Orange County

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ORANGE COUNTY
MARkET OvERviEw
a monthly real estate report | March 2010

Move-up Buyers Benefit From Affordability
One of the bright spots of the economy is the rise in economic indicators for the last ten months. But in January 2010, five of the ten indicators that rose weren’t the ones the economy is watching most closely. Jobs, money supply, building permits and capital goods ordered all declined. The home building industry posted its first production gains in years in January, but new home units are still 75% below where they were at the peak of the housing market. Further hampering construction recovery are the rising costs of lumber and any goods derived from oil. That’s a good thing for California home sellers, whose properties don’t need more competition. Foreclosed homes are being dumped on the market and selling at an average 28% discount (according to research by Zillow.com). This has driven housing prices to pre-boom levels. What’s changed? Jobs – 8.4 million have been lost in a little over two years. Among the key concerns is tight credit. Banks that benefited from the Troubled Asset Relief Program and repaid their loans no longer have to report how much they loan to small business. Consequently, banks have cut small business loan balances more than $2.3 billion, according to Treasury reports. Tight credit slows hiring, and jobs are exactly what the economy needs right now. The Federal Reserve released notes on February 17, 2010 that it expects the jobless rate to fall, but not by much. Currently, the unemployment rate is 9.7% and expected to fall to 9.5% by the end of the year, to 8.5% in 2011, and to 7.5% in 2012. While the market has choked down most of the bad loans from sub-prime lending, now prime loans are going into default due to job losses. Out of all FHA-guaranteed loans made in 2007, about 25% are in claims by lenders. And data from the Center for Community Capital, University of North Carolina at Chapel Hill found that the number of loans in the process of foreclosure increased 52%, or 252,000 loans, between October 2008 and October 2009. The Analysis of Mortgage Servicing Performance, Data Report No. 4, January 2010, found that the number of prime loans accounted for 71% of the increase in the total number of loans in the process of foreclosure. Jumbo loan defaults (loans above conforming ranges – $729,750 in high-cost areas) have risen 32 months in a row, according to Fitch Ratings. Two-thirds of delinquent “jumbo” loans are concentrated in five states – California, New York, Florida, Virginia and New Jersey. The Federal Housing Agency is tightening standards to make sure that participating banks give FHA-guaranteed loans to borrowers who are less likely to default. Fees to obtain government-guaranteed loans are higher, and so are credit score minimums. But at least more loans will be available. Mortgage lenders are expanding their loan-tovalue criteria to 95% on conventional loans. This will provide more options to borrowers. “Prior to this change, FHA/VA was the only option for loans with less than 10% down,” explains Danny T. Valentini, SVP-Regional Manager HomeServices Lending, San Diego County. “But despite the expanded criteria for conventional loans, borrowers must have FICO scores of 720 for single-family homes and 740 for condominiums to qualify.” In addition, the FHA has suspended the 90-day anti-flipping rule, allowing borrowers to resell homes they’ve bought at a discount (such as foreclosures) and improving them to command more on the market. While these changes will clearly help home buyers with good credit, the question may still remain: what does housing have going for it? The answer is unprecedented affordability. After four years of falling prices, the typical American family making the national median income of $64,000 can buy any of 70.8% of homes being sold on the market today, according to the National Association of Home Builders and Wells Fargo. That’s a little off the high of 72.5% reached in Q1 2009, but far better than the 55% affordability seen in Q2 2008. Another indication of affordability: the percentage of households able to buy an entrylevel home in California reached 64% in Q2 2009, according to the California Association of REALTORS®. Affordability is even more appealing for moveup buyers. Here is an example, provided by David Deisinger, a REALTOR® with Prudential California Realty www.prudentialcal.com in Carlsbad, California. *The sellers of a 1,600 square-foot, 2-bedroom, 2-bath condominium want to move up. They have $200,000 in equity and an outstanding loan amount of $200,000 at 6%. The move-up seller’s monthly payment is $1935.77 including principal and interest, $1,199 .10; property tax, $366.67; and homeowners fee, $370. For only a few hundred dollars more a month, these move-up sellers can purchase a newer 2,200-square-foot, 4-bedroom, 3-bath home for $550,000. Here’s how. Putting the $200,000 in equity from the condo down, the move-up buyers borrow $350,000 at 6%. With a principal/interest payment of $1878.88, plus taxes, $504.17, and

