ORANGE COUNTY

MARKET OVERVIEW
a monthly real estate report | June 2010

Housing Growth Is on the Way
At the recent National Association of REALTORS® midyear conference, top housing economists cautiously predicted an imminent housing recovery, lifted by the improving jobs outlook and economic expansion. e caveat foreclosures. is how jobs will impact 2010 than in the last 14 months. Private sector hiring increased 4.8%. Layoffs have supposedly fallen to levels not seen since before the recession. Employers added 290,000 jobs in April, the most in four years. Housing conditions improve Among many reasons why housing could continue to climb in both sales volume and price is a return to record low interest rates. Despite the end of the home buyer tax credit, the pace of mortgage applications rose in May 2010, says the Mortgage Bankers Association. First quarter foreclosure activity is already falling from a year ago in 14 of the top 20 U.S. metros, according to RealtyTrac. Pending home sales were up more than 5% in March, 21% higher than the previous year, says the NAR. e PMI risk index was also positive, with 42 of the largest 50 markets demonstrating diminished mortgage lending risk. Fitch Ratings reported last week that late payments on “Alt-A” loans fell for the first time in four years, as borrowers caught up on payments or were able to modify their loans to more favorable terms. Meanwhile, the economy expanded 3.2% in the first quarter — the third straight quarter of growth — diminishing the likelihood of rising foreclosures. The luxury market improves Jumbo loans are at their best rates in years — as low as 5.7% for a 30-year fixed mortgage — giving luxury home buyers more options than paying cash. Laurie Moore-Moore, founder and CEO of the Institute for Luxury Home Marketing, notes that some buyers aren’t waiting for better terms — they’re paying cash for well-priced fine properties. She reports hearing anecdotally that luxury home sales are higher across the country. “Fine home buyers are adding luxury real estate as a portfolio play,” says Moore-Moore. Tom Dunlap, vice president and general manager of Prudential California Realty Los Angeles region, suggests there are two levels of luxury, and both have increased in the last six months. “Our high-end would be $1 million to $3 million,” explains Dunlap, “and our luxury level would be above $3 million. What we are seeing is a tremendous amount of cash that has been parked on the sidelines coming back into play. Our prices have come down to a level where they are perceived as a good value, and in some cases a bargain.” California Outlook But for California home buyers waiting for the market to bottom further, the opportunity may already be past. e California Association of REALTORS® has just reported a key indicator: affordability. When affordability goes up, prices are coming down. When homes are less affordable, prices are on the rise. e C.A.R. First-time Buyer Housing Affordability Index was 66% in Q1 2010, down 3% from Q1 2009. e median home price of an entry-level California home was $246,270, which requires a minimum qualifying income of $41,540 — $3,910 more than a year ago, based on an adjustable rate of 4.33%. e C.A.R. says that first-time home buyers typically purchase a home equal to 85% of the prevailing median price. A year ago, first-timers only needed $37,630 to qualify for a loan on an entry-level home.

Lawrence Yun and Mark Zandi, chief economists for the NAR and Moody’s Economy.com, respectively, agreed that jobs will continue to increase over the coming year, but they parted ways when it came to housing. While both agreed that mortgage interest rates will remain historically low, the availability of jumbo loans will improve, and home sales will rise over the next few years, Yun believes that foreclosures will be even with demand, at about 30% to 40% of all sales transactions through the end of the year. Zandi disagreed, anticipating that foreclosures will rise later in 2010 before easing in 2011. “Whether home prices weaken is unclear, but it will take two more years to work off excess housing inventory at the current sales pace,” he said. Yun is more optimistic, believing that prices will rise 2% to 3% this year, and that a housing shortage could be felt as early as two to three years from now, due to construction and household formation falling below long-term trends. e National Association of Home Builders says employment will grow through 2010 and 2011, reducing the unemployment rate to around 9.3% from the current 9.7%. More jobs are available e Labor Department announced the best news in ages: more jobs were created in March

