OC Inventory Passes 20,000 Units

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Consider this: two years ago, in August, we had 7,209 homes for sale in OC. As of yesterday, ZIPRealty.com showed that there were 20,024 homes for sale in OC, or nearly three times as many as we had just two years ago. Three times as many properties and probably a third as many interested/qualified buyers--its a recipe for an epic market decline.

In February of this year, I wrote about a bet I had with a real estate agent friend. In that post, I explained that he and I had a bet as to whether or not the total amount of inventory of residential properties for sale would pass 20,000 units at any point in 2007. We kept the bet friendly at $100. I spoke my Realtor friend this morning (who I think was kidding when the threatened me with bodily harm if I revealed his name (besides, I could take him)) and he's agreed to pay on our bet.

Now don't get me wrong, the $100 is nice. Being right is even nicer. But 20,000 homes is one hell of a lot of property. With the profound tightness of the lending markets and the exodus from California at this point in time and history, I have to wonder who in the hell is going to buy these homes. And, with the loan resets coming due later this year and all of next, I can only see more inventory in the months to come. But where will the buyers come from?Unless both prices and interest rates drop precipitously, I think the answer (apart from the odd ex-pat foreigner) is nowhere.

Houses are too expensive, the market too weak and rents too cheap to even consider buying right now. In my opinion, even houses 10% below market are unattractive. For housing to rebound, we would need prices and rates to conspire to effectively lower prices an additional 15-20% before buyers are going to jump in with both feet.

Agents, you've seen me joke about it, you've heard me prod, but now I am being dead serious. This market is not going to recover until the cost of homes drops dramatically. If you want transaction counts (read: commissions) to rise, you have to convince sellers to lower their prices today. Talking up the market is only delaying the inevitable decline in prices and keep you from earning your commissions.

More Help for the NAR

According to the data available from the Melissa Data website, unit sales volumes are down dramatically over the last two years. According to them, in August of 2005 5,227 homes were sold in OC while last month only 2,253 were sold. That's a reduction of nearly 3,000 units or 56.9%. Brutal market.

Another interesting stat I was able to create from the fine Melissa Data information was the total value of homes sold by month here in OC. In August of 2005, roughly $3.65 billion dollars of residential real estate changed hands. Last month, only $1.76 billion worth the residential real estate was sold. That's a reduction of nearly $2 billion dollars. Epically brutal market, especially for RE agents.

Consider this, with a reduction of roughly $2 billion in transactions, at a 6% commission rate, Realtors collectively made $120,000,000 LESS in commissions than they did just 23 months ago--those poor bastards.

I've tried to help these poor souls in the past, but they keep on with their 'buyers on the fence', 'good time to buy' drivel trying to spark demand and get their transactions/dollar volumes/commission back up. Based on the inventory levels in OC, this strategy clearly is not working. But, don't worry guys, I am here to help.

At the top of this page, you'll find the latest installment in the OC Prudent Bears' 'Discuss it with a Realtor' campaign. Realtors, feel free to share this with ALL of your sellers, help your clients sell their homes and earn yourself a commission!

More than a Year of Inventory in OC RE Market

Steve Thomas at Remax Real Estate in Aliso Viejo calculates Orange County now has 12.2 months of inventory of homes currently on the market. Inventory numbers are certainly very high compared to the last two years, but the real culprit here seems to be a collapse in OC housing demand.

The following areas have inventories of less than ten months: Anaheim Hills, Brea, Canyon Areas, Cypress, Foothill Ranch, Huntington Beach, Laguna Woods, Mission Viejo, Rancho Santa Margarita and Seal Beach.

The following areas have inventories greater than fourteen months: Anaheim, Corona Del Mar, Dove Canyon, Garden Grove, Laguna Hills, La Habra, Lake Forest, Portola Hills, San Clemente, San Juan, Santa Ana, Talega, Tustin, Villa Park and all ranges above $2 million.

Read more here.

Very interesting analysis, to be sure...then out of nowhere, Steve suggests that it's probably a good time to buy and even employs the tired, noisome 'get off the fence' metaphor. With home sales as sluggish as they are, I can understand the need to drum up some business...but come on, Steve. Are you buying real estate right now, my friend?

Honest to God, every time I hear an RE agent try to explain why they think it's a good time to buy, well, I feel a bit like Brian in this classic snip of Family Guy:

VIVA LOS OSOS!

A Tale of Three Markets

There's been a lot of hoopla lately about the median home price in OC bumping up close to historic highs. The data, such as they are, seem to indicate that is the case, but remember here, that's true only if you're looking at the county-wide median price.

In the past, you've seen me and others deride the county-wide median price stat because of the sheer size and/or heterogeneity of OC. Talking about the county as a whole, particularly when using the flawed median as a metric, just doesn't tell one a whole lot. Parts of the county could be collapsing, while other parts rise, but when you throw every neighborhood in the county into one big bucket, all of that movement is washed out, all of the uniqueness statistically smoothed over. County-level stats just aren't granular enough to truly convey any meaningful information.

For the vibrancy and dynamism of the market to be seen, we need to analyze the market by segment. Simply by bucketing areas of the county together by similar characteristics and then analyzing them, patterns that betray notion that prices in the county are strong quickly appear, particularly if you look at homes by price segment.

I decided to divide OC's ZIPs into three segments based on median price: ZIPs with median prices less than 85% of the county-wide average (23 ZIPs) , ZIPs with median prices between 85 and 115% of the county median (33 ZIPs) and the last group with prices more than 115% of the median (27 ZIPs.) I then looked at the number of ZIPs in each group where the YOY sales volume and/or price were down. The results were dramatic.

In the ZIPs with the lowest prices, essentially all of the ZIPs were down in terms of price (91%) and volume (96%)--a profoundly weak segment. In the middle price group, both price and volume were down for 70% of ZIPs--a weak to very weak segment. While the most expensive ZIPs showed volumes down less than half of ZIPs, at 41%, and a relatively equal number of ZIPs (52% down) with price declines--a neutral segment. Clearly, OC is not one market, but at least three, varying from neutral to very weak in terms of their market strength.

Just to emphasize how different OC's price segments are performing, ZIPs in the lowest price range were roughly twice as likely to be down in terms of volumes and price as the most expensive ZIPs. Twice as likely.

Now, my personal area of interest are the middle ZIPs: white picket fences, middle class, 2.3 kids, regular folk. Fully 70% of those ZIPs have have dropped in terms of prices and volume. At 50%, we'd be at parity, but at 70% were in the midst of some serious volume/price weakness. As half a dozen Realtors told me today at open houses, this weakness could be a sign to buy, but as I explained to them, I don't think so. After all of the mortgage resets occur next summer and sellers panic, that may be a time to buy.

In the mean time bears, eschew claims that the "OC prices are strong", keep your financial powder dry, your FICO score up and enjoy another 12 months of cheap rent. Next summer if the middle is collapsing like the bottom price segment is today, it might, just might be time to get a great deal on a distressed home.

Viva los Osos!