Housing prices going up

A Spooky Market

 The following piece was written by my associate, Steven Thomas.  He is the Quantitative Economics and Decision Sciences specialist who writes for the O.C. Register and consults to the Orange County Association of Realtors.  His words precisely reflect the dynamics I see day in and day out in this current market.

The market is recovering, but there are aspects of Orange County housing that are simply spooky.

Spooky CharacteristicsAs the kids scurry from house to house in anticipation of a Halloween treat, it is appropriate to take a look at the housing market from a different perspective, the things that are spooky about real estate.

My kids have been planning a neighborhood, second annual Spooktacular Haunted House, my house of course.  They put together a detailed map and determined all of the “perfect” spots to jump out and scare those that dare enter.  I remember being a kid and slowly making my way through an unfamiliar maze of scares within a home.  With timid steps, my heart pounding, and eyes closed, I cautiously approached a corner, not knowing what lurked there ready to pounce on my nervous anticipation.  In prior years during the downturn, that described the mood of the housing market to a tee.  Not this year.  With homes appreciating again, inventories much lower, and demand much higher, there is nothing to worry about, right?  Wrong.

 The number one spooky feature of today’s market is the absurdly low inventory.  Everybody has heard that inventories are low, but the depth of those lows is only understood by active buyers and sellers today.  There are only 4,043 homes on the market after shedding an additional 4% in the past two weeks.  The most recent prior record low inventory was established in March 2005, with 4,912 homes.  That is 21% more than today.  It reminds me of the kids combining all of their Halloween candy, and then flash forward a couple of weeks down the road as they scrape the bottom of the bowl.  The candy that remains is nobody’s favorites.  Similarly, most homes that remain on the active inventory and not pending after many weeks on the market are your overpriced “black licorice,” or have some other underlying reason for not selling.

The concern is that there will not be a lot of fresh inventory for the remainder of the year.  We are continuing to test new lows and buyers that remain in the hunt are going to get no relief from the holiday slowdown.  There just are too few homes on the market and buyers have come to the realization that it is finally time to buy.  So, many buyers are going to feel like they have the appropriate strategy of pouncing on a property during the holiday lull.  Given the number of buyers who have been unsuccessful after writing multiple offers, expect many of them to attempt the same strategy.  As a result, they will encounter continued competition to purchase.

Another “spooky” concern are the number of homeowners that are entering the housing market way too overconfident.  Not too long ago, buyers were in control of the market.  Flash forward to today, just a half of a year into a healing housing market, and sellers are getting ahead of themselves and offering ridiculous asking prices.  Given supply and demand, buyers are willing to pay a little bit more than the last closed sale within hot ranges and hot areas, but, if you are a seller, hold your horses.  For most homes, a few thousand dollars more than the last comparable sale is agreeable to buyers in the midst of a lot of competition, but they will walk away, or will ignore altogether, a home that is listed at 10% above the last comparable sale. 

The median sales price in Orange County was up nearly 6% in a year.  That means it took 365 days to go up 6%, not a couple of months.  The problem with some sellers is that they price their homes 6% or more than the home that just closed last week or last month.  Homes do not appreciate that much in such a short period of time.  It takes much longer than that. 

For those sellers willing to keep their home ready to show day in and day out for a year, the market just might appreciate to their overzealous price in time, a very, very long time.  With so few homes on the market, even overpriced homes will be shown a lot; they simply will not sell.  Instead, they will waste everybody’s time, including their own, as tons of willing and able buyers tour their home without writing an offer.  Any offers generated will be “lowball” in the minds of sellers, but in the minds of buyers, they are strategizing on ways to get the seller off of their high horse and back down to reality.

Orange County Homes – 2 for the price of One!

It is not just the low interest rates that are bringing buyers to the market, it is that you can practically buy TWO homes for the price of ONE house payment compared to the hot market we had  a half a dozen years ago.  Let’s look back in time and do the math:

Below are two  3,000-ish  sq. ft. homes in the Lake Forest II/Sun and Sail Club community of  Parkwood Estates. 