Median home prices in Southern California increased 16.7% to $297,540 in Q1 2010 over the previous year. Interestingly, sales volume was down for the region year-overyear, largely due to consumer difficulty in obtaining jumbo mortgages. As the mortgage market expands over the coming months, volume may improve substantially. In addition, home prices are still well below where they were at the housing peak. According to Zillow, five California markets — Los Angeles, San Diego, San Francisco, Santa Barbara and Ventura — turned positive in April or May 2010, with home prices appreciating as much as 3.1% to 3.9% since hitting lows in the previous year. But missing the bottom doesn’t mean opportunity is gone. Home values in these key areas are still 30% to 36% down, falling

between market peaks and last year’s lows — affording a terrific investment play for home buyers. In many cases, buyers may find themselves in fierce competition for the same home against all-cash buyers who can close quickly. Says Dunlap, “We’ve seen a real shift in the last six months. We had an REO duplex come on the market in Hancock Park for $450,000. e property had 130 offers, and sold for $650,000. Another home priced at $1,495,000 had seven offers and closed escrow in two weeks with an all-cash offer of $1,752,000.” In this market, good homes that are wellpriced are generating multiple offers with no contingencies, and closing very quickly. Advice for buyers: California home prices are recovering, so don’t wait any longer for a

bottom that may already be long gone. Get your loan and preapproval with a reputable lender, like HomeServices Lending powered by Wells Fargo www.hslca.com, before you do anything else. Make sure the lender has all your financial information and requires documents up front, so you can move quickly to secure the home you want without wasting time trying to finalize a mortgage. Advice for sellers: Because the market is improving, it may be tempting to overprice; but don’t do it. It’s better to price your home at the market than to overprice and watch your property sit without viewings or offers. e first seven days of a listing are the most critical; by then, serious buyers have already seen everything on the market. Overpricing from the outset is the #1 mistake most sellers make. Buyers will either wait or move on to another property.

ORANGE COUNTY The National Association of REALTORS® says nearly 26% of homes sold in the U.S. were bought with cash in April 2010. It’s obvious that occupying home buyers and investors are acting on prices so attractive that they’re not waiting for the mortgage markets to open up further. With home prices still well below the peak, California home buyers are also “cashing in.” It’s no surprise that the heated housing market, particularly in the affordable and upscale price ranges, is now an established trend. Inventory levels have improved greatly over the past few months in Orange County. Homes less than $1 million are in a feverish seller’s market, while upscale homes priced $1 million to $4 million are in a fairly balanced market, as unique and upscale homes aren’t expected to sell at the same pace that affordable homes in the conforming loan ranges do. Only when prices rise above $4 million do inventories stagnate.
*A balanced market is widely accepted as having six months of inventory on hand with market conditions favorable to both buyers and sellers. A buyer’s market is characterized by conditions such as high inventories, falling prices, concessions by sellers, and incentives among other indicators. A seller’s market has low inventories of homes for sale, escalating prices, and keen competition between buyers, including multiple offers. Detached homes stand alone and share no common walls with any other neighboring home. Attached homes share at least one common wall with another Inventory in ownership is determined 2010 home. The type of home Months’ Supply – May 4, by whether it is a condominium, townhome, duplex, co-operative or other.
All residential properties in SoCalMLS-Orange County

Inventory in Month’s Supply
Less than $1 million $1 million to less than $2 million $2 million to less than $3 million $3 million to less than $4 million $4 million to less than $5 million $5 million to less than $6 million $6 million to less than $7 million $7 million and over

2.9 7.2 13.7 17.6 21.5 28.6 28.9 32.9 10.0 20.0 30.0 40.0

Although unique and upscale homes are not expected to sell at the pace of affordable homes in the conforming loan ranges, multi-year inventory levels are considered stagnant.

0.0

Copyright © 2010, Real Data Strategies, Inc. All rights reserved. Use is by license agreement only.

All residential $1M+ properties in SoCalMLS-Orange County 12 months through April, 2010

Monthly Listings Taken and Absorbed Properties $1,000,000 and above
600 New Listings 500 436 400 356 200 215 200 234 229 215 227 231 195 161 100 100 300 Listings Absorbed 570 400 531

Since inventory lows reached in December 2009, new home listings have soared 230%. Absorption rates are up 95%, but sellers should be cautious about “testing” the market while inventories are multiplying.

