Informative insight from noted RE analyist Steven Thomas

Quantitative Economics and Decision Sciences, B.A.

President Altera Real Estate

Latest Update: 2/6/2011

Orange County Housing Report:  Flashback 2009

January 20, 2011

With the holidays and all of the torrential rains behind us, the Orange County housing market is beginning to thaw and it’s looking a lot like 2009 all over again.

An Accurate Gauge of Market Activity: Pending sales is a far better barometer of what is happening now versus closed sales.

I want to clarify my definition of demand.  I track demand as the number of new pending deals over the past month.  It is a snapshot of what is going on right now within the Orange County housing market.  Ask any buyer, seller or REALTOR® and they would all agree, it is the most accurate gauge on what they are experiencing in the trenches.  Many wonder why I don’t emphasize sold data.  After all, there are so many short sales that never seem to close and many homes fall out of escrow and are placed right back on the market.  As a matter of fact, about 19% of all escrows fall apart for whatever reason.  That’s 1 of 5.  Yet, sold data is not an accurate gauge of demand TODAY.  It tells us a story of what happened about 45 to 60 days back.  The market does not adhere to following what happened in the past.  Instead, it does whatever it pleases today.  Using pending sales over the past month tells us what buyers are willing to do most recently.  Every single buyer that enters escrow signed a purchase agreement with the intention to buy.  Entering into a pending sale with a short sale that requires lender approval may never close, but if lenders started coming back with immediate approvals, the numbers of sold homes would increase and the fallout rate would drop like a rock.  So, the sold data just does not tell enough about what is going on today.  Approach the market based upon sold data and you are going to get run over.  As the market takes off and heads into the spring market, pending sales are going to climb rapidly, while the sold data will be stuck in the past, a reflection of the holiday market.

Buyer Demand: Demand is revving its engine and is prepared to take off over the coming weeks.

Demand, the number of new pending sales over the prior month, increased by 10% in the past two weeks, adding an additional 194 homes, and now totals 2,154 pending sales.  That’s virtually identical to 2009 when it posted 2,146.  Last year, there were 393 additional pending sales, but everybody was poised to take advantage of the $8,000 first time home buyer tax.  From here, expect demand to continue to improve as the market prepares to enter the spring market, the strongest time of the year for Orange County housing.

The Active Inventory and Unrealistic Sellers:  this is not the market to test the waters with an unrealistic price.

This is my number one concern for the housing market in 2011.  2010 was plagued with unrealistic expectations of the housing market.  The inventory grew by 63% unabated for the first nine months of 2010.  Both sellers and banks overpriced their homes.  Most closed sales last year took place AFTER reducing their prices at least once.  A lot of homeowners were not successful at all and opted to take their home off the market during the holidays, throwing in the towel.  However, I have already heard anecdotal evidence from REALTORS® in the trenches stating that the same homeowner who pulled their home off the market during the holidays are getting ready to place their home right back on the market at the same unsuccessful price as before.  “The definition of insanity is doing the same thing over and over and expecting different results” (Rita Mae Brown).  Demand is not going to be much different than 2009, so expectations need to be realigned.  Homeowners should only place their homes on the market if and only if they must sell and are willing to do whatever it takes, in terms of price, to be successful.  Otherwise, what is the point?  In order to properly arrive at value, sellers need to painstakingly, methodically and carefully analyze the most current closed sales and pending sales.  The more time spent on arriving at the correct market value, the higher the probability of success.  Do not place too much emphasis on the active inventory.  It should be utilized only to gauge where your competition’s head is at.  Keep in mind, buyers really do not care about what sellers wish they could get for their home.  Sellers need to get rid of the concept of pricing their homes based upon what they want to net from the sale.  Today’s buyers are spreadsheet buyers, meaning they too are going to study the comparable and pending sales as they don’t want to overpay for a home. 

In the past two weeks alone, the active inventory added an additional 238 homes and hurdled right past the 10,000 mark, totaling 10,225 homes.  Last year at this time there were 2,545 fewer homes on the market.

Expected Market Time and the Upper Range Vs. the Lower Range:  the tale of two markets continues.

