When you are looking to buy a home in Orange County, or anywhere else for that matter, it is critical to drill down into the numbers for the sector of the market that you are looking at.  Orange County numbers are wonderful benchmarks to know, but our market is made up also of submarkets within the OC.  It’s important to understand Absorption Rates, Average Days on Market, price per square foot, sale price to list price, etc.

For every buyer I’m working with, I try to do an analysis that really tells the story of the market they are hoping to buy in.  This allows them to have a realistic picture of the market and compete effectively for the home they hope to buy.

If you are a seller, these numbers will be important to you too.  Even if you are not a buyer or seller right now, hang in there.  This may seem dry, but I’ll try to make it fun.  There is a story told by the numbers every time! 

Today, I did some research for an investor I am working with in Rancho Santa Margarita.  She is looking for a condo around $250,000 that has at least 2 bedrooms and 1 car garage.  I looked at the numbers for Rancho Santa Margarita between $200,000 and $300,000, with a minimum of 2 bedrooms and 1 garage – Active, In Escrow, and Closed Sales going 90 days back.  (I recently did this analysis for a Mission Viejo buyer and only included sales over the previous 30 days, but in this instance that would have been swayed too heavily by the holidays).  Here’s what I found for this submarket:

Active Inventory – 47 Listings

• 34 Short Sales or 72%
• 9 Bank Owned or 19%
• 4 Traditional Sellers or 9%

In Escrow – 22 Listings

• 9 Short Sales or 41%
• 9 Bank Owned or 41%
• 4 Traditional Sellers or 19%

Closed Sales in the Last 90 Days – 27 Listings

• 10 Short Sales or 37%
• 10 Bank Owned or 37%
• 8 Traditional Sellers or 30%

Analysis of Closed Sales

• Short Sales:  Average Days on Market – 96, Sale Price to List 102.17%, $256.47 price per sq. ft.
• Bank Owned: Average Days on Market – 35, Sale Price to List 98.89%,  $248.17 price per sq. ft.
• Traditional Sellers: Average Days on Market – 33 (there was one outlier here that if removed would have made it 14), Sale Price to List Price 96.43%, $263.35 price per sq. ft.

Hey wake up! This is fun – really!

So what does all this tell us?

I’m a little surprised to see that some short sales are getting done in this price range.  We still have a large swing in the percentage of active inventory versus closed sales within the short sale market, but maybe the banks are starting to pull it together.  I’ll be watching.

It’s also still clear that the traditional seller is able to secure a slightly higher price.  The swing was much greater in the Mission Viejo analysis I did earlier, but it is still there.  Why?  I think buyers still love to have full disclosure from a real seller.  They also tend to be properties in slightly better condition.  And the best part – you submit an offer, and a real live person actually responds in sometimes as soon as 24 hours!  Wow!

Still the best ‘deal’ going is the bank owned home.  Just beware, is it still a ‘deal’ if you have to put in a lot of money after the close?  Maybe yes, maybe no.  Each property will require individual analysis to make sure that one is really getting a good value for the home.

Hope this helps my investor – and you.  If you ever are in need of a little Microscope on the Market – just let me know.  Just make sure you’ve had your coffee first.

There has been much discussion about the big bailout.  But in case anyone with any influence is listening – I have an idea that could make a big contribution to our market recovery.  Just call anytime and I’ll share my insight with you – from the trenches.  I’ll be waiting for your call.

For the rest of you that might be curious about what I have in mind, I’ll share with you some of what happened to me this week.  Brace yourself because I feel a rant coming on….

As I have said countless times on this blog, short sales are a HUGE factor that is driving our market prices and inventory in Orange County.  For example, 64% of the active homes on the market today in Rancho Santa Margarita, under $500,000, are short sales!  In Mission Viejo, 50% of homes active on the market today under $500,000 are short sales. 

These short sales have offers that have been submitted to banks and are just awaiting approval.  They may have multiple offers.  This is buyer demand that is waiting and the last thing we need in this market is pent up buyer demand waiting.