300

0
New Listings Listings Absorbed

2009/05 2009/06 2009/07 2009/08 2009/09 2009/10 2009/11 2009/12 2010/01 2010/02 2010/03 2010/04 215 184 234 192 229 208 215 236 227 199 231 208 195 162 161 148 356 157 436 211 570 246 531 289

0

Listings Sold by Calendar Quarter All residential properties in SoCalMLS-Orange County 9 quarters List Price Range (From $1,000,000 to $1,999,999) through March 31, 2010

Average Sale Price (Thousands)
$1,500

Listings Sold, 9 Calendar Quarters through March 31, 2010 $1,000,000 - $1,999,999 Homes Sold
600 Avg Sale Price 468 497 471 326 318 348 227 200 $1,297 $1,289 $1,306 100 300 372 Listings Sold Units 500 446 400

$1,200

In homes priced between $1 million and $1,999,999, prices are holding fast, allowing sales volume to surge 53.3% in the period between Q1 2009 and Q1 2010.

$900

$600

$1,287
$300

$1,296

$1,287

$1,272

$1,289

$1,293

1-year avg. price trend: Up 1.3 % 2-year avg. price trend: Up 1.5 %
$0 2008/1 2008/2 2008/3 2008/4 2009/1

1-year sales trend: Up 53.3 % 2-year sales trend: Up 9.4 %

0
2009/2 2009/3 2009/4 2010/1

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis dates are January 1, 2008 through March 31, 2010. Does not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved.

Listings Sold by Calendar Quarter All residential properties in SoCalMLS-Orange County 9 quarters List Price Range (From $2,000,000 to $2,999,999) through March 31, 2010

Listings Sold, 9 Calendar Quarters through March 31, 2010 $2,000,000 - $2,999,999
124 Avg Sale Price Listings Sold Units

Average Sale Price (Thousands)
$3,000

Homes Sold

125

100
$2,000

Prices gave some ground in homes that sold from $2 million to $2,999,999, down 2.5%, but sales volume shot up 50% for the period between Q1 2009 and Q1 2010.

91 78 60 68

79 70 75

$1,000

36 $2,301 $2,297 $2,253 $2,273 $2,272 $2,304 $2,316 $2,336

54

50

$2,215

25

1-year avg. price trend: Down 2.5 % 2-year avg. price trend: Down 3.7 %
$0 2008/1 2008/2 2008/3 2008/4 2009/1

1-year sales trend: Up 50 % 2-year sales trend: Down 30.8 %

0
2009/2 2009/3 2009/4 2010/1

Listings Sold by Calendar Quarter All residential properties in SoCalMLS-Orange County 9 quarters List Price Range (From $3,000,000 to $3,999,999) through March 31, 2010

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis dates are January 1, 2008 through March 31, 2010. Does not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved.

Listings Sold, 9 Calendar Quarters through March 31, 2010 $3,000,000 - $3,999,999
Homes Sold

Average Sale Price (Thousands)
$4,000

45 41 Avg Sale Price Listings Sold Units 40 35 29 27 30 25 27 30

$3,000

32 34

In homes that sold between $3 million and $3,999,999, prices stayed down to earth, allowing room for sales volume to skyrocket 107.7%.

$2,000

18 13

20 15

$1,000

$3,163

$3,248

$3,209

$3,153

$3,298

$3,308

$3,125

$3,163

$3,249

10 5 0

1-year avg. price trend: Down 1.5 % 2-year avg. price trend: Up 2.7 %
$0 2008/1 2008/2 2008/3 2008/4 2009/1

1-year sales trend: Up 107.7 % 2-year sales trend: Down 10 %

2009/2

2009/3

2009/4

2010/1

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis dates are January 1, 2008 through March 31, 2010. Does not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved.

Listings Sold by Calendar Quarter All residential properties in SoCalMLS-Orange County 9 quarters List Price Range (From $4,000,000 to $4,999,999) through March 31, 2010

Listings Sold, 9 Calendar Quarters through March 31, 2010 $4,000,000 - $4,999,999
Homes Sold

Average Sale Price (Thousands)
$5,000

25 22 Avg Sale Price Listings Sold Units 20

$4,000

18 16
$3,000

17 13 10 12 11

Prices retreated 4.8% in homes that sold between $4 million and $4,999,999, but sales volume stirred upward only 10%.