For Orange County as a whole, the expected market time dropped from 5.10 months two weeks ago to 4.75 months today.  As the market sheds its holiday coat and moves towards the spring, expect the market time to decrease substantially, especially in the lower ranges.  Below $1 million, the expected market time is at 4.3 months, technically a week seller’s market.  As the market time drops, buyers can expect multiple offers, a lot more competition and sales prices very close to their asking prices.  But, don’t expect appreciation even in what is technically a seller’s market.  The market is made up of too many distressed homes, which ultimately keeping a lid on appreciation.  For homes above $1 million, the expected market time is at 10.67 months, dropping from 12.77 months two weeks ago.  However, when an expected market time is in the double digits, 10 or greater, it is a deep buyer’s market with virtually no activity.  The upper range will improve a bit, but will remain sluggish throughout the year.

The Distressed Market: do NOT expect much to change with distressed homes; the last two weeks were no exception.

In the past two weeks the active distressed inventory, both foreclosure and short sales, dropped by six homes.  Not much has changed since last September, growing by only 78 homes, now totaling 4,117.  There are 724 foreclosures on the market, shedding 51 homes in the past two weeks.  There are currently 3,393 short sales on the active market with an expected market time of 3.62 months.  Expect the distressed inventory to slightly increase as the year progresses; nobody should be expecting a wave of new distressed properties.

Sincerely,
Steven Thomas
Altera Real Estate

President
"Pride Begins at Home”

Copyright 2011 - Steven Thomas, Altera Real Estate - All Rights Reserved.   This report may not be reproduced in whole or part without express written permission by author.

December 2010

HAPPY NEW YEAR!!!  Now what does that mean for Orange County Real Estate?

First, it is important to clarify that forecasting draws from historical data to predict the future.  The fact that forecasts from experts and leading academic institutions have been all over the map is indicative of the uncertainty of the current housing and economic environment.  At this point, those that predict the weather are doing a far superior job compared to economists.  Forecasting at this point is more of art than an exact science, but I have a pretty strong inclination that the market is not going to change that much.  It is going to be a lot more of the same with some minor tweaks.  Here’s how I think 2011 will unfold:

·         Demand:  unlike 2010, demand is going to follow a normal cyclical pattern.  Demand was HOT for the first half of 2010 due to the first time home buyer tax credit, and then it fell off a cliff for the second half without any government stimulus.  In 2011, there is not a government stimulus program to monkey with demand.  For the lower ranges, below $750,000, which accounts for 75% of the listing inventory, the market will become really hot quickly as we roll into the spring. On homes that are priced well, expect a lot of competition with multiple offers and purchase prices very close to their asking prices.  This market will remain hot until the market cools in the autumn.  For homes priced between $750,000 to $1.5 million, 15% of the active inventory, the market will heat up during the spring, just not as much as the lower ranges.  Pricing will be key, as this range tends to be too optimistic right when they first hit the market.  For homes priced above $1.5 million, 11% of the active inventory, the market will remain very cold with very little competition.  Price is absolutely everything in this range.  Unfortunately, this range is made up of the most unrealistic sellers.  The problem is that there are just way too many homes on the market all vying for a small pool of potential buyers. 

·         Pricing:  as pointed out above, there are three distinctly different markets in Orange County.  As a result, the expectations of pricing should be based upon each price range and not the market as a whole.  Regrettably, everybody hangs their hat on the reported median sales price as the best barometer of home values.  With three different markets, the median sales price, the middle value, is flawed.  In the lower ranges, we can expect very little change in pricing.  Keep in mind, that’s 75% of the market.  In some really hot areas, the market may even slightly increase.  Distressed properties, 49% of the active inventory in the lower ranges, will keep a lid on any real appreciation.  For the middle ranges, we can expect slight depreciation in prices.  But, with only 17% of this range distressed, the pressure on pricing is not that great.  In the upper ranges, distressed properties are not the problem, only 6%.  The problem is that there are just too many sellers and not enough buyers.  The higher the range, the slower the market.  Only those willing to aggressively price their homes will be successful.  The pressure on price is greatest in the upper ranges.  In this downturn, values in the lower ranges dropped like a rock almost overnight.  In the upper ranges, prices have been a lot stickier with fewer distressed homes and a lot more unrealistic homeowners.  In 2011, prices will be most volatile in the upper ranges.

