April 1st, 2013
By MARILYN KALFUS / ORANGE COUNTY REGISTER
Mike Kallenbaugh’s search for a home in Orange County’s tight market keeps taking him in circles.
The typical whirlwind lasts less than a week: Kallenbaugh spots a new listing. He falls in love with the place. He makes an offer. He gets rejected. He starts over.
Kallenbaugh, a 30-year-old civil engineer, knows that more properties always come on the market during the spring and summer. But this year, he doesn’t expect the seasonal upswing to make his search any easier.
“Even though there’s going to be more (homes),” he says, “there’s probably going to be more buyers.”
As the spring season picks up steam, Orange County residential real estate is still a deep seller’s market – and likely will remain so for the foreseeable future.
The number of homes available for sale in Orange County is just slightly above record lows for recent years. Real estate agents say the inventory shortage should ease up somewhat in the months ahead, but only because of the typical seasonal flurry, which may not reach last year’s levels. Agents aren’t expecting multiple offers to subside anytime soon, especially for entry-level homes and many others priced correctly.
The market has become a seller’s market in most of the nation, said Walter Molony of the National Association of Realtors. “This is especially true in Orange County, where supplies (of homes) are much tighter.”
Agent David Wright offers this advice for homeowners listing their properties. “Get ready for instant traffic with shoe covers, and spray WD-40 on the front door hinges,” said Wright of Engel & Volkers in Newport Beach, “because the traffic is going to be fast and furious.”
Home values appreciating quickly
The competition among buyers is intense because many homeowners are sitting on the sidelines, local real estate agents say, waiting for prices to rise further before they’ll put their property on the market. Some would-be sellers are still in negative equity. Others are afraid they won’t be able to find anything if they sell their home now. Also, lenders are seizing – and selling – fewer distressed properties than in recent years.
With a shortage of homes on the market in Orange County and “demand through the roof,” residential values are appreciating quickly, said Steve Thomas of ReportsOnHousing.
Inventory this month is close to the low level last seen in 2004, Thomas said. Meanwhile, the median sale price of an Orange County house reached $477,000 in February, up 22 percent from February 2012 and the highest median price since May 2008, according to a report from DataQuick released earlier this month.
Jed Kolko, chief economist at real estate website Trulia, said asking prices in Orange County went up 14percent in February year-over-year, making it one of the areas with the fastest price growth in the country – 11th among the 100 largest metros.
But he said inventory typically doesn’t improve significantly until two years after prices bottom, so Orange County probably won’t see a sustained turnaround in available homes for at least another year.
Distressed properties also have been scarce lately. The availability of short sales and bank-owned properties were down a combined 63 percent in mid-March compared to the same time period last year, Thomas said. That reflects changes in the law regarding how quickly lenders can seize distressed properties, and it’s partly because many homeowners are regaining equity as prices rise – but sitting on the fence.
“I do not expect to see the inventory increasing in the near future, primarily due to the tremendous reduction in bank-controlled sales – foreclosures and short-sales – on the market,” said Dennis C. Smith, a mortgage broker and co-owner of Stratis Financial in Huntington Beach. He also noted that many lenders have converted large numbers of foreclosed properties to bulk sales and sold them to investors, who’ve converted the homes to rentals instead of selling them.
A sale is a ‘mini-auction’
Without enough residences to meet the demand, a home sale can easily become “a mini-auction,” Thomas said. “It is a very deep seller’s market where they get to call all of the shots.”
Real estate agents sound like they’re standing in an echo chamber.
“The bidding wars have gotten out of control,” said Rob Magnotta of First Team Estates. “Any of my listings under $800K have multiple offers. If they’re priced correctly, they sell within days, and it’s definitely pushing prices back up.”
Margaret O’Brien, also of First Team, described the scene at an open house she hosted a couple of months ago for an entry-level single family home in Huntington Beach. The residence was offered as a short sale.
When she arrived, she said, “There were 20 perspective buyers standing on the lawn and sidewalk waiting to see the property. During our two-hour open house, we had over 150 visitors. The majority were serious buyers and we received multiple offers before the sun set.”
Neighborhoods don’t only attract potential buyers during open houses. A tight market can turn an ordinary street with a brand new listing into a cruising strip – even if it’s nighttime and buyers can’t get inside.
Gillian and Shane Cummings have gone the drive-by route, and they’ve seen other cars on the street also slowly coasting past the latest home for sale. The Cummings have considered buying homes in several Orange County cities, including Irvine, Huntington Beach and Tustin.
“Every one we’ve looked at, there were multiple offers on them,” said Gillian Cummings, a 32-year-old administrative analyst at UC Irvine. She and Shane, also 32, a financial analyst at a private company, are now adjusting their expectations.
“We’re realizing we’re definitely going to have to compromise,” Gillian Cummings said.
Kallenbaugh, who likes the Aliso Viejo area, said he’ll keep plugging away, though he’s now far beyond the $305,000 price point he started out at a few weeks ago. He said he heard that two homes on which he made offers each attracted more than two dozen buyers. He offered $375,000 on one of them, but later learned some of the other offers went up to $412,000, including an all-cash bid for $395,000.
He listened as real estate agents at a recent homeselling fair in Orange told the audience it’s not just about the money. Sometimes sellers care about how fast the deal can close, or removing contingencies that can stall or stop a sale. Sellers also make sentimental decisions. Someone who’s raised children in a house for many years may feel better about a family buying the home instead of an investor.
Bill Arseneau, broker associate at Realty One Group in Mission Viejo, expects the spring season to turn into “the same tight market we experienced in most of 2012, and maybe even tighter than 2012.”
But, he said, “Many homeowners have seen their lost equity actually increase 10 to 12 percent in the past year, and that may prompt some to pull the trigger.”
Magnotta said he hears the same thing from all of his clients who want to sell.
“They want to wait and see if they can get another 10 percent or more by waiting, and if they don’t have to sell right now, they’re just not going to,” he said. “Changing school districts is about the only motivating factor that I see overriding this sentiment right now.”
But, he added, “There are still quite a few sellers asking unrealistic prices for their homes. If your home isn’t selling right now, it’s overpriced. Period.”