$130 a month in homeowner association fees, the move-up sellers can have a larger home with more bedrooms and baths for $2,513.05 – a difference of $577.28 per month. They’ll also get a tax refund of up to $6,500, in essence reducing the cost of buying the new home another .01%. The example works well even without the large down payment – because the prices of homes in the entry-level ranges are rising faster than those of higher-range homes. Move-up inventory is more attractive by comparison, because the less expensive inventory is priced as high as the move-up inventory in terms of square footage. At a sales price of $400,000 and 1,600 square feet, the condo in the example above

costs $250 per square foot. The move-up home at $550,000 and 2,200 square feet – single-family, updated with granite, and lower in HOA fees for similar amenities – is also $250 per square foot. Advice for Buyers: Do the math with your real estate agent and loan officer. Be prepared with income and asset documentation before you shop for a home, so you can make a solid offer the seller will accept. Time is of the essence – shop early! Tax incentives end April 30, 2010, and the last-minute crush will cause lender pipelines to clog, slowing closings. You must have an accepted contract by the April deadline, and occupy your new home by June 30, 2010. Advice for Sellers: With FHA rules minimizing seller incentives to buyers, it’s

more important than ever to make your home stand out from the competition in terms of both price and features. Make sure your home is immaculate and movein ready, with no repairs or critical work left undone. *Loan and purchase terms are examples only and any seller and buyer’s particular costs will be dependent on their credit scores, income information, and loan programs available at the time of their sale or purchase. Prudential California Realty makes no promise or guarantee regarding the costs of any particular purchase or loan. See your local Prudential agent for examples in your area. Prudential strongly recommends that all buyers and sellers consult with their tax and loan professionals regarding real estate transactions.

ORANGE COUNTY Orange County is enjoying a *seller’s market in homes priced under $1 million, but the market is still sensitive after the snubbing it received for the last few years. As prices hit bottom in Q1 2009, sales volume returned, but both sales volume and price strength ebbed when they surpassed the numbers in late 2008. Buyers and sellers should pay close attention to inventory levels as they list their homes and make offers to purchase.

*A balanced market is widely accepted as having six months of inventory on hand with market conditions favorable to both buyers and sellers. A buyer’s market is characterized by conditions such as high inventories, falling prices, concessions by sellers, and incentives among other indicators. A seller’s market has low inventories of homes for sale, escalating prices, and keen competition between buyers, including multiple offers. Detached homes stand alone and share no common walls with any other neighboring home. Attached homes share at least one common wall with another home. The type of home ownership is determined by whether or not it is a condominium, townhome, duplex, co-operative or other.

Listings Sold by Calendar Quarter All residential properties in SoCalMLS-Orange County 9 quarters List Price Range (Less than $1 million) through December 31, 2009

Listings Sold by Calendar Quarter
Average Sale Price (Thousands)
$600

Homes Sold

Avg Sale Price
$500

6,625 5,565 6,024

Listings Sold Units 6,862 6,598 6,090

8,000

6,000

$400

5,073
$300

2,993
$200

3,201

4,000

As prices rose, sales volume leveled off in 2009 for homes priced $1 million or less. Sellers should be wary of overpricing – buyers may not want to see prices any higher than they were a year ago.

$529
$100

$489

$476

$445

$411

$393

$412

$429

$434

2,000

1-year avg. price trend: Up 5.8 % 2-year avg. price trend: Down 17.8 %
2007/4 2008/1 2008/2 2008/3 2008/4

1-year sales trend: Up 1.1 % 2-year sales trend: Up 103.5 %
2009/1 2009/2 2009/3 2009/4

$0

0

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis dates are October 1, 2007 through December 31, 2009. Does not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved.