·         The Active Listing Inventory:  the housing market in 2010 was marred by unrealistic homeowners overpricing their homes and sitting on the market.  Sellers with equity, sellers without equity and bank foreclosures all fell victim to overpricing.  Reports of year over year increases in the median sales price along with reports of tremendous activity and multiple offers mislead everybody in thinking that the market had finally turned.  There just are too many distressed homes, high unemployment and uncertainty of the future for values to rise.  Instead, buyers have become spreadsheet buyers, pouring over comparable and pending sales, unwilling to pay a premium in order to purchase a home.  In 2009, the active listing inventory dropped by 4,000 homes.  In 2010, the inventory blossomed, erasing all of the improvements from the year before.  In 2011, expect homeowners to have learned their lesson and only enter the market if they really have to sell.  The return of the discretionary seller will keep a lid on a rise in the active inventory.  This is fundamental to the overall health of the Orange County housing market.

·        
The Distressed Market:  even though the shadow inventory is real, do not expect a wave of distressed properties to hit the market.  It was two years ago that many were calling for a tsunami of foreclosures as the government was meeting with banks and the buzz of foreclosure moratoriums was in the air.  Yet, it never materialized.  There just were too many for the banks to liquidate all at once.  A flood of foreclosures would have eroded values even more, more banks would fail and the problem could have snowballed into something much bigger.  Ultimately, the banks and the government chose not to go that route.  Yes, there are a tremendous number of homeowners who have not paid their mortgages.  They just have not materialized as foreclosures.  Instead, there is a definite process.  Many attempt loan modification, which takes months for an answer.  Others try the short sale route, which also takes months for an answer, and can be very complicated to put together.  Still, there are others who choose to do nothing, and the banks have been slow to respond.  The bottom line, it takes a very long time for distressed properties to move through the system.  In the end, it will take years to work our way through the distressed backlog.  For 2011, we can expect more of the same, a slight methodical increase in the number of short sales and foreclosures, but no dramatic shifts.  Buyers should keep in mind that there is increased competition for distressed properties since all buyers are looking for a deal.

·         Interest Rates:  about a month ago, I thought the big surprise of 2011 was going to be a rise in interest rates.  It turned out to be the big surprise to the end of 2010.  Interest rates will still be the big surprise of 2011, with rates reaching the 6% mark.  There’s a ton of pressure on rates to increase.  An increasing deficit with the Fed printing money at warp speed, a government unwilling to cut spending, and no leader anywhere in the world willing to come up with a definitive game plan to get us out of this pickle, translates to mounting pressure on interest rates.  If anybody is in the market to buy, they should pencil out the sizeable increase in monthly payments when rates jump 1%.  It illustrates how taking advantage of low rates more than offsets any risk in falling values.   Unfortunately, not enough buyers shop for homes based upon monthly payments; instead, they focus on price.  It really should be the other way around with rates poised to increase.

·         Closed Sales:  in 2010, there were about 5% fewer residential resales compared to 2009.  For the first half of the year the artificial government stimulus made it appear as if the number of sales was going to rebound for the first time since the downturn began in the autumn of 2005.  After the stimulus ended, the market dramatically slowed and the market improvements and momentum faded.  In 2011, there will be very close to the same number of sales, just not as lopsided as 2010.   Instead, the market will follow a normal Orange County housing cycle:  a strong spring market, a slightly cooler summer market, an even cooler autumn market and then the slowest time of the year, the holiday market.

Overall, it looks as if 2011 is going to be a lot like 2010.  As a society, the American people are getting all caught up in forecasts and numbers.  But, when it comes to housing, we are talking about a place to call “home.”  There needs to be a return to finding the right place to call home for years, if not decades.  In the past decade, we got caught up in taking out 30-year loans only to refinance every few years, or sell and purchase another, and another.  It is time to return to carefully isolating the perfect “home” that best fits our needs, lock in the best interest rates in years, and enjoy life in one of the best places to live in the country.  Historically, in the long run, a home is a great investment, especially in Orange County.

