Southern California Market Update:   

Featured Article: 

"Don't Let Today's Buyer's Market Become Tomorrow's Missed Opportunity"

 

Soft!  That’s the one word summary of the current Southern California real estate market.  For the past 18 months prices have fallen and everyone’s been asking how low they will go and how long will current condition last.

After all the experts have weighed in, and given their best guesses, the truth to the matter is….no one really knows.  However, that doesn’t stop us from compiling the information obtained through 20 years of work in the San Gabriel Valley/North Orange County areas to formulate some insights about where we’re headed.

So Based upon the latest numbers, we’ll give you our take on what’s happening and what will likely happen in the next three years.

Economics 101

First, rising and falling prices are always tied to supply and demand.  Demand in this case is money and affordability.  Because Lenders have tightened lending  standards and interest rates are higher, real estate is less affordable and demand is down.  With less demand and higher supply (more homes on the market) prices are falling.

Generally, the market will stay soft for 18-24 months with another 12-18 months of stability before it starts to rise again.  But some areas will have price stability for the next two years.  Others will decline substantially.  Why is this?  And more importantly where is this?  The lesson here is price softening has nothing to do with desirability of a particular neighborhood.  Instead, it has everything to do with supply.

Some areas have a larger supply of homes for sale than neighborhoods near them.  And the neighborhoods with lower supply of homes are essentially stable in price.  So if desirability isn’t a determining factor in why some neighborhoods have greater supply than others, what is?

The market was red hot in 2004 and 2005, (a rising tide raises all ships) and a large supply of new homes were being built.  Buyers purchased thousands of new homes at premium prices expecting values to continue surging higher.  Because of the sharp rise in supply in a booming market virtually every one of those homes is worth less today, sometimes substantially less, now that the market has cooled off.

“The lesson here is that price softening has nothing to do with the desirability of a particular neighborhood”

Areas built primarily in this time period….Corona, has a high number of short sales and foreclosures.  The Inland Empire is being killed right now….everyone seems to be walking away from property built in ’04 and ’05.

Another group that should be watched closely is the resale property bought during 2004 and 2005 with little or no money down.  These types of purchases can affect any neighborhood’s values, but in this market they have hit the first-time buyer and lower price points the hardest.  Why?  Because those buyers who put little or no money down are now upside down on their mortgages (they owe more than their homes are worth).  The condo market has been especially soft for this reason.  There are currently more than 800 condos for sale in North Orange County and the East San Gabriel Valley alone, with only a small percentage in escrow.  As the market continues to soften, this trend will only increase.

In the next category up, people typically are not walking away from homes in the move-up price range of $600,000 to $900,000.  These homeowners bought after selling their previous homes and made substantial down payments.  They aren’t walking away from their investments, because they have the necessary equity to ride out the storm.

Bottom Line

To sum it up, areas built prior to 2003 have been and will continue to be more stable in price.  People bought there for more traditional reasons, not to invest.  They have equity in their homes and plan to stay longer-term.  Areas with a high percentage of sales from late 2003-2006 will have more supply and softer price expectations until that supply is absorbed.

Let us leave you with this.  Look beyond the reports of foreclosures, the sub prime mess in the loan industry, jumbo loan rate increases, and stories of builders losing money and falling prices.  Pay attention instead to a recent front-page Los Angeles Times story that forecasts the population increases for the five counties in Southern California over the next 20 years.  Remember that 3 years ago the media proclaimed a housing shortage in California.  That proclamation has not changed.  People have to live somewhere.  Realize then that every part of our service area will rebound.  It’s happened before and will likely happen again.  In the meantime, keep an eye out for upswings in the market, pockets of activity and, of course, our next market update.

 

Current Market Stats:  northern Orange County, California

Multiple Listing Stats	Brea, La Habra, Fullerton, Yorba Linda, Placentia
Price Range	Listing Market		Pending-30 days		Sold %
$0-399,999	325		22		7%
$400,000 - 499,999	348		28		8%
$500,000 - 599,999	385		25		6%
$600,000 - $799,999	446		25		6%
$800,000 - 1,000,000	216		9		4%
$1,000,000 - 1,499,999	162		9		6%
$1,500,000 - 1,999,999	68		4		6%
$2,000,000 +	33		0		0%
Total	1983		122		6%
New Listings this month		428
Expireds this month		238