Finally, summer is here and so are home sellers’ wild expectations.
THE Best Time of Year to Sell
Here’s a hint: it is NOT Summer.
Every year the real estate industry deals with the same cyclical phenomena, homeowners who feel that summer is the best time of year to sell. Unfortunately, buyers do not agree. Buyer activity actually peaks during the spring. Summer is the second best time of the year to sell. Can somebody please communicate that to all of the Sellers who have been fooled and are placing their homes on the market in droves? This year has been no different, and with the end of the Federal $8,000 Tax Credit on April 30th of this year, buyer demand has definitely already peaked. Homeowners are fooled into thinking that the Orange County real estate market is the hottest during the summer because the county is a summertime vacation destination. Since the process in finding a home and closing takes at least a few months, more buyers start looking during the spring. In finding a home during the spring, buyers can close and move over the summer months. So, buyer DEMAND is higher during the spring and CLOSINGS are then higher during the summer. If buyers find something during the summer, they close during the fall. NEWSFLASH: if they have kids, school has already started. For parents, moving while the kids are in school is not typically easy. Thus, parents prefer to close during the summer. We are almost through July, the window of opportunity to close before school starts is fading fast. What is reported by the media does not help either. Newspapers and the nightly news report on SOLD data. Rarely do they talk about current demand, homes placed into pending status. As more and more homeowners hear about the incredible SOLD statistics, they get excited to hear about an increase in the median sales price and an increase in the number of closed sales. The data is very accurate, BUT is a snapshot of activity 45 to 60 days back when the buyers first wrote the offer to purchase, springtime. Homeowners are making decisions based upon what is happening in the rearview mirror. Homeowners need to be aware of current demand, a snapshot of the most recent pending activity. In doing so, they will realize that demand is down 28% since peaking back on April 29th.
Active Listing Inventory
The inventory has grown unabated by 54% so far this year.
The Orange County housing inventory grew by the largest amount so far this year, adding an additional 418 homes in the past two weeks and now totals 11,235. The market has not breached the 11,000 mark since the beginning of April 2009. Last year at this time the inventory was at 8,895 homes, 2,340 fewer than today. The inventory has not stopped growing at all this year as more and more pent up homeowners have opted to place their homes on the market at unrealistic levels. The same media reports of median home price increases and year over year increases in the number of closed sales have fooled these pent up sellers into believing that the market has recovered and that it is a great time to take advantage of the market. It is true that agents have tons of buyers in the market that have written many unsuccessful offers thus far and homes that are priced well are receiving multiple offers. The market disconnect lies in the fact that inventory has been increasing on the backs of unrealistic homeowners who have placed their homes on the market at overpriced levels. Today’s “spreadsheet buyers” are not willing to pay much of a premium for a home just to end their unsuccessful string of offers. They will maybe pay an extra few thousand dollars, but not the 5 to 10% premium many sellers are vying for. As more overpriced homes are placed on the market, it is just a matter of time before buyers start getting discouraged and slow their effort in finding a home.
Housing Demand
Not much of a change in demand
It is important to reiterate that demand has already dropped 28% since peaking in the Spring. The drop has been more profound this year due to the end of the Federal First Time Home Buyer Tax Credit at the end of April. Demand, the number of new pending sales over the prior month, increased by 10 in the past two weeks and now totals 2,870. From here, demand typically rises slightly and peaks at the end of August before slowly deteriorating for the remainder of the year. Last year at this time demand was at 3,306 pending sales, 436 more than today.
Expected Market Time
After bottoming in April, the expected market time for OC homes has increased by 66%
With an increase in the active listing inventory and almost no change in demand, the expected market time increased from 3.78 months two weeks ago to 3.91 months today. The overall market is still a “seller’s market,” but it is moving in the wrong direction. Remember, this seller’s market is different. There may be a lot of buyers and a lot of competition, but spreadsheet buyers are unwilling to pay much of a premium over the last comparable sale. At the end of April, the expected market time was at 2.35 months. Last year at this time the expected market time was at 2.69 months. For homes priced above $1 million, the expected market time is 10.68 months. Contrast that with homes priced below $1 million where the expected market time is 3.37 months.
Foreclosures and Short Sales
Over the past two weeks the active distressed inventory has grown the most this year.
The active distressed inventory grew by 150 homes over the past two weeks and now totals 3,457 total foreclosures and short sales, levels not seen since May of 2009. The active distressed inventory started the year with 2,555 homes and has since grown by 35%. The distressed inventory now represents 31% of the current active inventory. Last year at this time, there were 2,616 distressed homes on the market, 841 fewer than today. The number of foreclosures within the active listing inventory increased by 35 homes in the past two weeks from 578 to 613. The expected market time for foreclosures is 1.79 months, an exceptionally HOT seller’s market. Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, increased by 115 homes over the past two weeks and now total 2,844. The expected market time for short sales is 2.71 months, still a HOT seller’s market, but slower than the 1.53 month market back in April.
Copyright 2010 – Steven Thomas, Altera Real Estate – All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.
Tell Others What You're Reading!
Connect with me!