Happy New Year!

Sincerely,
Steven Thomas
Altera Real Estate

President
"Pride Begins at Home”

Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved.   This report may not be reproduced in whole or part without express written permission by author.

November, 2010

It is the time of the year to reflect and give thanks.  Regarding the Orange County housing market, there’s still a lot to be thankful for.

Thanksgiving Reflection:  Even though the housing market is extremely frustrating, there is plenty to be thankful for.

I am thankful that lenders are approving short sales and that they are closing.

That’s right.  I am thankful that lender approval is eventually bestowed upon some short sales, enabling homeowners to escape the nightmare process of selling their underwater homes.  I think everybody can agree, including the lenders, that they are still falling way below the bar in terms of making a decision in a reasonable amount of time.  There is tremendous room for improvement.  The average number of monthly closed short sales this year is 574.  Yet, there are 3,045 pending short sales.  Most short sales take months for an answer.  And, the more complex the short sale, second liens, unpaid homeowner association dues, unpaid property taxes, and mortgage insurance companies, the longer and more challenging it is to successfully close the sale.   Yet, I am thankful that some short sales are closing.  Lenders are allowing upside down homeowners in dire straits to move on.  In turn, they obtain a home typically in better condition and save a lot more money compared to the alternative, foreclosure.

I am thankful that real estate agents are still selling homes despite the tremendous obstacles and frustrations in this market.

Despite misguided public perception, real estate agents in today’s market work ten times harder than any modern era real estate cycle and are paid much less compared to the boom years.  Throw on top of that no change in the agent population locally here in Orange County despite the downturn.  Here are some of the obstacles they face:  tremendous competition, extremely tight credit, short sales that take forever to close, frustrated buyers, sellers in unfortunate situations, and unrealistic expectations of buyers and sellers.  Yes, this market has been extremely frustrating, but real estate agents continue to pick themselves up and take great care of their buyers and sellers.

I am thankful that unrealistic sellers are finally figuring it out: if they don’t drop the price, they must pull their home off the market and stop wasting everybody’s time.

 The listing inventory blossomed this year, growing from 7,165 homes at the beginning of the year until it peaked in mid-September at 11,892 homes.  That’s an increase of 4,727 homes, or 65%.  Since peaking, the listing inventory has shed 1,056 homes, or 9%.  Unfortunately many homeowners were extremely unrealistic in their expectations of the housing market.  They heard about year over year increases in the median sales price, buyers competing to buy homes, multiple offers, and sales price at or above their asking prices.  They did not realize that buyers in the most competitive markets were only willing to pay a few thousand dollars above the last asking price, NOT thousands upon thousands of dollars more.  Buyers are spreadsheet buyers, meaning they will pour over comparable and pending sales data to arrive at a comfortable price.  So, many homeowners placed their homes on the market overpriced and waited and waited with no results.  Most homes on the market had to decrease their prices to achieve success.  For those unwilling to reduce their asking prices, pulling their homes off of the market is the only other alternative.  Distressed properties are keeping a lid on any appreciation.  There are still many homeowners that remain on the market at unrealistic levels; however, I am thankful that many of them will be continuing to pull their homes off as the Holiday market progresses. 

I am thankful that the market is theoretically a seller’s market, based upon the expected market time.

For a seller’s market, the expected market time must be less than five months.  At its best this year, the expected market time dropped to 2.53 months in mid-May.  It is currently at 4.02 months, still a seller’s market.  But, with so many distressed listings, there is very little appreciation, if any.  As long as Orange County’s expected market time indicates a seller’s market, prices will not depreciate.  And, it looks as if 2011 is poised to be a seller’s market as well, great news for values.

Active Listing Inventory:  The listing inventory continued to drop, shedding 3% in just two weeks.

