The Orange County housing market is suffering due to the abundance of distressed sales. Prices are down 3.8%, and the volume of distressed sales shows no signs of decline.
One - Something's got to give Two - Something's got to give Three - Something's got to give Now Let the bodies hit the floor Let the bodies hit the floor
Push me again This is the end
Drowning Pool -- Bodies
The government is determined to prop up the zombie banks and the dead housing market. We would all be much better off if they simply let the bodies hit the floor and cleared the market
Market insiders had envisioned that the housing market would be well on its way to recovery by now.
No market cheerleaders and fools envisioned the housing market would be recovering by now. Thoughtful observers reasoned there were too many factors conspiring against higher prices and sales volumes for any market recovery so far.
Instead, it remains mired in the doldrums, with sales and prices hovering only slightly higher than when they hit bottom more than two years ago.
Here’s one possible reason why:
On average, four out of every 10 Orange County homes sold each month is either a bank-owned property or a short sale, according to figures provided by Adrese Roundtree, chief operating officer for the California Regional Multiple Listing Service.
These distressed properties – sold by the most motivated buyers in the business — act as a drag on the market, depressing prices.
Bank-owned homes are foreclosures that were repossessed by lenders. Short sales are homes sold on the open market for less than is owed on the mortgage.
Supply is only half the problem. Demand is off as well. The move-up market is dead, household formation is low, unemployment is high, and with falling prices, buyer motivation is low.
The MLS numbers show:
The average number of distressed properties sold through the broker-run home listing system was 1,119 a month in 2009, representing 49.9% (half!) of all MLS deals.
In 2010, the average fell to 1,097 a month, accounting for 43.5% of all MLS transactions.
This year so far, the average held at 1,090 a month, still at 43.5% of all deals.
So even though the percentage of distressed sales fell slightly, the actual number of distressed transactions remains virtually unchanged for nearly three years.
What better example can we find of lenders controlling the property flow? They are selling out their inventory at a rate designed to hold prices steady. However, since their sales need to be slightly below comps to attract buyers, prices are drifting lower.
Of course, those numbers are averages. Monthly numbers fluctuated from a high of 1,239 in May 2009 to a low of 669 this past July.
In addition, the distressed market’s share of sales fluctuated from a high of 63.9% of all homes sold in January 2009 to a low of 30.1% in July.
But even after falling to July’s low point, distressed sales turned around in recent months, rising to 971 homes sold in September, representing 42.7% of last month’s total MLS deals. September’s distressed sales numbers are only slightly below the post-crash averages listed above.
Look for the percentage of distressed sales to increase in the coming months as lenders such as BofA become more motivated.
Other trends show that while the number of bank-owned sales has been falling over the past three years, short sales have risen. The MLS figures show:
Sales of bank-owned homes dropped from an average of 615 units a month in 2009 (or 27.9%) to 552 a month this year so far (24.1%).
Short sales increased from an average of 451 a month in 2009 (or 19.7%) to 481 this year so far (21.3%).
Period
Short sales
Bank owned
Total distressed sales
2009 Average
451
615
1,119
2010 Average
466
578
1,097
2011 YTD
481
552
1,090
I would look for short sales numbers to decrease, particularly now that lenders have no way to collect for deficiencies after an approved short sale. Lenders cannot sustain the loans on their books in California after a short sale because they have no residual value. In other states, they can potentially sell this bad debt to zombie debt collectors, but not here.
October 24th, 2011, 12:11 am -- posted by Jon Lansner
Highlights of DataQuick’s Orange County homebuying report. For the 22 business days ending October 6 — the latest numbers — Orange County’s real estate market saw …
Median selling price for all residences of $425,000 — that is off 3.8% vs. a year ago.
Total Orange County sales of 2,505 residences closed in the latest period — that is off down 2.0% vs. a year ago.
Note: 12 of 83 Orange County ZIPs had both rising sales and prices in the period. Is your ZIP one of those neighborhoods? To see, CLICK HERE!
If 12 of 83 zip codes had both rising sales and prices, then 71 of 83 zip codes or 85% of local zip codes had either falling prices or falling sales volumes. It doesn't sound quite so rosy when put that way, does it?
Here’s the breakdown of recent activity by key category; included is how the latest results compare to the average monthly sales pace from 1988 through 2010:
Slice
Price
Price vs. year ago
Sales
Sales vs. year ago
Sales vs. ’88-’10 avg.
Houses
$480,000
-5.9%
1,714
+3.9%
-24.1%
Condos
$262,500
-12.4%
646
-12.8%
-25.0%
New
$604,250
-9.7%
145
-12.1%
-72.4%
All O.C.
$425,000
-3.8%
2,505
-2.0%
-31.3%
And more analysis ….
$425,000 median selling price is 34% below June 2007′s peak of $645,000.
Current price is 5.6% below 2010′s peak (May and July) of $450,000; 4% above end of 2010′s median ($410,000.)
The most recent median is 15% above the cyclical low hit in January 2009 at $370,000 — so the median has recouped 20% of the $275,000 price drop from the peak.
Compared to cyclical low, single-family house median is 15% higher ($418,250 in January 2009); condo median is 4% higher ($252,000 in March 2009.) Builder prices for new homes are 43% above June 2009′s $424,000 bottom.
