Anna Child Group
Orange County Housing Report: December 2013
December 28, 2013 – Good ol’ fashioned homeowners with equity have made a remarkable come back in 2013
Equity Sellers: 92% of all closed sales in October were homeowners with equity.
The housing market used to be riddled with distressed sales, both foreclosures and short sales. Two years ago, 38% of the active listing inventory was distressed. That dropped to 12% last year and just 5% today.
Banks used to be in control of the housing market. In January of 2009, 63% of all sales were distressed. Nearly two out of three sales were foreclosures, homes owned by the bank, or short sales, which required lender approval to take much less than the outstanding loan balance in order to close a sale. Back then, the market was predominantly foreclosures.
From there, sales began to shift away from foreclosures to short sales. By the end of 2009, short sales made up 25% of all sales and equity sellers made up 58%. Foreclosures dropped to 17%. That was still a lot of distressed sales, and it remained at those levels through 2011. All of those distressed sales eroded home values and prevented the housing market from recovering.
During those years, the term “equity seller” evolved to describe regular homeowners with equity in their homes. Equity sellers were a bit easier to deal with because the banks were not involved to the extent that they were with foreclosures and short sales. Responses were quick, escrows were short, and the process was a relief in comparison to distressed transactions.
In early 2012, the number of distressed homes began to diminish rapidly and so did the active inventory. At the beginning of the year, there were 8,114 homes on the active market and 3,137 were distressed. By the end of the year, there were just 3,254 active listings and 397 were distressed.
With the inventory so low, values increased rapidly. Demand was high and there just were not enough homes on the market to satiate the ravenous appetite of the throngs of buyers. The substantial increase in values helped the housing market recovery seemingly overnight. The number of underwater homeowners, owing more than their homes were worth, dropped from 25% of all mortgaged homes to just 7%. As a result, fewer homeowners have been defaulting on their loans, and the number of distressed homes has diminished substantially.
Only 5% of the active inventory and 11% of demand is distressed. More remarkably, just last month, merely 2% of all closed sales were foreclosures and 6% were short sales, which meant that 92% were good ol’ fashioned equity sellers.
Even more telling is taking a closer look at year to date numbers compared to last year. Distressed sales have dropped 63% from 2012. There are 70% fewer foreclosures and 59% fewer short sales. The number of equity sellers has increased by 33%. These numbers reflect a market that has shifted away from distressed to one that is no longer ruled by lenders. It is a housing market that has made tremendous strides towards healing the wounds of a prolonged downturn.
For buyers looking for a “deal” in purchasing a short sale or foreclosure, expect a lot of competition from so many buyers looking for the exact same thing. These “deals” have quickly become a needle in a haystack and isolating one has become more than a challenge; it’s almost equivalent to winning the lottery. And, with so much demand, the need to discount these homes has diminished considerably.
Active Inventory: The inventory shed 6% in the past two weeks as the market moves deeper into the holidays.
In the past two weeks, the active listing inventory dropped by 337 homes and now totals 5,543, dipping to levels last seen at the beginning of August. It’s the largest drop since March of last year and the largest for this time of year since 2006. The large drop can be attributed to such a large run-up in the inventory from March until October, where it doubled in only seven months. The inventory typically reaches a height at the end of August, but that was delayed for a couple of months. It is no wonder that the inventory is dropping so fast with fewer homes coming on the market, and so many sellers throwing in the towel in order to enjoy the holiday season. The drop will continue through the New Year celebration and will start to increase in mid-January.
Last year at this time there were 3,482 homes on the market, 2,061 fewer than today.
Demand: Demand dropped by 12% in the past two week.
Demand, the number of new pending sales over the past month, decreased by 266 and now totals 2,029. It may seem like a drastic change, but is quite typical for this time of year. Holiday parties, decorating the tree, and the annual pilgrimage to the mall have replaced the need to find a home right now. Just as many sellers have opted to take a breather over the next few weeks, so have buyers. This phenomena will continue to drop and will reach a low as we ring in 2014, where it will reach the lowest levels of the year. More buyers will enter the fray after the first couple of weeks of the New Year.
Last year demand was at 2,543 pending sales, 560 more than today. Those numbers were a bit inflated as there were a lot more short sales embedded in demand, 684 pending short sales compared to 197 today. Since only about half of all short sales ever close, the 487 additional pending short sales skewed the demand totals last year. Even so, the disparity between last year and this year’s demand is large enough that it will result in fewer sales in the coming months in comparing year over year numbers.
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Current market conditions still represent a good opportunity for both buyers & sellers to transact a home sale.
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