The active listing inventory continued its decent, dropping 589 homes over the last month, now totaling 10,836.  That’s a 5% drop in just four weeks.  Many unrealistically priced sellers are starting to realize that throwing in the towel is their best option.  Last year at this time there were 3,181 fewer homes on the active inventory compared to today. 

Demand:  Demand continued its trend of not changing

In the past month, demand, the number of new pending sales over the prior month, increased by 21 homes, virtually unchanged.  Last year at this time demand was at 3,038 pending sales, fueled by a first time home buyer tax credit that was expiring at the end of November 2009.  

Foreclosures and Short Sales:  It seems as if the plateau in distressed homes on the market has continued.

The active distressed inventory increased by only 40 homes over the past month and now totals 4,101 foreclosures and short sales.  The distressed home market is not changing much, adding less than 1% in the past month.  It is apparent that the distressed inventory has hit a peak for the year.  The distressed inventory now represents 38% of the current active inventory.  Last year at this time, there were 2,496 distressed homes on the market, 1,605 fewer than today.  The number of foreclosures within the active listing inventory increased by 17 homes in the past two weeks, from 719 to 736.  The expected market time for foreclosures is 1.61 months, an exceptionally HOT seller’s market.   Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 20 homes over the past two weeks and now total 3,365.  The expected market time for short sales is 3.62 months, not as hot as foreclosures, but better than the Orange County housing market as a whole.

Happy Thanksgiving!

Sincerely,
Steven Thomas
Altera Real Estate

President
"Pride Begins at Home”

Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved.   This report may not be reproduced in whole or part without express written permission by author.

October 2010

Orange County Housing Report:  A Spooktacular Time to Buy

As the goblins, ghosts and zombies scurry from door to door in their quest for sacks full of candy, housing transitions to the Holiday market, the best time of year to buy.

The Holiday Market:  From Halloween through the first few weeks of the New Year, it is the perfect time to buy.

On November 1^st we quickly transition into the Holiday season as we are bombarded with festive jingles prompting us to purchase gifts for our loved ones.  With all of the election hoopla just about over as well, people can’t help but divert their attention to the wonderful distractions of the holidays.  Housing is no different.  Many buyers sit on sidelines and enjoy the season, only to resume their search just after they forget about their New Year’s resolutions.  This is the time of year when housing demand drops, the expected market time climbs and competition wanes.  Sellers get it as well.  Many have been on the market for months and just don’t want to market their homes during the holidays.  Others come to the realization that they may have been unrealistic in their expectations of the market and inadvertently overpriced their homes.  This is the perfect time to throw in the towel and pull those overpriced homes off of the market.   Typically only the really motivated sellers who have to sell remain on the market.  With less competition, low interest rates and motivated sellers, it is a great time to be a buyer.  As 2011 rolls along, typically right after the Super Bowl, the market will transition into the Spring market, cyclically the best time of year for Orange County real estate marked with strong demand.  If a buyer is looking to buy, ‘tis the season to purchase now!

The Tale of Three Markets:  That’s right; there are three distinctly different markets.

Earlier in the year, there were two distinct markets: homes priced below $1 million and homes priced above the same threshold.   The lower ranges were red hot and the upper ranges were ice cold.  With the housing market transitioning into the Holiday market, there are now three distinct markets: homes priced below $750,000, homes priced between $750,000 and $1.5 million, and homes priced above $1.5 million.  We now have a hot, a lukewarm and an ice cold market.  For homes priced below $750,000, the expected market time is 3.57months.  This range represents 73% of all active listings and 87% of demand.  Buyers can expect increased competition, a higher chance of multiple offers, and sales prices close to their asking prices.  Prices are stable within this range.  For homes priced between $750,000 and $1.5 million, the expected market time is 6.37 months, a slight buyers market.  This range represents 16% of the active inventory and 11% of demand.  Buyers can expect little competition and a bit of flexibility on behalf of the sellers, but prices are pretty stable, especially below $1 million.  For homes priced above $1.5 million, the expected market time is below freezing at 20.57 months.  This range represents 12% of the active listing market, but only 2% of demand.  Buyers can expect no competition and a lot of pressure on pricing.  The problem with this range is that there is a battle between seller stubbornness and market reality.  Most sellers at this level are nostalgic and ignore market fundamentals, unrealistically overpricing their homes. Many are substantially overpriced and still very unwilling to budge off of their prices.  They forget that buyers no longer buy on a whim, especially with too much supply.  Buyers are strategic and approach purchasing very carefully.  There is tremendous pressure on pricing in the upper ranges because prices have been a lot stickier and have not fallen yet as much as the lower ranges.  They were a bit late to the party.  It is basic supply and demand.  There are way too many sellers and very few buyers.  Specifically, there are 1,337 homes above $1.5 million and only 65 homes placed in escrow over the past month.  The probability of success is very low.  Motivated sellers priced realistically and able to patiently wait for the right buyer should stick it out.  Everybody else really should just pull their homes off of the market.

