by ridiculous pricing.
Short Sale Pricing: The expected market time for short sales is down to 13 days.
Buyers are still climbing into the cars of REALTORS® for the first time with high hopes of getting a “deal.” As they experience the caravan of cars touring the few homes that pop onto the market in a given week and have to wait at the door of a home to allow the buyer in front of them to finish looking around, buyers are quickly brought up to speed: they are NOT in charge. It is no longer a buyer’s market, quite the opposite. Unbelievable competition, multiple offers, offers at or above the asking price, this is the new Orange County housing market reality, a seller’s market.
Only 6% of all home sales in September were foreclosures, lows not seen since the beginning of the onslaught of foreclosed homes back in 2007. The number of foreclosures coming on the market is dwindling. Currently there are only 138 on the active market today. There just are not enough foreclosures to go around. For September, the average foreclosure sold for 2% above the asking price. Below $500,000, the average sold 3% above the list price. This segment of the housing market is as hot as molten lava.
It is no wonder that buyers looking for a “deal” have veered their attention to short sales. Even though the short sale process still can take months before closing, there is no other segment of the housing market to find a deal, given the anemic inventory level and pent up buyer demand. There are only 425 short sales on the active market today. The short sale inventory has been dropping like a rock, faster than any other segment of the OC housing market. It has dropped 43% since July compared to 23% for the market as a whole and 25% for foreclosures.
For September, short sales, on average, sold 2% below their asking price for all price ranges and at a 1% reduction for homes priced below $500,000. Incredibly, the expected market time for short sales is a mere 13 days. Comparatively, the foreclosure inventory is at 21 days and the entire market is at 39 days. Short sales are the hottest segment of the Orange County housing market.
Given that there are barely 425 on the market and 969 new pending sales within the last month, buyers are tripping over each other in lining up to buy them. When supply is low and demand is high, these homes should be selling for very close to their market value and should not be subject to major discounting. It does not matter that short sales take an unknown lengthy amount of time to close due to lender approval requirements and the complexity in closing them. There simply are not enough short sales to satiate the ferocious appetite of buyers eager to be the winning bidder of a home.
If short sales are the hottest segment, then why are they selling below their asking price? Short sales are selling for less than their asking prices because sellers are not emotionally tied to the price. A seller with equity cares about every dollar that they walk away with; whereas, the short sale seller is attempting to market their home for less than what is owed. They are not going to hold out for an additional $5,000 when they are still going to walk away with nothing. On the other hand, an additional $5,000 to the homeowner with equity is an extra $5,000 in their bank account. The short sale seller is not motivated by the amount of money they will net; they are motivated to get out from under their upside down home.
Memo to all short sale sellers: do the housing market a big favor in helping it heal faster, price your home according to the fair market value. In the end, you will still achieve your objective in selling, but you will also help your neighbors in strengthening the value of their homes as well.
Many REALTORS® used to price a short sale listing below the market value, knowing that the chance of the initial buyer sticking with the long process was slim. It would then require a new buyer to enter the fray several months down the road. When values were dropping, if they submitted too high of a value initially, inserting a new buyer at that higher value months later proved to be impossible. The banks expected a similarly priced offer to be resubmitted, an impossible fete given that values had dropped during the lengthy process. To circumvent not being able to sell down the road, short sales were often sold well below their market value to insure successfully closing even with a replacement buyer.
As values are now rising and demand is scorching hot, it is time to sell short sales very close to their fair market value and be a part of the housing market recovery. Neighborhoods are counting on short sale homes to do the right thing.
Active Inventory – A New Record Established: The record low inventory hit a new record low and shows no sign of stopping its unabated drop.
Even though the impression within the trenches is that showing homes in today’s market is like scraping the bottom of the barrel, amazingly, the active listing inventory dropped another 5% within the past two weeks, shedding an additional 217 homes. There are only 4,199 homes on the active market. Even at a record low, the active inventory has still declined by 10% in the past month. The drought continues and does not look like it will stop dropping anytime soon.
If short sales are the hottest segment, then why are they selling below their asking price? Short sales are selling for less than their asking prices because sellers are not emotionally tied to the price. A seller with equity cares about every dollar that they walk away with; whereas, the short sale seller is attempting to market their home for less than what is owed. They are not going to hold out for an additional $5,000 when they are still going to walk away with nothing. On the other hand, an additional $5,000 to the homeowner with equity is an extra $5,000 in their bank account. The short sale seller is not motivated by the amount of money they will net; they are motivated to get out from under their upside down home.
Memo to all short sale sellers: do the housing market a big favor in helping it heal faster, price your home according to the fair market value. In the end, you will still achieve your objective in selling, but you will also help your neighbors in strengthening the value of their homes as well.
Many REALTORS® used to price a short sale listing below the market value, knowing that the chance of the initial buyer sticking with the long process was slim. It would then require a new buyer to enter the fray several months down the road. When values were dropping, if they submitted too high of a value initially, inserting a new buyer at that higher value months later proved to be impossible. The banks expected a similarly priced offer to be resubmitted, an impossible fete given that values had dropped during the lengthy process. To circumvent not being able to sell down the road, short sales were often sold well below their market value to insure successfully closing even with a replacement buyer.
As values are now rising and demand is scorching hot, it is time to sell short sales very close to their fair market value and be a part of the housing market recovery. Neighborhoods are counting on short sale homes to do the right thing.
Active Inventory – A New Record Established: The record low inventory hit a new record low and shows no sign of stopping its unabated drop.
Even though the impression within the trenches is that showing homes in today’s market is like scraping the bottom of the barrel, amazingly, the active listing inventory dropped another 5% within the past two weeks, shedding an additional 217 homes. There are only 4,199 homes on the active market. Even at a record low, the active inventory has still declined by 10% in the past month. The drought continues and does not look like it will stop dropping anytime soon.
Last year at this time there were 10,044 homes on the market, well over double the current inventory. The active inventory stood at 8,114 homes at the beginning of the year, 3,915 more than today.
Many have asked if the election has anything to do with the current market, but the unprecedented drop started back in June of last year. The general public was not focused on the election back then, helping illustrate that we are witnessing what appears to be a true recovery.
Demand: Demand dropped as fewer homes are placed on the market.
This is notoriously a time when fewer homes are placed onto the market. The general public intuitively gets it; the Spring and Summer market are the best time of the year to sell. During the past month, 12% fewer homes were placed on the market compared to last year. With fewer homes for sale, buyers simply cannot find a home to purchase and are stuck waiting along with many other buyers for the next home to be placed on the market. With those circumstances in mind, it is no wonder that demand, the number of new pending sales over the prior month, dropped by 3%, shedding 111 pending sales and now totals 3,255. Even with fewer homes placed on the market, demand was still 12% stronger than last year at this time.
The Distressed Market: The distressed market dropped by a pace not seen since May.
Even with the distressed inventory at such anemic levels, it still managed to drop by 11% in the past two weeks and now totals 563. The inventory shed 100 homes in the prior month.
The distressed inventory has not been this low since June 2007. It currently represents just 13% of the total active inventory and 36% of demand. Last year it represented 35% of the inventory and 52% of demand. In the past two weeks, the foreclosure inventory decreased by 11 homes, totaling 138, and has an expected market time of 21 days. The short sale inventory decreased by 59 homes in the past two weeks and now totals 425. The expected market time is only 13 days and continues to be the hottest segment of the housing market.
By Steven Thomas
Quantitative Economics and Decision Sciences, B.A.