Inventory in Months’ Supply – February 3, 2010 Detached properties in SoCalMLS-Orange County

Detached Properties - Inventory in Months
Under $300K $300K - $399K $400K - $499K $500K - $599K $600K - $699K $700K - $799K $800K - $899K $900K and over

1.6 2.0 2.3 2.4 3.1 3.0 3.4 7.9 8.0 10.0

Detached homes are enjoying a heated seller’s market. Only homes priced $900k and above have sluggish inventory levels.

Inventory in Months’ Supply – February 3, 2010 0.0 2.0 4.0 6.0 Attached properties in SoCalMLS-Orange County

Attached Properties - Inventory in Months
Under $300K $300K - $399K $400K - $499K $500K - $599K $600K - $699K $700K - $799K $800K - $899K

Copyright © 2010, Real Data Strategies, Inc. All rights reserved. Use is by license agreement only.

2.5 2.4 2.8 4.0 4.9 6.8

Attached homes are also selling briskly under $1 million, but attached homes priced $900k and above are in danger of languishing.

9.1 Pricing Reality – February 3, 2010 $900K and over 10.8 List prices per square foot by MLS status Detached properties in SoCalMLS-Orange 10.0 County 12.0 0.0 2.0 4.0 6.0 8.0

Detached Properties - Pricing Realty for Sellers, per square foot
ACTIVE

Copyright © 2010, Real Data Strategies, Inc. All rights reserved. Use is by license agreement only.

$511 $319 $328 $304

Sellers should carefully consider current buyer demand when pricing their home for sale. When list prices per square foot of Backup and Pending status properties are below that of Active properties, sellers should ask for pricing counsel from their Agent.

BACKUP OFFERS

The disparity between active listings’ price per square foot and that of solds underscores the heated seller’s market in affordable homes.

CLOSED SALE

HOLD DO NOT SHOW

PENDING SALE

Pricing Reality – February 3, 2010 $292 List prices per square foot by MLS status Attached properties in SoCalMLS-Orange County
$0 $100 $200 $300 $400 $500

$600

Attached Properties - Pricing Realty for Sellers, per square foot
ACTIVE
Copyright © 2010, Real Data Strategies, Inc. All rights reserved. Use is by license agreement only. Sellers should carefully consider current buyer demand when pricing their home for sale. When list prices per square foot of Backup and Pending status properties are below that of Active properties, sellers should ask for pricing counsel from their Agent.

$327

BACKUP OFFERS

$254 $260 $247 $232 $100 $200 $300 $400

Like detached homes, attached properties are selling much faster in the affordable ranges, but lower pending prices per square foot than solds suggests that attached home buyers have more leverage.

CLOSED SALE

HOLD DO NOT SHOW

PENDING SALE

$0

Copyright © 2010, Real Data Strategies, Inc. All rights reserved. Use is by license agreement only.

Monthly Listings Taken and Absorbed Detached properties in SoCalMLS-Orange County 12 months through January, 2010

Detached Properties - Monthly Listings Taken and Absorbed 12 Months through January 2010
2,500 New Listings 2,000 1,442 1,567 1,533 1,586 1,664 1,706 1,634 1,656 Listings Absorbed 1,783 1,542 1,339 1,000 1,000 500 2,250 2,000

1,500

1,500

As inventories depleted toward the end of 2009, sellers decided to test the market in January, increasing new listings by 31%. Absorption rates also rose in January, but only by 14%. if sellers flood the market, prices could be impacted.

