2011 Orange County selling season an epic bust

Sales in the tradtionally strong spring and summer selling season were 33% below historic norms of the last 24 years. Prices were also down 6.7% year-over-year.

Irvine Home Address … 39 REGAL Irvine, CA 92620

Resale Home Price …… $415,000

This desperation

Dislocation

Separation

Condemnation

Revelation

In temptation

Isolation

Desolation

Isolation

Let it go

And so fade away

U2 – Bad

The 2011 selling season was bad. Sales were bad, 33% lower than the average of the last 24 years, and prices were bad, 6.7% lower than a year ago. Of course, whether or not lower prices are good or bad depends on your position in the market. For owners, it's bad. For renters looking to buy, it's good.

Homebuying season 3rd worst on record

September 28th, 2011, 1:52 pm — posted by Jeff Collins

Orange County’s 2011 homebuying season — the traditionally busy March-August period — saw transactions drop to their third-lowest level since DataQuick Information Systems began tracking housing here in 1988.

Only 2007 and 2008 — the bottom of the housing market crash — were slower than this year’s pace.

Sorry, but 2007 and 2008 were not the bottom of the housing market crash. Those were the two steepest years of price declines, but we haven't seen the bottom yet.

The reason 2007 and 2008 had lower transaction volumes is because the financing was abruptly removed from the market. Loan balances on new originations declined precipitously, down payments skyrocketed out of necessity, and the only sales in the market were those few who had large amounts of cash to close the deal.

DataQuick figures show:

  • Home sellers and buyers managed to close 15,946 deals from March through August this year.
  • That’s 33% lower than the 24-year average of nearly 24,000 housing deals in a typical spring and summer.
  • The slowest year on record: 14,145 completed sales in the March-August period of 2008.
  • The busiest year: 1988, when 32,176 local homes were sold.
  • Five other years saw sales of 30,000 or more homes during the peak months: 2002 (30,193), 1999 (30,508), 1998 (30,528), 2005 (31,147), and 2003 (31,649).
  • Things were only slightly better this year for the resale of existing condos and for sales of newly built homes. Both had the fourth worst homebuying seasons on record.

The sales of newly homes was the forth worst on record this year. Bad product, bad pricing, and a bad economy will do that.

  • This year saw buyers close on 4,596 existing condos, down 20% from an average of more than 5,700 deals during the peak buying months.
  • Sales of newly built homes of all types — houses, townhomes and condos — totaled 1,172 units, down 61% from the average of more than 3,000 homes in the peak months.
  • Existing single-family home sales totaled 10,178 units, or 32% below the average of just over 15,000 houses in the six-month period.

Condos being down only 20% were the bright spot in the sales report. Condos are nearing the bottom, and the higher sales volumes are a direct result of more realistic prices for that product.

Nationally, total home sales this spring and summer were the weakest on records dating to 1963, the Associated Press reported. The figures underscore how badly the housing market is faring and suggest that a recovery is years away.

The AP reported:

  • Roughly 168,000 newly built homes were sold from March through August, Commerce Department figures show. In a healthy six-month buying season, about 400,000 new homes would sell.
  • Among resales, about 2.8 million homes sold from March through August this year. That’s roughly as many as in the same periods in 2009 and 2010. In a healthy market, about 3.3 million would be sold in that six-month stretch.

These super low sales volumes reflect how depleted the buyer pool is. A long recession, high unemployment, bad credit, falling prices, and buyer reluctance contribute to weak sales. Low sales volumes portend lower prices ahead.

O.C. home prices down 6.7% in year

September 30th, 2011, 12:01 am — posted by Jon Lansner

Highlights of DataQuick’s Orange County homebuying report. For the 22 business days ending Sept. 14 – the latest numbers — Orange County’s real estate market saw …

  • Median selling price for all residences of $417,000 – that is off 6.7% vs. a year ago.
  • Total Orange County sales of 2,622 residences closed in the latest period — that is up 2.1% vs. a year ago.
  • Note: 13 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!

