Pending homes sales are rising quickly as 2012 starts. Is this demand based on fundamentals? Is the market strengthening?

When the bear rally of 2009 began, I consistently stated the rally would not hold. My reasoning was simple: the housing market was still inflated and the demand was artificial. For the housing market to put in a durable bottom, several factors must be in place:

• All market props must be removed. The demand must be natural.
• Prices must be at or below rental parity. Prices must be affordable for a bottom to be durable.
• Rents must be rising. Rental parity must not be declining for resale prices to be stable.
• Employment must be rising or stable. Rising unemployment hinders demand.
• Supply must not exceed demand.

None of these conditions were met in 2009, but what about today?

The tax incentives are gone, but artificial interest rates remain. Eventually mortgage interest rates must rise, but the Federal Reserve seems determined to keep these rates as low as they can as long as they can to put a bottom in the housing market. The artificially low interest rates are the biggest long-term worry facing the housing market (see The housing recovery that wasn’t).

Prices are at or below rental parity in most markets including most of those in Orange County. Even Irvine is currently trading below rental parity.

Rents are rising across most of the country including Orange County. Rising rents are coming from a combination of increasing employment and a tightening rental market.

Unemployment is still bad, but the economy has turned the corner, and unemployment is getting better.

That brings us to our final criteria: supply must not exceed demand. This one has not been met yet. In fact, excessive supply will be the primary reason prices will chop around and likely continue to decline over the next few years. The remaining fundamentals are favor sustained growth in demand and higher prices, but the huge overhang of supply will trump these positive signs.

Demand for cheaper O.C. homes soars 30%

January 26th, 2012, 9:00 am — Jon Lansner

Orange County’s homebuying year got off the a “staggering” quick start, says Steve Thomas of ReportsOnHousing.com.

The latest Orange County home inventory report from Thomas — data as of January 19 — estimates that the local market’s speed quickened 12.6% in the past two weeks and quickened 32.7% in a year. He writes:

In comparing the beginning of this year to last year, the numbers are staggering. Overall, demand, the number of new pending sales over the prior month, is up 15% compared to 2011, totaling 2,528 pending sales. That’s the market as a whole, though. For homes priced below $500,000, demand is up an astonishing 30%. That’s a lot of momentum considering the housing market hasn’t even hit its stride with the beginning of the Spring Market right after Super Bowl Sunday. This is more than an encouraging start to 2012, it is a real sign of a much different housing market for 2012.

Are the numbers really “staggering” or is he exaggerating for effect?

Thomas calculates a “market time” benchmark tracking how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made. By this Thomas logic, as of last Thursday, it would take:

• 3.20 months for buyers to gobble up all homes for sale at the current pace vs. 3.65 months two weeks ago vs. 4.75 months a year ago vs. 3.02 months two years ago.
• Of the 8 pricing slices Thomas tracks, 5 had faster market time vs. 2 weeks ago; and 6 improved over a year ago.
• Homes listed for under a million bucks have a market time of 2.82 months vs. 10.26 months for homes listed for more than $1 million.
• So, basically, it is 3.6 times harder to sell a million-dollar-plus residence!
• And just so you know, the million-dollar market represents 17% of all homes listed and 5% of all homes that entered into escrow in the past 30 days.

Here’s the recent data, as of last Thursday, for listings; deals pending; market time in months; last Thursday vs. 2 weeks ago, a year ago and 2 years ago. Color coding for market time is red (slowed by 5%-plus in year); green (sped up by 5%-plus in year); and yellow (in between!) Note: k=thousand; m=million …

Slice	Listings	Deals	Market Time (months)	2 week ago	1 yr. ago	2 yr. ago
$0-$250k	1,575	589	2.67	3.05	4.10	2.27
$250k-$500k	2,954	1,231	2.40	2.76	4.08	2.03
$500k-$750k	1,545	436	3.54	4.20	4.75	3.04
$750k-$1m	700	146	4.79	5.01	4.87	4.75
$1m-$1.5m	489	78	6.27	8.94	6.28	5.73
$1.5m-$2m	288	32	9.00	8.50	11.97	13.50
$2m-4m	372	23	16.17	12.30	15.36	19.52
$4m+	226	1	226.00	28.63	67.25	24.33
All O.C.	8,080	2,528	3.20	3.65	4.75	3.02

The various segments of the market will bottom at different times. The lowest tier of the market will bottom first. As these buyers gain equity, they form the basis of a move up market which will support higher market strata. The high end will bottom last.

Irvine Renter becomes an OC Register contributor

I guess I have hit the big time. I will now be contributing regular posts to the OC Register. I want to present an accurate depiction of market conditions to as many people as I can. That’s why the OC Housing market report is free to all, and it’s why I will now be contributing to the OC Register. I want to thank Jon Lansner for this opportunity to reveal to the broader OC readership what is really happening in our local housing market.

Blogger: Largest O.C. home-price hit? Laguna Niguel

January 30th, 2012, 9:00 am — Jon Lansner

Larry Roberts has cultivated a loyal following as author of the Irvine Housing Blog and now the Orange County Housing News blog. Staring today, he’ll provide our blog with his occasional take on local homebuying patterns …

Nearly every city in Orange County has seen declines in the dollars-per-square-foot measure of home sales.