Those statistics show just how unreliable the median is as a measure the change in value of individual homes. Nobody who bought in early 2009 has seen 20% appreciation, and nobody who bought a new home has seen 43% appreciation. The change in mix greatly distorted the median in 2009. The number reported was too low. The big rise off the bottom is nothing more than a statistical aberration created by the distortions from the changing product mix. The $/SF and the Case-Shiller indices both show a double dip as neither of these measures are impacted much by a change in sales composition.
The median selling price of a single-family home is 35% less than their peak pricing (June ’07). Condos sell 44% below their peak in March 2006. Builder prices for new homes are 30% below their February ’05 top.
Single-family homes were 83% more expensive than condos in this period vs. 70% a year ago. From 1988-2010, the average house/condo gap was 57%.
There are two reasons for the change in the SFR premium. First, fewer detached homes are selling as these are being withheld from the market. These prices will come down to help close this gap. The second reason is the increased cost of FHA financing. Since the FHA insurance premium is now a whopping 1.15%, substantially less of an FHA buyer's income is going toward the loan payment. Smaller payments makes for smaller loan balances and lower prices on condos which typically use FHA financing.
Builder’s new homes sales were 6% of all residences sold in the period vs. 6% a year ago. From 1988-2010, builders did 14% of the Orange County homeselling.
The lack of new home sales is an ongoing problem exacerbated by the ridiculous prices being asked in many new home communities. Competition from REOs is likely to keep sales of new homes low for the foreseeable future.
Many bear rally buyers refuse to acknowledge the obvious. The bear rally was not for real, prices have double dipped, and prices will continue to decline. For proof of these market realities, we only need to see today's featured property.
The buyers paid $425,000 on 11/30/2009. The conventional wisdom in 2009 was that prices bottomed in the spring along with te stock market. A buyer in 2009 would not have worried about selling for a loss. They should have.
Today's featured property is asking less than their 2009 purchase price. When you factor in the commissions, they will lose nearly 10% of the purchase price or about 40% of their down payment. That makes the cost of ownership for this family over the last two years quite high. It's cases like this which prompt Shevy and I to warn buyers against buying if they might have to sell in the next three to five years. This could happen to them as well.
------------------------------------------------------------------------------------------------------------------------------------------- This property is available for sale via the MLS. Please contact Shevy Akason, #01836707 949.769.1599 sales@idealhomebrokers.com
Irvine House Address ... 199 WILD LILAC Irvine, CA 92620 Resale House Price ...... $409,000 Beds: 2 Baths: 2 Sq. Ft.: 1357 $301/SF Property Type: Residential, Condominium Style: Two Level, Contemporary Year Built: 2005 Community: Woodbury County: Orange MLS#: S677194 Source: SoCalMLS Status: Active On Redfin: 3 days ------------------------------------------------------------------------------ Absolutely fantastic, great opportunity for the first time buyer or investor, family floor plan, gourmet kitchen with Island, upgraded cabinetaries, nice sized great room with fire place, formal dining room. Upgraded wood laminated floors, front private patio. 2 bedrooms suites upstairs, plantation shutters. Just walking distances to Woodbury Elementary school and Woodbury Town Center and to the Commons. This is a must see.
------------------------------------------------------------------------------------------------------------------------------------------- Proprietary IHB commentary and analysis
Resale Home Price ...... $409,000 House Purchase Price … $426,000 House Purchase Date .... 11/30/2009
Net Gain (Loss) .......... ($41,540) Percent Change .......... -9.8% Annual Appreciation … -2.1%
Cost of Home Ownership ------------------------------------------------- $409,000 .......... Asking Price $14,315 .......... 3.5% Down FHA Financing 4.18% ............... Mortgage Interest Rate $394,685 .......... 30-Year Mortgage $128,866 .......... Income Requirement
-$303 .......... Tax Savings (% of Interest and Property Tax) -$551 .......... Equity Hidden in Payment (Amortization) $21 .......... Lost Income to Down Payment (net of taxes) $71 .......... Maintenance and Replacement Reserves ============================================ $2,568 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $4,090 .......... Furnishing and Move In @1% $4,090 .......... Closing Costs @1% $3,947 ............ Interest Points @1% of Loan $14,315 .......... Down Payment ============================================ $26,442 .......... Total Cash Costs $39,300 ............ Emergency Cash Reserves ============================================ $65,742 .......... Total Savings Needed -------------------------------------------------------------------------------------------------------------------------------------------------------
Those statistics show just how unreliable the median is as a measure the change in value of individual homes. Nobody who bought in early 2009 has seen 20% appreciation, and nobody who bought a new home has seen 43% appreciation. The change in mix greatly distorted the median in 2009. The number reported was too low. The big rise off the bottom is nothing more than a statistical aberration created by the distortions from the changing product mix. The $/SF and the Case-Shiller indices both show a double dip as neither of these measures are impacted much by a change in sales composition.
Absolutely fantastic, great opportunity for the first time buyer or investor, family floor plan, gourmet kitchen with Island, upgraded cabinetaries, nice sized great room with fire place, formal dining room. Upgraded wood laminated floors, front private patio. 2 bedrooms suites upstairs, plantation shutters. Just walking distances to Woodbury Elementary school and Woodbury Town Center and to the Commons. This is a must see. 
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