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 $469,000 -10.8% 1,746 +4.6% -22.7%
Condos $261,000 -12.9% 727 -0.8% -15.6%
New $598,500 +3.1% 149 -9.7% -71.7%
All O.C. $417,000 -6.7% 2,622 +2.1% -28.1%

And more analysis ….

  • $417,000 median selling price is 35% below June 2007′s peak of $645,000.
  • Current price is 7.3% below 2010′s peak (May and July) of $450,000; 2% above end of 2010′s median ($410,000.)
  • The most recent median is 13% above the cyclical low hit in January 2009 at $370,000 — so the median has recouped 17% of the $275,000 price drop from the peak.

The median in January 2009 was distorted by the abundance of sales at the low end and a lack of sales at the high end. With the mid to high end beginning to capitulate, the current mix is somewhat more balanced. That being said, the January 2009 median may be revisited this January. With an abundance of inventory, banks like BofA getting more desperate for cash, and the normal cyclical nature of the market, this fall and winter could be very ugly.

  • Compared to cyclical low, single-family house median is 12% higher ($418,250 in January 2009); condo median is 4% higher ($252,000 in March 2009.) Builder prices for new homes are 41% above June 2009′s $424,000 bottom.

Does anyone who bought new in 2009 believe they are up 41% on their investment? The change in mix creates quite a large distortion.

  • The median selling price of a single-family home is 36% less than their peak pricing (June ’07). Condos sell 44% below their peak in March 2006. Builder prices for new homes are 31% below their February ’05 top.

Perhaps I wasn't so far off after all….

  • Single-family homes were 80% more expensive than condos in this period vs. 76% a year ago. From 1988-2010, the average house/condo gap was 57%.

Some of the price gap between condos and single-family homes is due to the difference in cost between their methods of financing. Single-family detached homes in Irvine tend to be purchased with conventional financing. The buyer is putting 20% down, and the cost of financing does not include private mortgage insurance. Prices of many SFRs under this scenario are near rental parity.

The condo buyer is often using FHA financing. They are only putting 3.5% down, and they are paying 1.15% in FHA insurance premiums. This enormous additional cost pushes the 4% interest rate up to near 6% for an effective rate.

  • 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.

It's that time of year

During the spring and summer when realtors are busy creating false urgency to create buying interest, most readers of of this blog know to wait for the fall and winter to find motivated sellers. Well, here we are.

Prices are falling and sales volumes are low. Sellers who feel they must sell know this is a difficult market for them. Only motivated sellers are going to close deals over the next six months. The savvy buyers who are active now know they have options, and if a seller won't come to them, they can find a different one. There is still plenty of inventory.

100% financing holdout

Most people who bought with 100% financing have already walked away from their properties, but every once in a while, we still see them appear on the MLS. Since 100% financing was a late bubble phenomenon, nearly everyone who used it is underwater and paying much more than a comparable rental. If they could accurately measure the level of strategic default on 100% financing deals, it would be close to 100%.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 39 REGAL Irvine, CA 92620

Resale House Price …… $415,000

Beds: 2

Baths: 2

Sq. Ft.: 1205

$344/SF

Property Type: Residential, Condominium

Style: 3+ Levels, Mediterranean

Year Built: 2006

Community: Woodbury

County: Orange

MLS#: S672975

Source: SoCalMLS

Status: Active

On Redfin: 22 days

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Lovely townhome located in fabulous Woodbury! True Southern California living! Entrance to your home is through an open courtyard featuring an outdoor gas fireplace and sitting area. Relax in one of the nearby association pools & spas. This tri-level home brings all the comfort you've been looking for!!

