I hear from buyers frequently that are interested in buying a foreclosed home / bank owned property. Sadly, in the under $750,000 market, the competition is brutal. Many times those with 20% down or more will trump those entry level buyers with FHA or VA financing. Even with a strong, high down payment offer, the process is very challenging, listing agents are inaccessible, and offers go into an email black hole.

If you are frustrated, you are not alone. Buyers and agents alike are very discouraged. This video animation done by SanDiegoCastles, is a tremendous illustration of the consumer frustration that abounds.  If you ever need help in San Diego, Kris Berg is your gal.  Love her!

Wagon Wheel

Wagon Wheel is small community in Trabuco Canyon located off Oso Parkway not far from the south gate of Coto de Caza.  The homes were built in the mid 90’s by Kaufman & Broad who subsidized the original mello roos bonds making it known in part, for it’s very reasonable tax rate.

Homes range in size from the condos in the Dakotas (835 to 1,117 square feet) to the gated community of Stonecliff (up to just over 3,000 square feet).

Current market conditions in Wagon Wheel are not dissimilar to Orange County as a whole.  The upper price points remain very slow and the lower price points are plagued by distress inventory.

Market Conditions

Note that there is very little bank owned inventory on the market currently, but given the recent completion of the moratorium on foreclosures, we are seeing Notice of Defaults on the rise again and in the coming months, I expect to see bank owned homes back on the rise in Wagon Wheel and all over Orange County.

The highest sale year to date is in the California Laredo tract at $725,000 in February.  The next closest sale was $600,000.  The poor sale history for the upper price points is  not isolated to Wagon Wheel and is seen across the market due to the lack of available financing and buyer cautiousness.

The highest sale in the last 30 days was in the California Landmark tract, a traditional sale for $556,000.  Between $500,001 and $750,000, there are 5 available properties and 3 in escrow.

Under $500,000 is plagued by distress sales.  Currently 4 out of 5 active listings are short sales, yet the 4 equity sellers currently in escrow reflect the buyer demand – buyers are often reluctant to wait out the lengthy short sale process and opt for a traditional sale.


Under $500,000

Wagon Wheel $500,000 to $750,000

Wagon Wheel over $750,000

Questions?

If you are wondering how these statistics and trends impact your buying, or selling process, please don’t hesitate to let me know.  I’m always happy to help.  No pressure and no obligations.  I can be reached at (949) 939-2514 or emailed at [email protected]

This information and stats are from SoCalMLS and are deemed reliable but not guaranteed.

Microscope on the Market

Today the microscope is on Mission Viejo.

So many of the media numbers focus on Orange County performance, but real estate performance can vary dramatically within our large county and particularly at various price points.

I’m going to spend the next several posts breaking down each of the South Orange County cities to give you an idea of local performance.  Whether you are buying, selling, or just keeping an eye on your local market, these numbers tell the story.

BTW Dear Friends/Readers, if you find this number crunching downright boring – stay tuned.  I always come back to the conversations that are much more fun than this!  :)

Homes Under $500,000

# of Sales Short Sales Bank Owned Equity Sellers
Active 177 66.7% 6.2% 27.1%
In Escrow 126 44.4% 26.2% 29.4%
Closed* 43 27.9% 39.5% 32.6%

I think one of the revealing things about the under $500,000 market is the fact that while nearly 68% of the active inventory are short sales, they make up less than 28% of the homes that closed in the last 30 days. Demand also is high for bank owned product but very little currently exists – only 6.2% in this price range.

Homes $500,000 to $750,000

# of Sales Short Sales Bank Owned Equity Sellers
Active 124 25% 4% 71%
In Escrow 35 45.7% 2.9% 51.4%
Closed* 6 66.6% 33.3% 0

Again, very little inventory in the bank owned market, but significant demand.  There were very few sales in $500,000 to $750,000 market, as well as the $750,000 market as shown below.

It’s important to note where the demand is: of the closed sales in the last 30 days 81.1% have been in the under $500,000 market.

Homes Over $750,001

# of Sales Short Sales Bank Owned Equity Sellers
Active 49 14.3% 2% 83.7%
In Escrow 12 50% 0 50%
Closed* 4 25% 0 75%

Interestingly, there are significantly less short sales in this price point. The bad news – sales are slow and with current buying trends, it would take 12.25 months to exhaust the current inventory of homes if nothing else were to come on the market.