Active Listing Inventory:  The listing inventory continued to drop, shedding another 1% in just two weeks.

The active listing inventory continued its decent, dropping slightly over the last two weeks by 68 homes, now totaling 11,425.  Last year at this time there were 3,676 fewer homes on the active inventory compared to today.  It appears as if the active listing inventory will start 2011 with more homes than the beginning of this year, but still will end up being the second best start in five years.

Demand:  With the Holiday market upon us, demand started its descent.

After a non-cyclical increase in demand two weeks ago, demand, the number of pending sales over the prior month, dropped by 119 pending sales since then, or 4%, and now totals 2,652.  Last year at this time demand was at 3,166 pending sales, fueled by a first time home buyer tax credit that was expiring in November 2009.  

Foreclosures and Short Sales:  In the past six weeks, the active distressed inventory increased by only 35 additional homes.

The active distressed inventory increased by 31 homes over the past two weeks and now totals 4,061 foreclosures and short sales.  The distressed home market is not changing much, adding less than 1% in the past two weeks.  It is apparent that the distressed inventory has hit a temporary peak for the year.  The distressed inventory now represents 36% of the current active inventory.  Last year at this time, there were 2,389 distressed homes on the market, 1,672 fewer than today.  The number of foreclosures within the active listing inventory dropped by 32 homes in the past two weeks, from 720 to 688.  The expected market time for foreclosures is 1.67 months, an exceptionally HOT seller’s market.   Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 63 homes over the past two weeks and now total 3,373.  The expected market time for short sales is 3.39 months, not as hot as foreclosures, but better than the Orange County housing market as a whole.

Have a wonderful weekend.

Sincerely,
Steven Thomas
Altera Real Estate

President
"Pride Begins at Home”

Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved.   This report may not be reproduced in whole or part without express written permission by author.

August 2010

Orange County Housing Report:  A Normal End of Summer Cycle

August 19, 2010

Now that Summer is winding down and “back to school” shopping is in vogue, the real estate market is following a normal pattern for this time of year.

Active Listing Inventory: The unabated growth has slowed but still hasn’t reached a peak

The Orange County inventory continued to grow over the past couple of weeks, adding an additional 236 homes and now totals 11,650.  This is the highest level since December 2008.  With school starting, many homeowners realize that the best time of year to sell has passed them by.  As more and more sellers come to grips with the market realities, expect many of them to throw in the towel and pull their homes off the market.  There are a lot of equity sellers on the market, nearly 7,900 or 68% of the active market.  Many of these sellers will opt to sit out the Autumn and Holiday markets.  Last year at this time there were only 8,531 homes on the market, 3,119 fewer than today.

Expected Market Time:  The tale of two markets continues and the higher ranges are SLOW.

For homes priced below $1 million, the expected market time is 3.34 months.  This range represents 80% of the active inventory and 93% of demand.  For homes priced above $1 million, the expected market time is 10.48 months, the higher the range, the slower the expected market  time.  This range represents 20% of the active inventory, but only 7% of demand.  The slowest range, homes priced above $4 million, has an expected market time of 26 months.   The hottest market in Orange County is Talega with an expected market time of only 2.22 months.  The slowest market in Orange County is Corona del Mar with an expected market time of 11.5 months and an average list price of $3.5 million.  Last year at this time the expected market time was 2.43 months.