I’d like to share with you a story about one of my short sale listings.  Within 72 hoursof listing the home back in May, I had 4 offers for asking price, and over.  We submitted them to the bank, along with the package from my seller that clearly qualified for a hardship.  The following dialogue is from this week between my short sale coordinator and the the banking institution’s (a very common and well known lender) negotiator.

My Short Sale Coordinator:

“We now had 4 buyer’s who have cancelled, including the last offer we submitted due to the fact that this process has taken almost 6 months.  We just can’t keep buyers around that long and we can’t keep the value the same for that period of time.  Values are dropping.  We do have another offer, but it is lower than any offer we have received.

“At this point we, as long with the seller, are at a loss as to what to do.  Do you have any suggestions, or any time frame that we can tell buyers?”

The Bank Negotiator:

“I will have to cancel this file because the buyers are no longer interested.  I suggest faxing in the new offer.  Because it is a new offer it will be considered a new file.  Anytime you have a new buyer it starts all over.  A short sale can take 4 - 6 months.  When you send in a  new contract the time frame starts all over. ”

The negotiator goes on to say that they are trying to make time frames shorter and the last response time was 30 days.  But in my experience, that response is inconsistent at best and clearly, they aren’t willing to commit to anything better than 4 to 6 months.

So what’s my big idea?  Let’s save a big bailout expense.  Forget giving money to banks with no accountability for how they use it.  Instead, let’s create an efficient, streamlined method of handling the massive number of properties that are in foreclosure and that are short sales. 

In the case of my listing, it may take one year to get a buyer in that property and a closed sale.  In the meantime, values are detrimentally impacted,  inventory remains misleadingly high,  property condition deteriorates, and suffering sellers can’t restart their lives.  If you shorten this process to 90 days, can you imagine the positive impact on our market?  Just think, 6 months ago I had 4 buyers that wanted to pay full or over list price.  Today’s buyers are thinking about 20% less than that.  THAT is a huge reason prices continue to decline in Orange County and in many parts of the country.

Maybe this is too simplistic.  Maybe this addresses only part of the problem.  But, if we are looking at some of the real, on the ground solutions for the much touted ‘Main Street,’ this seems like a great place to start.  Like I said, to those influential individuals and government institutions dying to hear my Bailout alternative, I’ll be standing by waiting for your call.

There is something wonderful about living somewhere that is walking distance to everything.  In Orange County, it’s a not particularly common.  During my brief couple years of living in San Francisco my husband and I would park our car Friday night and not move it until Monday morning.  We walked to restaurants, movies, dry cleaner – everything.  And I enjoyed my high school and college years in Ashland, Oregon where everything was just a short walk.  It definitely gives you a greater sense of community - a neighborhood.

There is a relatively new site that can assist buyers in ‘finding a walkable neighborhood’.  The site is www.walkscore.com.  It will score an address from 1 to 100 on the walkablility to restaurants, grocery stores, entertainment, schools, libraries, etc. 

I recently put in the address of my newest listing, 35 Paseo Simpatico.  The Walk Score was 86 out of 100!  That may be one of the highest I’ve seen yet.  This home is close to the Library, shopping, restaurants, parks, grocery stores, movies…..My house on the other hand, typical suburban home in Las Flores, had a Walk Score of 8 out of 100.  Has me missing Ashland just a bit……somebody will luck out on 35 Paseo Simpatico!

Updated July 17th:  Someone just shared with me http://drivescore.fizber.com/.  This provides a score of accessibility of a property.  35 Paseo Simpatio scored 88……My own home scored 82 out of 100.  Clearly Paseo Simpatico is much closer to everything so I’m not sure the score is as valuable as the Walk Score, but my ego was soothed just a bit.  For what it’s worth…

It was not long ago, lending was easy, too easy. Did you need money?  No.  Did you need assests?  No.  Did you even need to prove you had income?  No.  So why do an FHA loan?  We didn’t.

Times have changed and there are limited options for first time buyers that aren’t coming away with a ton of equity from the sale of their last home.  Fortunately, there is FHA.