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Proprietary IHB commentary and analysis

Resale Home Price …… $415,000

House Purchase Price … $490,000

House Purchase Date …. 3/28/2006

Net Gain (Loss) ………. ($99,900)

Percent Change ………. -20.4%

Annual Appreciation … -2.9%

Cost of Home Ownership

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$415,000 ………. Asking Price

$14,525 ………. 3.5% Down FHA Financing

4.00% …………… Mortgage Interest Rate

$400,475 ………. 30-Year Mortgage

$129,236 ………. Income Requirement

$1,912 ………. Monthly Mortgage Payment

$360 ………. Property Tax (@1.04%)

$250 ………. Special Taxes and Levies (Mello Roos)

$86 ………. Homeowners Insurance (@ 0.25%)

$461 ………. Private Mortgage Insurance

$270 ………. Homeowners Association Fees

============================================

$3,339 ………. Monthly Cash Outlays

-$297 ………. Tax Savings (% of Interest and Property Tax)

-$577 ………. Equity Hidden in Payment (Amortization)

$20 ………. Lost Income to Down Payment (net of taxes)

$72 ………. Maintenance and Replacement Reserves

============================================

$2,557 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$4,150 ………. Furnishing and Move In @1%

$4,150 ………. Closing Costs @1%

$4,005 ………… Interest Points @1% of Loan

$14,525 ………. Down Payment

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$26,830 ………. Total Cash Costs

$39,100 ………… Emergency Cash Reserves

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$65,930 ………. Total Savings Needed

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5 thoughts on “2011 Orange County selling season an epic bust

  1. lee in irvine

    So I’m watching CNBC this morning before I go to the office, and a segment of none other than Alan Greenspan saying “in retrospect”, the best solution for housing inventory would have been for the “government to buy the houses, then burn them down”. < ---WTF!

    I wish I could have 1 minute with Alan, Ben and the entire FOMC ... I'd scream our housing crisis has less to do with supply, and much more to do with passing homes to the next generation of buyers! Either by lack of financing, prices too high, or non-cooperative banks!

    There’s a buyer and price to close just about any house, the real question is … are there willing/realistic sellers!

  2. IndyLew

    So if in 2007 for $100,000 of broker’s commissions on a group of homes sold, to pick an arbitrary benchmark, then in the summer of 2011 the same number of homes sold would produce a third less commission. That means the same homes if sold at market price 2011, now produce only $67,000 of commissions. But wait, there is also the fact that the sales volume is down, let’s say by 33% arbitrarily, resulting in $44,890 from expectations of a group of homes sold (or expected to be sold but not). Is that about right, that total commissions to brokers/salesmen are down 55% from the summer of 2007 to the summer of 2011? Aren’t there just about as many registered real estate sales representatives in Orange County now as then? If so, why aren’t they competing harder with lower commission structures to attract more business? Or have discount brokers actually made headway and brought down selling costs as a result (thus leading however to even lower total commissions compared to 2007).

    1. Walter

      There is a big difference between having a RE license and actively selling real estate.

      I would say many have thrown in the towel and do not want to pay the expenses (MLS, Supra Key, document generation, etc) in this market.

      For me, I am a part timer and since I have a day job, I will be fair with them and adjust my commissions to what seems to fit the effort I put in. It is extra money for me so I do not need to squeeze out every last dollar.

      I have 2 in escrow now: short sale on a $200,000 condo, I will take my 2.5% on that one. A $500,000 SFR that the buyer picked out on their own, I agreed to 1.5%.

      Once you sell a few properties and have been through the frustrations and delays of getting a deal closed, you will better understand why commissions will not go to some crazy low number.

  3. newbie2008

    Lee,
    Govt. knocking down houses. That plan was used for food during the Great Depression. Burning grain, plowing under crops and let fruit rot were used to keep food prices high during the depression. It worked. Food was scare, people skinny, hungry and some starving.

    Knocking down houses will cause the market prices to stability or rise due to limiting supply. It will even stimulate the prices for housing fixtures.

    FDR also encouraged trade association and regulation to set quality, production quotes/limits and prices. People went to jail for selling services for too low of a price.

    A waste of resources for the benefit of the few. Nothing new.

Comments are closed.