Straight Digs

Photo by Steven Damron

Orange County home prices have gone up for six straight months as of the end of November 2009 according to the nationally recognized S&P/Case-Shiller Home Price Indices.  The Indices indicate that nationally price declines have been lessening and in particular highlight the Los Angeles/Orange County area:

” . . . there are still some markets that continue to improve month-over-month.  Los Angeles, Phoenix, San Diego and San Francisco have seen prices increase for at least six consecutive months.”

These Indices generally have a delay, which is why we are now getting November information.  These Indices have also tended to show lower price increases than sources that use median price as a measure, so they are a more conservative indicator of where the market is.  For example, Dataquick shows that as of the end of December, prices were up over 10% from the year before based on median prices.

Photo by bark

Lansner on Real Estate, the Orange County Register’s housing blog, just wrapped up its recent Eyeball 2010 series.  In Eyeball 2010, guests forecast the 2010 housing market.  Here were the results:

1.  The usually bearish readers of the blog did not surprise, the plurality voting that prices would be down 10% or more in 2010.

2.  Cal State Fullerton chimed in with a prediction of a 3% rise in prices.

3.  Beacon Economics predicted prices will be flat.

4.  Homebuilder adviser John Burns didn’t make a prediction, but had some interesting thoughts on how we are measuring prices.

5.  The Building Industry Association guessed a 3-5% rise in median price.

6.  Housing development advisers, The Concord Group, got specific with its flat prediction of 0% gain.

7.  The Orange County Association of Realtors’ President was the first to go decimal with a 4.5% increase.

8.  Homebuilder consultant Mark Boud provided a forecast for three years, 2.1% in 2010, 4% in 2011, and 8% by 2014.

9.  Altera’s broker suggests next year’s 5% increase in median price will be due to more homes selling in the high-end (which he suggests is over $1 million), because high-end home pricing will come down.  This was the best analysis we found of where the market has been and where it could go.

10.  The “self-described evangelist of real estate optimism” and real estate broker, Gary Watts, hedged at a no more than 3% gain.

10.  Brookfield Homes predicted a 4.9% gain.

11.  “Ask a Realtor” columnist and agent, Lesslie Giacobbi put her guess at 3%.

12.  Research firm, Real Data Strategies set the gain at 4.5%.

13.  Pacific West Association of Realtors president doesn’t think there is any question that prices will increase and guessed the increase would be 7.5%.

14. First Team (Yay!) executive says overall 6% gain, but could be 10% in the low-end.

15.  Broker Glenn Hellyer comes in at a 5% increase.

16.  Condosetc.com said condos would increase 8% this year.

Our Magic-8-ball says it will continue to be impossible to predict exactly where the Orange County housing market is going in 2010, but whatever direction it goes, homes will continue to be bought or sold because of buyers and sellers “needs” more so than the direction prices are going.

Photo by emdot

Is the media calling the Orange County housing bottom?  Here is a summary of recent news articles from the Orange County Register on the housing bottom over the last month:

October 7, 2009–The California Association of Realtors said home prices hit bottom early 2009 and forecasts that the median home price will rise 3.3% next year.

October 14, 2009–Prices and sales rose together, year-over-year, for the first time since September 2005.  15th consecutive month with year-over-year sales gains.

October 20, 2009–Aliso Viejo is the hottest housing market in Orange County with a market time of 1.2 months to sell all current inventory.  For all of Orange County, market time is down to 2.4 months from 4.76 months a year ago.

October 24, 2009–September national home sales had largest increase in 26 years and jumped 13% in the West.  Deutsche Bank chief economist calls the bottom.

October 28, 2009–Three Orange County cities, San Juan Capistrano, Lake Forest, and Tustin, are in state’s Top 10 price gainers in September.

October 29, 2009–UCLA economists project Orange County median price to rise next year by 15.9% to 16.6%.  Projected price increases to be smaller 2011-2015.

November 4, 2009–Expected market time for Orange County short sales is 56 days compared with 7 months a year ago.  Bank owned homes current inventory is just 21 days.

As with the housing peak, no one is going to perfectly call the housing bottom and no one can predict the future.  However, today the Orange County housing market is moving in the right direction, as reflect in the media reports.  If it continues, we will see price and sales increases in the future.

Photo by Jurvetson

Orange County, California and its surrounds was the epicenter of the mortgage earthquake that hit over the last few years and sent housing (and some say the entire economy) into a tailspin.  We seemed to be ahead of the national curve in terms of price drops during this time.  If we were the first area to drop in prices, will we be the first to “bottom”?  And has that time arrived?

Well, according to the Associated Press, the bottom is here or has past.  The multiple offers we’re experiencing on most homes in this area are not unique.  The same activity is happening in other hard-hit areas like Vegas and Phoenix.  From the beginning of the year, nationally and in Orange County, sales are up and prices are up.  Foreclosure activity still abounds and unemployment is still high, but the multiple offers and low inventory suggest that the market can bear an increase in inventory if that happens.

When an individual calls the bottom of the market, it’s easy to write it off as overly optimistic or, at best, educated guesswork.  But, when the national media start calling the bottom, it is time to start taking notice.