500

0
New Listings Listings Absorbed

2009/02 2009/03 2009/04 2009/05 2009/06 2009/07 2009/08 2009/09 2009/10 2009/11 2009/12 2010/01 1442 1567 1533 1586 1664 1706 1634 1656 1783 1542 1339 1336 2250 1687

0

1217 1470 1573 1537 1648 1575 1657 1619 1491 1466 Monthly Listings Taken and Absorbed Attached properties in SoCalMLS-Orange County 12 months through January, 2010

Attached Properties - Monthly Listings Taken and Absorbed 12 Months through January 2010
1,600 New Listings Listings Absorbed 1,155 1,081 1,019 1,009 927 900 1,426 1,200 1,500

1,200 920 800

1,087

1,074 983 967 1,002

600 400

Optimistic attached home sellers also increased new listings on the market in January 2010 (+38%) over December 2009, to the highest inventory levels in two years. Absorption rates increased only by 5% month-overmonth, so sellers should beware of flooding the market with new inventory if absorption rates don’t pick up.

300

0
New Listings Listings Absorbed

2009/02 2009/03 2009/04 2009/05 2009/06 2009/07 2009/08 2009/09 2009/10 2009/11 2009/12 2010/01 920 757 1087 982 983 978 967 925 1002 1096 1074 1075 1019 1051 1081 1060 1155 1068 1009 906 927 943 1426 1320

0

Listings Sold by Calendar Quarter Detached properties in SoCalMLS-Orange County 9 quarters through December 31, 2009

Detached Properties - Listings Sold by Calendar Quarter 9 Quarters through December 31, 2009
Homes Sold

Average Sale Price (Thousands)
$1,000

Avg Sale Price 4,621 4,079 4,060

Listings Sold Units

6,000

$800

4,392

4,573 4,077 4,000

$600

3,300
$400

2,184 $935

2,279 $825 2,000

Detached home sales prices remain well below where they were in Q4 2009, yet buyers still appear reluctant to allow more gains to take place. Sales volume fell in Q4 2009, even though it is still well ahead of Q4 2008.

$758

$679

$632

$586

$629

$688

$685

$200

1-year avg. price trend: Up 8.5 % 2-year avg. price trend: Down 26.7 %
$0 2007/4 2008/1 2008/2 2008/3 2008/4

1-year sales trend: Up 0.4 % 2-year sales trend: Up 86.7 %
2009/1 2009/2 2009/3 2009/4

0

Analysis dates Listingsare October 1, 2007 through December Quarternot reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved. Sold by Calendar 31, 2009. Does Attached properties in SoCalMLS-Orange County 9 quarters through December 31, 2009

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy.

Attached Properties - Listings Sold by Calendar Quarter 9 Quarters through December 31, 2009
Avg Sale Price Listings Sold Units 2,692 2,409 2,903 2,571 2,071

Average Sale Price (Thousands)
$500

Homes Sold

3,500 3,000 2,500 2,000 1,500

$400

2,635 2,190

$300

$200

1,358 $448

1,381

with greater inventory as competition and slower volume for the year, attached home sellers have only been able to manage marginal price gains in 2009 over 2008.

$404

$396

$354

$312

$293

$309

$327

$331

1,000 500 0

$100

1-year avg. price trend: Up 6 % 2-year avg. price trend: Down 26.1 %
$0 2007/4 2008/1 2008/2 2008/3 2008/4

1-year sales trend: Up 6.7 % 2-year sales trend: Up 89.3 %
2009/1 2009/2 2009/3 2009/4

©2009 Prudential California Realty independently owned and operated. Objective data used in this report provided by Real Data Strategies. inc. Our company’s mailing materials are printed on paper certified by the Forest Stewardship Council (FSC) as the product of sustainably managed forests. An independently owned and operated member of the Prudential Real Estate Affiliates, inc. This is not intended as a solicitation if your property is currently listed with another broker.

Based on data supplied by SoCalMLS / Orange County and its member Associations of REALTORS, who are not responsible for its accuracy. Analysis dates are October 1, 2007 through December 31, 2009. Does not reflect all activity in the market place. Copyright © 2010, Real Data Strategies, Inc. All rights reserved.

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