However in the under $500,000 market, it would only take 4.12 months to exhaust all the inventory at the current rate of consumption. As I have mentioned many times here, the short sale listings takes months to close and skew the numbers dramatically. With current inventory, it would only take 1.9 months to consume the equity seller and bank owned listings under $500,000.  This sector of the market is no longer a buyers market.

*Closed Sales are properties that have closed within the last 30 days from the time of this writing.
**All information and statistics are from SoCalMLS and are deemed reliable but not guaranteed.
If you have any questions about market conditions for Mission Viejo, feel free to get in touch with me. I’m happy to help try to make sense of it all.
Microscope on the Market

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.

The new buyer profile today is understandably looking for a ‘good deal’.   With the major changes we’ve seen in Orange County in the last 2 years, the buyers that feel ready to jump into the market are consistently saying, ‘If I find a good deal…’

So what is a ‘good deal’?  Let’s examine the potential opportunities.  There are 3 types of listings that are predominately found in the active market today:

  1. Short Sales
  2. Bank Owned (or REO’s)
  3. Traditional Sellers

Short Sales: A short sale is a listing in which the seller currently owes more than the home is worth in today’s market.  I have discussed the process of a short sale in other locations on this blog.  Do your homework here if you are interested in this type of purchase.  It is a process that will take time and not every short sale will actual sell.  Some seller’s don’t have a legitimate hardship (required for a bank to approve their short sale).  Some will go into foreclosure after weeks of tying up a buyer(s) hoping to buy that home.

Is this a good deal?  Maybe.  Remember, they are usually priced very low to attract offers.  A bank won’t even consider a seller’s hardship until they have an offer.  This may mean that the home is priced far below what the bank may ultimately take.  And if the home is in disrepair, you’ll need to add the cost of repairs into your calculation.  A short sale will take time, patience, and a little luck.  I have seen some ‘good deals’ here but you’ll need to go into the process with ‘eyes wide open’.

Watch for rising interest rates in the meantime.  This can impact your affordability.  Also, watch the market.  What may seem like a ‘good deal’ now, may not seem so great in 4 months when the short sale has been approved if the neighborhood values continue to decline.

Bank Owned or REO’s: This is generally some of the most aggressively priced inventory on the market in Orange and Riverside Counties.  The banks don’t want to carry the inventory and they are priced to move.   The decline in prices have reached a level that has become affordable again for the first time buyer and appealing to the investors.

Steven Thomas, President of Re/Max Real Estate Services recently said in his Market Time Report, “For those looking to find a great “deal” by offering to purchase a property far below the asking price of a distressed home, good luck.  Your chances are much greater in winning the California lottery….The sales to list price ratio, how close a home is sold compared to the asking price, is between 99% and 100% depending upon the price range.“  He continues to make the point that the way that they are priced is already a deal.

After recently working with a buyer on the purchase of a single family home, we consistently found ourselves in multiple offers on bank owned homes – and not just 2 or 3 offers.  Often times there were 10 + offers in place within 48 hours of listing.  Who was awarded the purchase of those homes?  Cash is king here my friends.  Those with cash down, few contingencies, solid credit, and a strong offering price came away with the home.

Traditional Sellers: Some parts of the market are moving more slowly than others.  The bulk of the distress sales, 93% according to Steven Thomas, are under the $750,00 price point and subsequently there is a great deal of pressure on prices in those lower price points.

Are there good deals with traditional sellers?  The short answer – Yes!  Most people that are listing their homes today understand that it is clearly a buyers’ market in Orange County.  They generally know that it won’t be easy and those that are motivated to sell, are pricing their homes to compete with the inventory.  And often times that inventory consists of short sales and banked owned homes, especially in the price points under $750,000.

The bonus on many of these, there still is pride of ownership.  Is a bank owned home still a good buy if there is $50,000 in cosmetic or structural repairs?  Maybe, but maybe not.

The Bottom Line: Seriously consider the potential for a great value from a realistic, traditional seller.  You’ll have the benefit of full disclosure from the seller (which you don’t have in bank owned homes), you’ll have the opportunity to request repairs, you won’t be competing with the buyers that are focused on – “I want to buy a foreclosure’, and you won’t be dealing with the unknowns and long waits of the short sale process.

If you find the great deal you’ve dreamt about in a short sale or bank owned, by all means, go for it.   But be an educated buyer and understand the process and expenses when determining if you really have a good deal!

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.

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