SIX YEARS AGO: The house on the left sold in a market that was full of multiple offers at a sales price of $850,000 in an era of 6.60% interest rates.  A 20% down purchase would have required a $170,000 cash down payment.  Including property taxes of $708 per month, the monthly payment would have been $5,050 plus HOA and insurance.  (Actually it would have been higher because it was a non-conforming loan rate)

TODAY: The house on the right was offered at $575,000  and just entered escrow yesterday.  The market in this price range  is very hot as well.  If the buyer put 20% down that would only be $115,000 down.  With an  approximate interest rate of 3.47%, and property taxes of $479, the buyer’s (P,I&T) payment would be $2,536 per month.  The new buyer is paying HALF of what the 2006 buyer paid and they also have an extra $55,000 in their pocket.

You can see that right now we have a perfect storm.  Prices are great and interest rates are at an all time low – about half of what they were in the mid 2000’s.  Have you been longing to move out of your crowded surroundings and buy the home you dreamed of?  What if I told you you could select your new home first?  Through my “Select-then-Sell System”, First Team’s teamwork, and Sneak Preview system, I can help you identify your move up home prior to placing your home on the market….and then when we do put it on the market your Grand Opening Open House will look like this: http://youtu.be/39KFlc7Sz8Y

Alternatively if you love the home you’re in, but want to reduce your monthly payments, give me a call and I will help you determine your home’s value estimate and refer you to my mortgage partner to give you white glove service in lowering your interest rate and keeping more money in your pocket.  It’s a win/win! 🙂

Hold your Horses Orange County Sellers

Sellers are becoming overzealous and overconfident way too early in the Orange County real estate market.

 Overzealous SellersOverconfident sellers are starting to ease their way into the market, wasting everybody’s time.  Here are the words of my marketing partner, Steven Thomas that refelct what we are seeing in the market each and every day.:
It would be great if buyers and sellers could pull their emotion out of the equation when they approach the real estate market.  Unfortunately, that is not human nature.  Not too long ago there were too many homes and demand was low.  Many buyers wrote offers to purchase homes that were ridiculously lower than the asking prices, even after market values had already dropped more than 30%.  That was a waste of everybody’s time, energy and the paper that the offers were written on.  Buyers wanted a “deal” on top of the “deal,” even though the dropping market had already provided just that. 

Flash forward to today, just a few months into a healing housing market, and sellers are already getting ahead of themselves and offering ridiculous asking prices.  This is a brand new phenomenon that I warned would occur sometime this year.  Fortunately, right now it is the exception and not the rule.  Many more home sellers realize that buyers are not ready to pull the trigger on massive appreciation and are not going to ignore comparable sales.  They are willing to pay a little bit more than the last buyer within hot ranges and hot areas, but let’s curb our enthusiasm.  A few thousand dollars more than the last comparable sale is agreeable to a buyer in the midst of a lot of competition, but they will walk away, or will ignore altogether, a home that is listed at 5% or 10% above the last comparable sale.  The market could get to that price over time, but it will not jump there in the blink of an eye like everybody witnessed during the heydays of the early to mid-2000’s. 

As this chart illustrates, unless a seller was a bank, there not only was a bit of wiggle room in the price, on average, successful sellers had to reduce their asking prices in order to achieve their goal of closing.  For all of Orange County, the sales price to original list price ratio was 96%; yet, the sales price to last list price ratio was 98%.  Here’s another eye opener for sellers: the higher the asking price, the larger the discounted sales price and the larger the price reduction.  Remember, these are successful sellers.  Even with the much hotter, healing market, there are countless sellers that do not achieve their goals of selling.  For a variety of reasons they do not achieve success: condition, location, deferred maintenance, motivation, price.  The number one reason is quite simply price.  Last month there were 1,063 homes that were pulled off the market.  That is a lot of homes, representing over 19% of the current active listing inventory.  Many of these sellers place their homes on the market and ignore the data.  They throw out logic and reason because they are emotionally attached to their home.  They are heard saying, “This is what I have to get from my home,” and then they throw out some dollar figure.  Buyers could care less how much a seller wants to get out of the sale of their home; instead, they are much more interested in paying the fair market value. 

There are also many sellers who state, “I really do not have to sell.”  With that approach, my suggestion is don’t.  Why waste everybody’s time including your own?  Your house will be shown a lot.  It just will not sell.  Do you want to prepare daily for buyer after buyer to traipse their way through your home?  Just enjoy the rest of your summer and put your market on the home when you need to sell it.  Priced in reality and with my outside-the-box marketing plan, it will sell with minimal inconvenience and you will be on your way to realizing your goals.