Housing Demand:  Not much of a change in housing demand.

Demand, the number of new pending sales over the past month, increased by only 30 homes in the past two weeks, a 1% increase, and now totals 3,002.  That is the first time that demand surpasses the 3,000 mark since the beginning of July.  That is still 25% below the end of April peak that totaled 3,979.  Last year at this time demand was at 3,506 pending sales, 504 more than today.  From here, we can expect demand to slowly drop as we enter the next season of the Orange County housing market, the Autumn market, from the start of school through the pleas of “trick or treat.”  From there, housing demand will cool further as we enter the Holiday market, from Halloween through the first couple of weeks of the New Year.  There are a lot of distractions during the holidays and real estate typically is placed on the back burner. 

Foreclosures and Short Sales:  The distressed inventory continues to grow at a very rapid pace.

There really isn’t a “normal cycle” for predicting the level of the distressed inventory throughout the year.  When homeowners owe more than their homes are worth and they can no longer afford their monthly payments, they place their homes on the market as short sales regardless of the time of year.  Likewise, banks place foreclosures on the market after they have completed the foreclosure process and prepared the homes for sale.  This process takes months to complete, so foreclosures are placed on the market regardless of the time of year.  We are all acutely aware that there is a “shadow inventory” of homes that are not making their monthly payments and are either attempting to modify their loans, or are trying to sell their homes as short sales, or are staying put and doing nothing.  According to various reports the “shadow inventory” totals between five and seven million homes.  This shadow inventory has to be worked through, but is not going to occur as a tsunami of distressed properties to hit the market all at once.  Instead, we are going to witness slow increases and drops over the next few years.  This slow absorption will not pull down values like it did at the beginning of this downturn and it will keep a lid on any substantial appreciation.  Once employment improves, the pathway to an eventual healthy and stable recovery will occur.  The distressed inventory increased by 182 homes in the past two weeks, the largest increase since December of 2008, and now totals 3,757 homes.  Foreclosures increased by only 6 homes in the past two weeks and now total 659.  The expected market time for foreclosures is 1.82 months.  There are an additional 176 short sales in the past two weeks and now total 3,098.  The expected market time for short sales is 2.99 months.

Altera Real Estate
"Pride Begins at Home”
www.AlteraProperties.com

Copyright 2010 - Steven Thomas, Altera Real Estate - All Rights Reserved.   This report may not be reproduced in whole or part without express written permission by author.

___________________________________________________________

How should a buyer approach this market?  Most buyers have the wrong expectations in approaching the Orange County real estate market.  Everybody is acutely aware of the current global recession caused by the financial crunch, so it is understandable that today’s buyers want a deal when buying a home.  However, buyers fail to consider two important aspects of the current real estate market: there is tremendous demand for lower priced homes and distressed properties; and, today’s asking prices already reflect a major drop in value.  Prices have reached much more affordable levels just as interest rates have dropped to historical lows, the end result, demand not seen prior to the current downturn.  So, buyers need to take a litmus test of the market that they are interested in.  Buyers can expect multiple offers and even above asking price sales prices for homes priced below $500,000 and distressed homes.  The market has heated up considerably for homes priced between $500,000 and $750,000 as well, with an expected market time of 2.49 months.  The market is much stronger between $750,000 and $1 million too, with an expected market time of 4.95 months, considered a market in equilibrium.  The incredibly hot demand has been underreported and most buyer have to learn the hard way before getting realistic, writing offers below the asking price and losing out on a property or two.  Another reality of the current marketplace is the number of hoops lenders will put you through in funding a loan.  Buyers will not only put together the initial loan package; more often than not, the lender is going to request additional paperwork during the pending sale process.  As of May 1st, the government imposed an additional hurdle which will change the appraisal process.  This new process has a very high potential in delaying the close of a pending sale.  It is my humble opinion that these additional hurdles are necessary, but should be postponed until the market has healed.  It is easy for politicians to make headlines and change the way lending and appraising is processed in the midst of a downturn, but the real fixes need to come when the market is moving on all cylinders.