So I buckled myself up, and sat in front of the computer for a few hours to extrapolate some of the data from the Multiple Listing Service (MLS).  For a numbers geek like me, it’s pretty interesting stuff. And if you’re not a numbers geek…you might be surprised to find, it’s not entirely boring.  Work with me here…

The Good

There is no doubt that certain communities have been more resilient over the course of this housing crisis than others.  In my recent post discussing the  product profile for new residential construction in Orange County, I discussed the uniqueness of the Irvine market.  It has some of the lowest distress numbers in South County and a buyer demand that is consistently selling out the newest construction projects.  Year-to-date they have had less than 7% of all closings listed as bank owned (foreclosed) property and 22% short sales.  With less than a combined total of 29% for properties closed that were ‘distress’ so far this year, Irvine is one of the strongest cities in the county.

The strength of the Irvine buyer demand may be attributed to the nationally renowned schools, the proximity to Chapman University and University of Irvine, and the attractive commute to many Orange County employers.

My suspicion is also that the buyer profile may have been stronger.  I’d need to do further research, but given the large amount of new construction sold during the boom years, I’m a little surprised to still see a relatively low default rate, or distress market, as compared to other areas in South County that grew up in the boom.

The Bad…Or At Least ‘Not So Good’

Some of the other cities have seen significantly higher numbers of distress sales – bank owned properties and short sales closed.

Lake Forest has seen some fairly dismal numbers at nearly 60% of their closings either bank owned or short sales, with a slight improvement this year so far at 55.9%.  It’s also interesting to note that while some cities (Mission Viejo and Rancho Santa Margarita) seem to be seeing a slight improvement in the percentage of equity sales (owners can sell for a price that covers mortgages and costs of sale) this year, Laguna Niguel and Aliso Viejo have seen decreases. Why?

We’ve seen that some of the higher price points have been stronger for longer.  In other words, it’s only been more recently that we’ve seen short sales or bank foreclosures to any great extent in the higher price points.  These neighborhoods may now be feeling that pinch.

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The Really Ugly

It’s interesting to examine the nature of the neighborhoods that have the highest number of distress inventories.  Upon examining a couple of the neighborhoods, it’s clear to me there are some very real reasons for the challenges some of these neighborhoods are facing.

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It’s important to know the following about the this chart – Ladera Ranch numbers include their gated community of Covenant Hills, and San Clemente’s overall numbers include their newest addition of Talega in their calculations.  For discussion, I’ve pulled out the specifics for both Covenant Hills and Talega.

It’s hard to ignore, out of the cities I profiled, the only one that didn’t have a lower percentage of bank owned homes (foreclosures) was Lake Forest, and certainly Lake Forest has really struggled with high numbers of distress throughout this market as well.

Growing Up In The Boom

I’m particularly interested in the makeup of Ladera Ranch, Covenant Hills, and Talega in this crisis, however.  These are neighborhoods that experienced unprecedented demand, and in the early years, unprecedented appreciation.  The product was new, architecture was unique, planning was exceptional, and it was highly appealing to the buyer profile of the day.  But the one commonality these neighborhoods also face is the fact that they literally grew up in the boom.

And in the case of Covenant Hills (which I intend to explore further in a future post) you have a community, a luxury one at that, that was just in the beginning stages of it’s launch.  And while the construction of the planned community, high-end tract homes, has nearly completed at this point, the high number of available empty lots slated for luxury custom builds, remains vast.

And when you have entire communities that are built in a boom, the overall impact of that bust can be devastating.    For a small community like Covenant Hills – the high end of Ladera Ranch – to see nearly 64% of it’s year-to-date sales as distress, the impact cannot be overstated. With Talega suffering over 60% of it’s closed inventory year-to-date as distress sales, there can be no question that this has dramatic impact on value.

Is There a ‘Good Deal’ for a Buyer Here?

Without a doubt, there are opportunities to get a ‘good deal’ in these neighborhoods.  In some of the hardest hit neighborhoods, prices have fallen and distress inventory is high.  So if a ‘deal’ is the goal, they are certainly here.

But I’m curious about your perspective as a buyer – and I’m interested in your feedback.  If you find a property that is 50% off it’s peak in Covenant how do you respond to that?  Do you feel like it’s a better deal than the property that is only 30% off the peak in another neighborhood – some parts of Irvine for example.

It’s an interesting concept to consider.  Every buyer I talk to has one request in common – a good deal.  I think that’s an important thing to define in your search for a home.  Is the ‘deal’ the predominant factor, really?  Is the long term value of the community a consideration?  Do the amenities impact your decision?

However, one may consider the long term prospective recovery in Covenant Hills as a real opportunity.

It really begs the question – from a buyer perspective, what do you consider a ‘good deal’ in this environment?

Short Sales and Volume

Some things to note from the above numbers, in 2008 the foreclosed/bank owned homes were the more common distressed property available.  In 2009 the tide shifted and short sales played a much more significant role, one which grew further this year.

Also, it’s interesting to note volume.  Nearly across the board, the number of sales increased from 2008 to 2009.  Jury is out for 2010 – but my personal opinion, given the expiration of the Housing Tax Credit, things may be fairly quiet for the 4th quarter of this year.

Jon Lanser with the Orange County Register recently did a post breaking down the number of sales and the change in median price per zip code that might be interesting to check out.

Price point is really one of the big players in this discussion.  The movement that is taking place is great if you are a seller in the below $500,000 market.  With the limitations in lending and lower pool of qualified buyers, sellers in the upper price points have to be prepared for a longer selling cycle.

When we talk about Absorption Rate, we are talking about how many months it would take for the existing buying demand to consume the total inventory if no other homes were to come on the market.  I recently calculated the Absorption Rates for some of South Orange County’s cities, but to get the truest picture of each marketplace, I thought it was critical to break it down by price point.

This is how it looks:

Notice, for example, Laguna Niguel.  It will take 14.42 months to exhaust the supply of inventory with current demand in the over $750 price range, yet homes in Laguna Niguel under $500,000 will only take 5.7 months to absorb. It’s important to note that Laguna Niguel has one of the lower rates of distressed property rates in the county and have a much higher median sales price overall.

Steven Thomas of Altera Real Estate, reported in his Orange County Housing Report that 69.4% of all the Lake Forest inventory are distressed sales.  Buyers and investors alike are targeting the distressed part of the market as opportunities.  Part of the reason that Lake Forest is enjoying one of the lowest overall absorption rates in our market is the high percentage of distress inventory and the related demand.

If you are considering buying, or selling your home, and want to know more about what these numbers might mean to you, don’t hesitate to let me know.  No arm twisting here – just happy to answer questions.
*These numbers are from SoCal MLS figures in the first week of November and
the closed sales in the proceeding 30 days.