The monthly housing market reports at the O.C. Housing News focus on the year-over-year change in dollars-per-square-foot. Why? Because this measure is less affected by the changing mix of sales and provides a better measure of what value buyers were obtaining for their money. Further, the year-over-year comparisons take out the strong seasonal changes we see as house prices rise in the spring and decline in the fall. The data is also smoothed for a three-month average to further remove variability caused by other factors including a small sample size. The result is a fairly smooth and consistent report on the general direction of home prices and the strength of the move.

Source: OC Housing News; click to enlarge!

Right now, the trend is distinctly down — minus 5.5% in the year ended in December.

Here’s the five weakest markets, in the year ending in December, by O.C. Housing News math:

• Laguna Niguel, -12.2%
• Costa Mesa, -11.2%
• Rancho Santa Margarita, -9.6%
• Westminster, -9.5%
• Aliso Viejo, -9.2%

There isn’t much observable pattern to the losses. They are widespread and severe. Even a few of the “immune” beach communities are feeling the pressure on pricing:

• San Clemente, -8.2%
• Huntington Beach, -7.7%
• Corona Del Mar, -5.6%
• Newport Beach, -5.4%

Only two towns are going against the downward trend. The five best performing markets are as follows:

• San Juan Capistrano, +4.7%
• Newport Coast, +1.2%
• Laguna Hills, -1.3%
• Dana Point, -1.3%
• Laguna Beach, -2.0%

The Orange County housing market is very weak despite its relative affordability. With the plethora of REOs and upcoming shadow inventory, prices should continue to weaken. Eventually, the payment affordability will motivate enough potential buyers to act to mop up the inventory, but the market will likely show declining prices as the inventory is absorbed.

Posted in: Our experts • Larry Roberts • trends

---

Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.

Name	*
Email	*
Phone	*

---

Based on what we are seeing now, I conclude the uptick in sales volumes is based on fundamentals. However, sales volumes are still very low by historical standards, and there is a huge amount of overhead supply to absorb, but increasing sales volumes is a good start. It will lead to a market recovery… eventually.

---

For more news, market analysis and property profiles, please see the South OC Housing News.

---

————————————————————————————————————————————-
Proprietary OC Housing News home purchase analysis

25501 GALLUP Cir Laguna Hills, CA 92653

$1,045,000 …….. Asking Price
$2,000,000 ………. Purchase Price
5/2/2007 ………. Purchase Date

($955,000) ………. Gross Gain (Loss)
($160,000) ………… Commissions and Costs at 8%
============================================
($1,115,000) ………. Net Gain (Loss)
============================================
-47.8% ………. Gross Percent Change
-55.8% ………. Net Percent Change
-13.6% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$1,045,000 …….. Asking Price
$209,000 ………… 20% Down Conventional
3.92% …………. Mortgage Interest Rate
30 ……………… Number of Years
$836,000 …….. Mortgage
$201,780 ………. Income Requirement

$3,953 ………… Monthly Mortgage Payment
$906 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$261 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$93 ………… Homeowners Association Fees
============================================
$5,213 ………. Monthly Cash Outlays

($909) ………. Tax Savings
($1,222) ………. Equity Hidden in Payment
$281 ………….. Lost Income to Down Payment
$151 ………….. Maintenance and Replacement Reserves
============================================
$3,513 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$11,950 ………… Furnishing and Move In at 1% + $1,500
$11,950 ………… Closing Costs at 1% + $1,500
$8,360 ………… Interest Points
$209,000 ………… Down Payment
============================================
$241,260 ………. Total Cash Costs
$53,800 ………. Emergency Cash Reserves
============================================
$295,060 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..

Name	*
Email	*
Phone	*

We're sorry, but we couldn't find MLS # S685604 in our database. This property may be a new listing or possibly taken off the market. Please check back again.

Competing Listings

	$1,495,000 25762 HIGHPLAINS Ter		0.36 miles 4 bd / 4.5 ba 4,540 Sq. Ft.
	$2,495,000 26001 HORSESHOE Cir		0.43 miles 5 bd / 5.5 ba 5,700 Sq. Ft.
	$2,395,000 26271 GLEN CANYON Dr		0.45 miles 5 bd / 5 ba 5,046 Sq. Ft.
	$1,595,000 25442 NELLIE GAIL Rd		0.45 miles 5 bd / 3.5 ba 4,002 Sq. Ft.
	$2,290,000 26262 MOUNT DIABLO Rd		0.52 miles 7 bd / 7.5 ba 7,233 Sq. Ft.
	$1,999,000 25142 BUCKSKIN Dr		0.72 miles 6 bd / 5.5 ba 7,250 Sq. Ft.
	$2,499,000 26492 BROKEN BIT Ln		0.76 miles 5 bd / 6 ba 6,623 Sq. Ft.
	$1,950,000 27196 LOST COLT Dr		1.45 miles 5 bd / 5.75 ba 7,000 Sq. Ft.
	$1,498,000 25621 RAPID FALLS Rd		1.45 miles 5 bd / 4.5 ba 5,100 Sq. Ft.
	$849,900 27056 LA PAJA Ln		1.58 miles 5 bd / 4 ba 4,300 Sq. Ft.

---

Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.

Name	*
Email	*
Phone	*

---

---

---

---

---

Sign up for first-time homebuyer training. First Wednesday every month at 6:30 PM. Or RSVP to sales@ochousingnews.com

Don’t lose the OC Housing News

About 500 of you each day come to the OC Housing News through the link back at the Irvine Housing Blog. That link is due to disappear tomorrow. Please add OC Housing News to your favorites. Thank you.