Photo by David Nathan Cox

Dataquick confirmed last week what we already suspected in the field, that Orange County home prices were at an 8-month high in June.  Sales were up over 16% from last June and while prices were down from last June by 11%, they were at their highest point since last October.

A few things to consider when digesting the rise in prices:

First, prices typically rise at the beginning of the year.  The natural ebb and flow of median prices is that they rise in the first half of the year and decline or stay flat in the second half of the year.

Second, last year prices fell at the beginning of the year.  That means this year is definitely better than last year in terms of price direction.

Finally, in the field what we are seeing is that up to $500,000 it is a sellers market.  Not in the sense that a seller can get 2007 or 2006 prices.  But, it is a sellers market in the sense that if a home is priced at the last comparable sale, it will almost certainly receive mutliple offers, and may get a higher price.

Photo by jspatchwork

Just over a dozen homes sold out within hours of being released in Irvine’s Woodbury East neighborhood this weekend.  The homes were two to three bedroom townhomes priced starting at $349,990.   Crowds started lining up hours before the homebuilder opened.

This is another example of how brisk the starter market is in this area.  Multiple offers in the below-$500K range is the norm.  Many are won by cash buyers.  It was only a matter of time before Orange County news started reporting the high level of activity in today’s marketplace.

To our client who jokingly asked us if we could do something about Woodbury’s high prices–not this week.

Photo by Chicagos Caesar

We get an uneasy feeling when describing to a new client what the current market is like.  It is hard to convey that in this so-called “buyers market” they will probably compete in multiple offers on every home they offer on. That is, assuming they are buying in the starter range up to $500,000, which is where most of the buying activity is these days.

So it comes as no surprise to us, though it may to those new to the market, that a Garden Grove bank-owned home recently garnered 135 offers.  Don’t get us wrong, 135 is a big number.  Too big.  The bank/agent created a lot of work for themselves underpricing it that much.  Recent comparables sales in Garden Grove sold for between $450,000 and $525,000 so pricing it in the $300,000’s just created a lot of work for everyone.

But here is the thing: most of the offers we have written this year have been on properties with multiple offers.  The skeptic in us says, “maybe the listing agents are just saying they have multiple offers.  Maybe they’re bluffing.”  Problem is, that while we are closing some of them, some of them . . . too many . . . are closing without us.   It’s not a bluff.

Scary anecdote part II, increasingly “all cash” buyers are winning the multiple offer game.  There were 25 “all cash” buyers on the above-mentioned Garden Grove home.  With banks wanting a sure thing, they are often willing to accept less for an “all cash” buyer whether it is for a bank-owned home or for approval on a short sale.  We have represented some of those “all cash” buyers this year and have seen first-hand that in that position you are in the driver’s seat in this market.

If you or someone you know is in the market to buy now, hang on, because eventually you will win one of those multiple offers.  And if you find a home you like without multiple offers at a good price, run don’t walk to offer on it.

Photo by Tony the Misfit

Orange County housing inventory is relatively low right now.  Trendgraphix shows that as of May 2009, there were 11,694 homes for sale in Orange County.  That is the lowest that number has been in over three years (February 2006). 2006 is generally considered the peak of the Orange County market.

Some parts of Orange County are experiencing extremely low inventory.  Aliso Viejo, for example, had 263 homes for sale in May according to Trendgraphix, also the lowest since 2006 (January), but that number is just over the number for May 2005 when the market was booming.

Why is inventory so low?

Low prices are a key factor.  Prices declined dramatically in 2008, but have been stable all this year.  The median price has held steady from January through May.

Low interest rates.  Rates were as low as 4.75% for a while driving a lot of buyers on the fence into the market place.   Despite a recent rise in rates, they are still below 6% for conforming loans (up to $729K) and that has helped keep a lot of buyers buying.

Fewer short sale properties.  Short sales continue to pop up especially in the under $500,000 range.  However, many homeowners are electing to try loan modifications to save their homes rather than short sales or foreclosures.

Fewer bank-owned homes.  Rumor has it that banks that have foreclosed on homes are holding on to those homes and slowly releasing them on the market to keep demand up for their homes.  This is the so-called “shadow” inventory theory.  Makes sense to us, though carrying costs will catch up to the banks eventually.  We can’t remember a bank-owned home that did not get multiple offers recently.

Fewer equity sellers. Equity sellers are getting a premium over distressed sales these days, because they can be easier sales and because there are so few of them.  Homeowners who are selling these days have a need (growing family, job change, etc.) rather than just wanting to sell to get money out.

Photo by ark

You may read reports in tomorrow’s news that the Case-Schiller home price index showed a record decline in the United States for the first quarter of 2009.  Overall, prices were down in the U.S. by over 19% in this year’s first quarter.  In the L.A. area, including Orange County, prices were down about 22% from last year and 41% from the peak in 2006.

The Case-Schiller index measures this year relative to last year.  In our opinion, almost all of the decline for Orange County for this index probably occurred in 2008.

Trendgraphix, a company that compiles MLS data for Orange County, shows that locally prices per square foot declined 22% in 2008 and since have declined 3%, all of that decline in the first two months of the year.  The corresponding chart is below:

It is important when reading reports on the housing market to check what is being measured.  If it is not your local market, it may not apply.