15

$2,000

8 $4,314 $4,034 $4,108

10

$4,201
$1,000

$4,395

$4,272

$4,339

$4,316

$4,169

5
1-year avg. price trend: Down 4.8 % 2-year avg. price trend: Down 2.2 % 1-year sales trend: Up 10 % 2-year sales trend: Down 35.3 %

$0 2008/1 2008/2 2008/3 2008/4 2009/1 2009/2 2009/3 2009/4 2010/1

0

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis dates are January 1, 2008 through March 31, 2010. Does not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved.

Listings Sold by Calendar Quarter All residential properties in SoCalMLS-Orange County 9 quarters List Price Range (From $5,000,000 to $5,999,999) through March 31, 2010

Listings Sold, 9 Calendar Quarters through March 31, 2010 $5,000,000 - $5,999,999
Homes Sold

Average Sale Price (Thousands)
$6,000

12 Avg Sale Price Listings Sold Units 11 10 9 8 8 7 8 8 6 5

$5,000

$4,000

Sales prices in homes that sold between $5 million and $5,999,999 rose 4.7% in the period between Q1 2009 and Q1 2010. Sales volume climbed 83.3%.

$3,000

6

$2,000

3 $5,203 $5,082 $5,430 $5,153 $4,924 $5,047 $5,403 $5,213 $5,158

4

$1,000

2
1-year sales trend: Up 83.3 % 2-year sales trend: Up 37.5 %

1-year avg. price trend: Up 4.7 % 2-year avg. price trend: Down 0.9 %
$0 2008/1 2008/2 2008/3 2008/4 2009/1

0
2009/2 2009/3 2009/4 2010/1

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis Listings dates are January Calendar Quarter not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved. Sold by 1, 2008 through March 31, 2010. Does All residential properties in SoCalMLS-Orange County 9 quarters List Price Range (From $6,000,000 to $6,999,999) through March 31, 2010

Listings Sold, 9 Calendar Quarters through March 31, 2010 $6,000,000 - $6,999,999
Avg Sale Price 4 4 Listings Sold Units

Average Sale Price (Thousands)
$8,000

Homes Sold

5

4
$6,000

3

3

3

3

With prices down 10.9% in the period between Q1 2009 and Q1 2010, sales volume had room to rise 50%.

$4,000

2 2 $5,865
$2,000

2 $5,835 $5,916 $6,140 $5,676

2

$6,213

$5,678

$6,373

1
1-year avg. price trend: Down 10.9 % 2-year avg. price trend: Down 3.2 %
$0 2008/1 2008/2 2008/3

1-year sales trend: Up 50 % 2-year sales trend: Up 50 %

0
2008/4 2009/1 2009/2 2009/3 2009/4 2010/1

0

Analysis dates are January 2008 through March 31, 2010. Does Listings Sold by1,Calendar Quarter not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved. All residential properties in SoCalMLS-Orange County 9 quarters List Price Range ($7 million and over) through March 31, 2010

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy.

Listings Sold, 9 Calendar Quarters through March 31, 2010 $7,000,000 and over
Avg Sale Price 12 Listings Sold Units 13

Average Sale Price (Thousands)
$15,000

Homes Sold

14 12 11 9 9 10 8 6 6 4 $10,793 $11,149 $8,708 $10,036 $11,375 $12,291 $12,409 $8,806 $8,177 4 2 0
2008/1 2008/2 2008/3 2008/4 2009/1 2009/2 2009/3 2009/4 2010/1

$12,000

$9,000

Prices dropped 28.1% in homes that sold at $7 million and above, freeing sales volume to soar 125% for the period between Q1 2009 and Q1 2010.

7 6
$6,000

$3,000

1-year avg. price trend: Down 28.1 % 2-year avg. price trend: Down 24.2 %
$0

1-year sales trend: Up 125 % 2-year sales trend: Up 50 %

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis dates are January 1, 2008 through March 31, 2010. Does not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved.

©2009 Prudential California Realty Independently owned and operated. Objective data used in this report provided by Real Data Strategies. Inc. Our company’s mailing materials are printed on paper certified by the Forest Stewardship Council (FSC) as the product of sustainably managed forests. An independently owned and operated member of the Prudential Real Estate Affiliates, Inc. This is not intended as a solicitation if your property is currently listed with another broker.

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