Lansner: Why homeowners aren’t selling

JONATHAN LANSNER
Business Columnist
THE ORANGE COUNTY REGISTER

August 12, 2012

Buyers have come to the real estate party at a rate not seen in six years. So where are the sellers?

This was the fastest-selling first half for Orange County homes since 2006, DataQuick reports. Yet the supply of homes for sale, though, is at a seven-year low, according to Steve Thomas’ ReportsOnHousing.com.

Article Tab: Homebuying is at it's highest since 2006 and one incentive may be rising rents.
Homebuying is at it’s highest since 2006 and one incentive may be rising rents.
BRUCE CHAMBERS, THE ORANGE COUNTY REGISTER

This evolves as shoppers face limited choices. Total Orange County supply for sale was 5,238 on Aug. 2, Thomas says. That’s lowest supply since the spring of 2005. And it’s down from 11,103 a year ago — or a drop of 53 percent!

Tight supply has lead to the first signs of home-value appreciation in at least two years – and numerous reports of homes for sale receiving multiple offers with days of being listed.

Some of that drop in supply may be the result of the fast-paced buying. But why hasn’t that kind of buzz put more “For Sale” signs on local lawns? Thomas reports that there were 13 percent fewer fresh listings coming to market in 2012’s first seven months vs. a year earlier.

Who isn’t selling? Well, remember how certain people feared how lenders overrun with foreclosed homes — and troubled borrowers desperately trying to unload their homes — would swamp the real estate game with this “shadow inventory,” as it was dubbed?

Well, the number of distressed homes — foreclosures and short sales — on the Orange County market has tumbled 79 percent in a year, our analysis of listing data from ReportsOnHousing shows as of August 2:

•Lenders’ Orange County foreclosures for sale: 151 now vs. 662 a year ago, or a drop of 77 percent.

•Owners listing short sales, deals that require lender approval: 613 vs. 2,953 a year ago, down 79 percent.

•So, total local distressed listings are: 764 vs. 3,615 a year ago, a drop of 79 percent.

•Bankers’ cache of troubled Orange County residential property shrinks. According to Foreclosure Radar, there were 15,703 Orange County homes in some stage of foreclosure — from first warning to scheduled auction to lenders ownership after auction. That is down 3,372 — or 15 percent in a year.

One reason distressed property is hard to find is that it’s a hot seller. Thomas calculates “market time” — math that compares the for-sale home supply and the velocity of new escrows. This shows how long, theoretically, it would take to sell the entire inventory.

Using that “market time” math, there was 0.58 months worth of distressed properties on the Orange County market as of Aug. 2 vs. 2.02 months worth of non-distressed homes. So, distressed homes currently sell 3.5 times faster than non-distressed homes.

But it’s not simply reluctant lenders to blame. Orange County’s non-distressed listings ran 4,474 at the start of August vs. 7,488 a year ago. That is down 40 percent.

Sellers may find their own options for other housing limited by fallout from the economic downturn. Damaged credit and/or shrunken paychecks may limit what numerous owners could purchase – with today’s tight lending standards — if they could sell their homes. Leaving the ownership ranks may not be so financially attractive as local rents are on the rise – up to a record high at Orange County’s large complexes, according to apartment tracker RealFacts.

Plus, a large number of Orange County’s owners owe more on the mortgage than they could get for their homes. These households may be just riding out the cycle in a home they like with house payments they can still afford.

Roughly one-in-five Orange County homeowners with a mortgage — a flock of 105,251 in the first quarter – were “underwater,” says property tracker CoreLogic. The good news is that this count of homes had fallen by 6.3 percent from the fourth quarter of 2011.

But Orange County isn’t alone with a shortage of homes on the market – and a missing-in-action “shadow” inventory of troubled housing.

A recent Freddie Mac analysis of nationwide trends suggests tight supply conditions across the housing spectrum. The share of empty rental units is at a low not seen since 2002’s second quarter. Vacant homes being sold has tumbled to the lowest level since at least the second quarter of 2006.

Frank Nothaft, Freddie Mac’s chief economist, says “While the shadow inventory persists, there is an important difference in today’s market compared with those of recent years and that’s the substantially reduced amount of excess vacant housing. The housing recovery may finally be coming out from the shadows.”

Locally, Thomas concludes that the tight supply will be a longer-term trend: “It is safe to say that the Orange County housing market will continue to experience a lack of inventory for quite some time. Appreciation is underway, just not at the levels of the mid-2000’s. It will take some time for modest appreciation to free underwater homeowners to sell their homes.”

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