Distressed Sales: Foreclosures and short sales combined only account for 4% of the active listing inventory.
Foreclosures and short sales have a much smaller roll in today’s Orange County housing market. In February 2012 they made up 47% of all closed sales, 29% were short sales and 18% were foreclosures. Flash forward to today and they are only 15% of the market, 11% short sales and 4% foreclosures.
The market has been in transition since the first quarter of last year. There was a palpable shift away from distressed properties. Instead, standard sales, regular homeowners with equity in their homes, entered the mix. They chipped away at the distressed inventories grip on the market, and properties began to appreciate.
Banks had been in control of the market until the shift. They sold foreclosures, controlling the pace and price of these bank owned homes. Short sales, where the homeowner owed more to the bank than their homes were worth, relied upon the approval of the bank to allow the sale to even take place. They had to agree to take less than the full loan amount in order for sales to close. Again, they controlled the pace and price of these homes. That is no longer the case, as standard sales have made a very strong comeback.
Do not get me wrong, there are still many homeowners who have not paid their mortgages in a very long time. Loan modifications, short sales, and foreclosures will still play a role in the Orange County housing market for the next two to three years, but they will no longer define housing. They have gone from the “best actor” to “best supporting actor” in the OC housing drama.
The data illustrates the evolution in the market. One year ago, distressed accounted for 19% of the active inventory, 206 foreclosures and 912 short sales. Today they represent only 4% of the market, 50 foreclosures and 119 short sales. That’s an 85% drop in a year.
Demand, the number of new pending sales over the prior month, is currently at 3,056 and only 422 are distressed, 14%. For buyers waiting around for a short sale “deal,” or better yet, a foreclosure “deal,” they are in for tremendous competition and a very high probability of coming up empty handed. Multiple offers are the norm and they fly off the market in what feels like an auction where the winner goes to the highest bidder.
Within the past two weeks, the distressed inventory dropped substantially by 19%, matching the largest drop of the year back in February. There are 40 fewer distressed sales on the market and it now totals 169 foreclosures and short sales in all of Orange County.
In the past two weeks, the foreclosure inventory decreased by 19 homes and now totals 50. With 35 incorporated cities in Orange County, that’s roughly 1.5 foreclosures per city, a far cry from an average of 40 foreclosures per city back in November 2008. The expected market time for foreclosures is 15 days. The short sale inventory decreased by 21 homes in the past two weeks, totaling 119, and has an expected market time of 11 days. The distressed market remains THE hottest segment of the Orange County housing market.
Active Inventory: The inventory continues its unabated rise, adding an additional 123 homes in just two weeks.
Since mid-March, the inventory has put on a little weight, adding an additional 716 homes, a 22% increase. In just the past two weeks alone, the market has expanded by 123 homes and now sits at 3,899, knocking on the door of 4,000, a level last seen in November 2012. The increase is an about face after falling for 18 months straight, dating back to June 2011. It bounced along the bottom for a few months before starting its continuous ascent in March.
Last year at this time, there were 1,928 additional homes on the market, totaling 5,827. The current level remains extremely anemic; however, it is finally moving in the right direction. Unfortunately, it is on the backs of overpriced, unrealistic “knuckleheads” who think their homes are worth way more than the market reality. This is very common in a rapidly appreciating marketplace. The mass appreciation has invited many homeowners to the banquet where pricing is based more upon a whim or what a seller needs than the correct fair market value.
From here, expect the inventory to continue to blossom as more and more unrealistic homeowners test the market. When summer is over, these sellers will have a decision to make, reduce their asking prices or throw in the towel and stop wasting everybody’s time.
Demand: Demand remained nearly the same, adding only 18 pending sales in two weeks.
The distractions of graduation and wrapping up the school year have stalled any increase in demand, the number of new pending sales over the prior month. In the past two weeks, demand has increased by 18 pending sales and now totals 3,056, a 1% increase.
With so many more standard sales, there is another major difference in the housing market today compared to the past several years: standard sales close and they close a lot faster than distressed homes. There are far fewer obstacles to closing standard sales, in comparison. On average, only 50% of pending short sales were closing and they had made up a large part of demand. Even though there were willing and able buyers and sellers, they simply could not close the sale with too many hurdles in the way. It is hard to compare today’s demand reading to last year where there were 645 additional pending sales, because there were just too many short sales in the mix. Demand may have been at 3,701, but 1,274 were short sales, many of which never closed. Today’s demand reading is a closer reflection of the number of sellers who are able to actually successfully close a transaction.
