August 19th, 2012, by Jeff Collins
How’s the Orange County housing market doing these days? We asked four insiders to share their views after DataQuick reported that home prices had edged up 2.9% and sales were up 25.7%.
Here are their responses …
Us: What are the one or two most salient developments you’re seeing in O.C.’s residential market now?
There is pent-up seller demand for many who do not have the equity with which to work. Only banks for whom equity is no issue have been the inventory drivers. It will be some time before prices inch their way up enough to allow many sellers to again participate in the move-up market.Patrick Veling, president of Real Data Strategies: Lack of inventory is the biggest market driver at the moment, and is inflating prices via heavy buyer competition.
These numbers do show the influence of a similar lack of inventory of new homes. Where can you buy a new home in Orange County these days when you want to move in within 60 or 90 days?
Lesslie Giacobbi, agent for Seven Gables Real Estate: The two most salient developments I am seeing is that there is very little inventory in resale homes. It is tremendously difficult to locate a home for a client, write your offer without competing against multiple offers, and getting your offer accepted.
All agents are having a rough time finding properties. This is consistent with the 33% change of listings sold reported by DataQuick. As the inventory decreases, it is increasingly difficult.
One of my biggest problems is selling some of the high-end housing and having an appraisal that does not come in. Not only does it not come in at sales price, but sometimes the appraisals are $200,000 and $300,000 short. While many of us do understand that it is often difficult to find comps, appraisers are not given enough latitude to really look at a property and what makes it so desirable that a buyer wants to pay a certain price for it.
Maria Elena Banks, president of the Orange County Association of Reators: This is shaping up as a once-in-a-decade opportunity to own a home in Orange County. Homebuyer confidence has returned for one, and low borrowing rates and (higher) rents are attracting investment at higher than normal levels.
Us: Are home prices back up to 2010 levels because there are more standard sales (a change in the mix) or because home values truly are rising?
Boud: Mainly because of a change in mix. As distressed inventory has declined, more ‘normal’ sales are occurring, bringing up the average, but not necessarily translating to the significant price appreciation levels associated with the percentage increases DataQuick shows.
Still, prices are now stable throughout the county, and are beginning a mild upward trend.
Much like stock prices, rising home prices now reflect an expectation that prices will in fact be higher down the road. Remember the advice Warren Buffet gave his investors earlier this year, which was essentially that held over time and acquired at low rates, houses are an even better investment than stocks.
Giacobbi: There are more standard sales, fewer REOs, and also fewer short sales right now. This certainly accounts for some of the increase in pricing along with the competition in the market place. So the rise is due to both factors.
Veling: The median price is driven more by changes in the mix of homes that are selling than by the actual value of any specific home or homes. However, consider that as the mix changes, values below the midpoint usually increase over time as sellers have opportunity to raise their prices. I believe that’s what we will soon see.
Us: House sales are up way more than condo sales. Is that because supply is constrained for condos?
Veling: SFRs (single-family residences) are still the product of choice. Condos and attached properties have all of the baggage of HOA fees and proximity to neighbors. In addition, financing them is not as easy as SFRs due to many projects not being on the GSA (Fannie and Freddie) approved financing lists resulting from heavy foreclosure activity and balance of owner-occupied to rental units.
It is hard to do a short sale often with a condo, because the Associations are insisting on getting their back payments and much of the time there is simply not enough money to get them what they want. As a result, the condos go back to the bank. There is also a lot of litigation and additional HOA problems.
Banks: Yes, there is very little inventory for condos right now in south Orange County. I believe it’s a result of investors choosing real estate as the option which best balances their risk and return. I also think that while many would prefer to buy a single family home, today’s tight credit market means that they only qualify for the relatively lower priced condo market.
Boud: Condos have been ‘picked over’ quite a bit. Listings are down for condos, while resale listings for sfr’s remain relatively plentiful.
Us: Just 93 new homes sold in July (vs. the average of 150 for the past year). How come?
Boud: Because there is very low supply of new homes. This changes next year, with the introduction of Sendero and other master plans.
Giacobbi: There are few new homes available on the market right now. For many buyers, they can buy a resale that is newer with all of the landscape completed, window covers, outdoor patios, BBQs etc. for the same price, already done.
In most cases, especially the high end, you cannot begin to build (at the cost) you can buy an exact re-sale house for. So many sellers today bought three to five years ago, spent hundreds of thousands of dollars in improvements, and now are selling for less than their purchase. That is the reason we do not see spec builders building.
Banks: New construction has been down due to the economy, but it is starting to come back.
Us: What’s the outlook for the last half of 2012? Will the market gains hold?
Giacobbi: I think the market gains will hold — so long as we don’t have other serious economic issues.
Veling: The median price is likely to continue its slow climb. We will not see actual increases in specific property values unless the homes which sell are outstanding values compared to similar competing homes. That value is established by location, condition and realistic pricing that is not beyond what the neighborhood will bear.
Banks: As long as the job market and local economy continues to gain momentum, the sales and prices trends will continue to move slowly higher, governed somewhat by the availability of credit and appraised values.
Boud: Yes, but the improvements will continue to be very gradual and erratic.