The Federal Housing Adminstration, or FHA, provides mortgage insurance on loans utilizing FHA approved lenders.  The buyer must qualify but only needs a limited down payment. The key here is that if the buyer is looking at condos, the complex must also be FHA approved.

I recently took a listing in Rancho Santa Margarita.  It’s a well priced condo by RSM Lake.  A 2 bedroom, 2 bath home with a 1 car garage, it’s one of the few traditional sellers in that price range.  No waiting for the banks – but with no FHA approval currently on the complex, we have cut some of the great first time buyer pool that would be great for this home at $285,000.  In the meantime the Brisa Del Lago is working on getting that approval again.

And therein lies the problem.  Whenever a complex has had a litigation of any kind, they loose their FHA approval and must go through several steps to regain that FHA approval once that litigation is settled and work completed.

Because FHA lending has not been an issue for some time, many complexes not only let their FHA approval lapse, but once the litigation was resolved, many of the homeowners associations never renewed the applications.  No one complained because no one was applying for FHA loans.

The Homeowner Associations owe it to the homeowners to get this issue resolved sooner rather than later to maximize the buying pool for their homeowners.

If you are a buyer or an agent looking for a condo, check to make sure it is approved by FHA.  If they are not approved, hope is not lost.  Find out if your lending can do a ’spot approval’ for that one unit.  More and more lenders are working on this while condo’s are processing the applications for renewed approval with HUD, U.S. Department of Housing and Urban Development.

Orange County condos and homeowner associations are working on this but it will take some time to catch up to the changing buyer pool and lending restrictions.

Isn’t this the million dollar question!  People talk about it, speculate over it, study it, and try to make buying and selling decisions based on all of it.  So when will the Orange County real estate market improve?

I thought we’d be in this condition at least until Spring of ‘09, because historically election years are not strong real estate years.  Even summer of ‘04 was a tough patch in our market.  With the financial crisis, energy crisis, inflation pressure, and overall economic state, combined with the bizarre election year, I have begun to wonder if Spring ‘09 was even too optimistic.

When a client and friend asked me the question recently, I discussed some of this with him and thought ‘this is a great blog topic!’ 

The one thing I am sure of is that until our short sale, foreclosure, and bank owned inventory is absorbed, the market will not begin to recover.   The traditional sellers are forced to compete with these listings and this continues to drag prices down.

I wondered how much of this inventory made up our existing market.  One of my listings is a condo in Rancho Santa Margarita for $285,000 with 2 bedrooms.  There are currently 36 listings with 2 bedrooms under $300,000 in Rancho Santa Margarita but of those only 9 are NOT short sales! 

So how much of the current market is in ‘distress’?  I should have paid more attention in my Excel class because I would love to chart this (add Excel to my list of technology skills to work on).  The following breaks it down a bit for just some of our local cities as of 5/21/08 (please note that distress sales are all things bank owned, short pays, probate, foreclosure, etc. and all information was gathered from stats on SoCalMLS and deemed reliable but not guaranteed):

Rancho Santa Margarita                                      Canyon Areas

Active Listings           383                                           Active Listings           177

Distress Sales           152  or  40%                            Distress Sales           66 or 37%

Laguna Niguel                                                        Laguna Hills

Active Listings           446                                         Active Listings           205

Distress Sales           152 or 34%                              Distress Sales           80 or 39% 

Mission Viejo                                                           Coto de Caza

Active Listings           450                                           Active Listings           166

Distress Sales           185 or 41%                               Distress Sales           33 or 20% 

Aliso Viejo                                                                Ladera Ranch

Active Listings           301                                          Active Listings           310

Distress                      133 or 44%                              Distress Sales           103 or 33%

If you were to look at some of the coastal communities the numbers are significantly lower:

Newport Coast and Newport Beach     6%

Laguna Beach  7%

Dana Point  12 %

Currently, higher price posts are less impacted than properties like my $285,000 condo in RSM but according to the May 20th artcile in the LA Times, luxury homes prices are beginning to feel the impact.

I’ll continue to watch and post these numbers.  As the # of distress sales begin to decline, that is a likely indicator that the market is beginning a true recovery.