Here it is! The latest market time report. As always, if you're looking to buy or sell a home in Orange County, PM me and let's talk!
Market Time Report: Shifting Gears
January 25, 2007
The Orange County real estate market is beginning to rev its engine as demand begins to rise. In the past two weeks the number of homes placed into escrow within the prior 30 days, demand, increased by an additional 434 homes to 1,930. This is just the beginning of increased demand. We can expect demand to increase to about 2,500 homes by mid-February and almost 3,000 by March. The active inventory, in the past two weeks, increased by 252 homes to 11,895. The market time dropped from 7.78 months two weeks ago to 6.16 months today. As demand picks up, we can expect market time to continue to drop. The market time will then plateau at the end of February as more and more sellers place their homes on the market in anticipation of the Spring selling season, cyclically the best time to sell. The buzz around our offices is that activity is definitely way up compared to the extremely slow Holiday market. The holidays are officially behind us. For proper perspective, the market time one year ago today was at 3.91 months. The number of homes placed into escrow within the prior 30 days was only an additional 131 homes or 2,061 escrows. But, the active inventory was at 8,068 homes, 3,827 fewer than today.
The difference between the detached home market and the condominium market has narrowed substantially, as has the number of vacant listed properties. For detached homes, the market time decreased from 7.27 months two weeks ago to 5.99 months today. The number of vacant, detached homes actively on the market dropped from 26.3% to 24.8%. For condominiums, attached homes, the market time drastically decreased from 8.6 months two weeks ago to 6.39 months today. That is a tremendous change in such a short period of time. 34.9% of all active condominiums on the market are vacant today compared to 35.6% two weeks ago.
What can we expect in the coming months? The kickoff of the Spring market officially begins after the kickoff of the Super Bowl. Demand continues to rise and stay at an elevated level throughout the Spring. At the same time, more and more sellers opt to place their homes on the market in anticipation of a great market. Unfortunately, we already have close to 12,000 homes currently on the market and the Spring surge is just beginning. The active inventory could rise to the 2006 height of 16,000 homes by May. The market time during the Spring should drop to a level of around five months, not a buyers nor a sellers market, jus equilibrium. Demand in 2007 will closely resemble demand in 2006. From June through August, the Summer market, demand will decrease slightly as more and more sellers enter the market. The active inventory could reach a height of 20,000 homes. Market time will most likely rise during the Summer months.
How should a seller approach the market? Sellers need to price their homes to sell. Pricing according to the market value of a home is crucial. Market value can be determined through careful analysis of the MOST RECENT comparable sales and homes already in escrow. Sales older than 90 days become stale. The further back a comparable sale, the less reliable the data. Although a few homes will sell immediately, Sellers should pack their patience and expect the process to take several months. Remember, there are 12,105 homes currently on the market and 1,930 homes placed into escrow within the prior 30 days. Based upon current demand, 9,965 sellers will not be successful over the course of the next month. Also, sellers should NOT expect a spectacular Spring market. The market will be good, but there will also be a lot of competition. The presentation of a home is also very important. Homes that are dark with all of the blinds shut and lights out, beds unmade and dishes in the sink make it very difficult for a buyer to get excited. On the other hand, if a home shows like a model, with all lights on, soft music playing in the background, clean from top to bottom and all excess clutter boxed up and placed into the garage, a buyer has a much easier time envisioning moving in. With a lot of competition, the home that is priced well and in great condition has a much better chance of achieving success. Sellers should address cosmetic fixes that make a difference in net value, where buyers tend to overvalue the cost to repair or replace. Examples of cosmetic fixes are exterior and interior paint, carpet, cracked sinks, a light fixture that does not work, a leaking roof, etc.
How should a Buyer approach the market? The market will quickly move towards equilibrium right after the Super Bowl. The pressure on price will ease, so buyers need to be careful. That does not mean that the market will move towards the norm of multiple offers. Instead, there will be plenty of choices, just not tremendous flexibility in price. It is imperative for a buyer to understand the market that they are working with. For example, the $500,000 to $750,000 price range for detached homes is currently at 4.81 months, a slight sellers market. As we move further into Spring, the inventory for that range could drop further where the chances of more than one interested buyer rises. In any range, it is important to ascertain the motivation behind the seller’s desired move. For example, a longer escrow may be more important to a seller than a higher price. In negotiating, market value can be established by carefully scrutinizing the most recent sales and escrows. Bernanke and the Federal Reserve are most likely not going to touch interest rates for the first half of 2007. Economists and experts alike disagree on the direction rates will go, up or down. The safe bet is that they will remain the same until something significant occurs to the overall American economy. Buyers should not attempt to enter the market at the “perfect time.” Forecasting the next run-up in appreciation is next to impossible. The experts only know that the market has changed, after the change has already occurred. The safe bet is that a home in sunny Southern California is, historically, a fantastic long term investment.
The following areas have inventories of less than five months: Aliso Viejo, Brea, Cypress, Fountain Valley, Fullerton, Huntington Beach, Mission Viejo, Placentia, Rancho Santa Margarita and Yorba Linda
The following areas have inventories between eight and ten months: Anaheim, Coto de Caza, Laguna Beach, Laguna Woods, San Clemente, Santa Ana and $1.5 million and $2 million.
The following areas have inventories greater than ten months: Canyon Areas, Dana Point, Dove Canyon, Newport Beach, Newport Coast, Portola Hills, Talega and all ranges above $2 million.