 million range descended from 9.11 months to 7.92 months. The most significant change for condominiums was in the $500,000 to $750,000 range, dropping from 8.86 months to 7.97 months. The overall vacancy rate increased a little over the past two weeks, increasing slightly from 28.2% two weeks ago to 28.7%. There was only a slight change for detached homes, where 25.0% of the inventory is vacant compared to 24.8% two weeks ago. But, for condominiums, the vacancy factor has climbed from 33.5% two weeks ago to 34.2% today. This most likely indicates a little more motivation among the condominium sellers with vacant homes since many are investors trying to unload their investments. Many vacant owners are trying to lease their homes while attempting to sell, banking on success in one or the other occurring and cutting down on their market time.
A year ago, the active inventory was at 8,383 homes, 5,782 fewer than today. The year over year discrepancy has been slowly diminishing since July (more rapidly recently). On July 27th, the year over year discrepancy was the largest for 2006 at 9,246 homes. Demand, the number of homes placed into escrow within the prior 30 days, was at 2,647 homes a year ago, 660 additional escrows. This year over year discrepancy has been diminishing as well because demand was steadily dropping a year ago. For example, at this time last year, demand dropped by 103 homes in a two week period to 2,647 homes placed into escrow within the prior 30 days. Last year, demand continued to drop, falling to 1,807 homes placed into escrow within the prior 30 days on December 29th. One year ago, the market time was at 3.17 months, still a seller’s market, but much different than 1.18 months achieved on April 7, 2005.
What can we expect for the rest of the year and the beginning of 2007? At 16,006 homes in August and just about to enter the cyclically slower seasons, the Fall and Holiday markets, it became very apparent that many sellers were not going to be successful. There just was not enough demand. Sellers had a choice, to approach the market and do what it takes to sell a home, to just ride out the market at an unrealistic price or pull their homes off the market. At first, homes were just not coming off the market fast enough after reaching the August peak in inventory. It was not until recently that more and more sellers have opted to throw in the towel. Sellers are now getting it; given the most recent snapshot of demand, 1,987 homes placed into escrow within the prior 30 days, and 14,165 homes actively on the market, 12,178 sellers will not be successful over the course of the next month. Since the end of October, the number of homes coming off the market has been very encouraging. At this rate, the inventory could drop from today’s 14,165 level to 12,000 homes. That would be a healthy drop for the Orange County real estate market. However, we started 2006 with 7,243 homes on the market. 12,000 homes is a much larger base. After Thanksgiving, demand should start to diminish. Cyclically, from mid December to mid-January, the Orange County market will reach a low in the number of homes placed into escrow. According to our agents, many sellers are pulling their homes off the market in anticipation of the Spring market in 2007 AND there are many homeowners who are going to hit the market for the first time this coming Spring as well. That is VERY concerning. In starting the year with 12,000 homes on the market, the active inventory could blossom to over 20,000 listings in the Spring. Demand in 2007 will most likely be very similar to 2006. The inventory will most likely remain steady at 7 months throughout the first two quarters of 2007, compared to 3.5 months in Spring of this year. But, demand may get a boost from the Federal Reserve at the beginning of the year if the economic numbers support a cut in the short term rate. This week, inflation finally dropped to a number that is more comfortable with the Federal Reserve. If that trend continues, it could pave the way for a rate cut which will boost demand slightly. The boost will not be enough to eat into the giant inventory, but could keep the inventory from climbing to the 20,000 mark. The number one concern for the 2007 Spring market: too many homeowners placing their homes on the market with unrealistic expectations. The Spring market is shaping up to be very similar to the real estate market we are encountering today, the only difference being the number of Sellers who will stick to unrealistic prices with expectations of a HOT Spring.
How should a seller approach the market? At this point only the MOTIVATED need apply. Sellers who are not motivated should pull their homes off the market immediately and enjoy the holidays. The market is not going to change any time soon. Sellers need to put everything in its proper PERSPECTIVE. Most sellers are sitting on a tremendous amount of equity. No, it’s not as high as March of this year, but recall the original purchase price of the home. With motivation and a proper perspective comes a REALISTIC PRICE, not a price that a seller wants to get. Buyers do not care about the value a seller is looking to get. In today’s market, buyers simply do not want to overpay for a home. Buyers will diligently ascertain the value of a home by analyzing the most recent comparable sales and escrow activity and will even point out current active homes on the market aggressively priced. Sellers should take the same careful approach in arriving at the asking price. Even a realistic price does NOT GUARANTEE A SALE. During this season, their can be periods of time where certain areas and ranges within the county can experience virtually no traffic. During these times, sellers need to pack their PATIENCE. Sellers cannot control the market and they cannot change their location. Sellers can change their home’s CONDITION. That does not mean a seller should remodel a kitchen or bathroom. Sellers should only address cosmetic fixes that make a difference in value, where every $1 spent increases the value by more than the $1. Some typical examples are replacing the carpet, repainting the interior, repainting the exterior, repairing or replacing the roof, replacing broken sinks or faucets, etc. Buyers have a real difficult time looking past these simple fixes and tend to overvalue the cost to repair or replace. Also, sellers should pack up and store extra furniture and clutter. Clutter and extra furniture make rooms feel smaller and are distracting to buyers trying to visualize their furniture in a particular room. Lastly, sellers must price their homes realistically right out of the chute to avoid chasing the market down with a series of price reductions. It is wise to capitalize on the initial boost in demand within the first few weeks of a home appearing on the market.
How should a Buyer approach the market? During this slower time of the year, fewer people think about buying a home. However, if a potential purchaser can drag themselves away from all of the distractions of the holidays, this is the absolute best time of the entire year to be a buyer. Why? First, the sellers who remain on the market during the holidays will be extremely motivated to sell their home. Also, competition from other buyers is at its lowest point of the year. If a buyer is looking for a “deal,” the time is perfect. Yes, there will be a lot more homes coming on the market towards the end of January 2007 in preparation for the Spring, but there will be more competition and many sellers with unrealistic expectations again and much less flexibility. With this week’s release of lower inflation figures, rates have dropped. As a buyer it is best to be pre-approved upon entering the market. A pre-approval not only allows a buyer to ascertain the payment and price levels that they are comfortable with, it allows them to bring an offer onto a home locked and loaded with the ability to close an escrow. Bernanke and the Federal Reserve may lower the short term rate during the first quarter of 2007, which could spark a little more demand and further fuel seller rigidness in the coming Spring. Buyers also should look at purchasing as an OPPORTUNITY to own a home with the knowledge that an Orange County home is an excellent long term investment. After all, hasn’t the weather been incredible lately. Lastly, as a buyer, do not attempt to time the “bottom” of the market. Even for the economic experts, timing the bottom is next to impossible. In timing the market, a buyer risks sitting on the sidelines as the market’s opportunity passes them up.
The following areas have inventories of less than six months: Aliso Viejo, Anaheim, Buena Park, Cypress, Fountain Valley, Fullerton, Huntington Beach, Lake Forest, Mission Viejo, Placentia, Portola Hills, Talega and Westminster.
The following areas have inventories between nine and ten months: Dana Point, Ladera Ranch, Laguna Niguel and Orange.
The following areas have inventories greater than ten months: Corona Del Mar, Coto de Caza, Dove Canyon, Laguna Woods, Newport Beach, Newport Coast, San Clemente and all ranges above $1.5 million.
Have a fantastic weekend.