As most everyone knows by now, the Orange County Real Estate market has been taking a beating in the past 12 months. The rate of sales is at it’s lowest level in 20 years. And, unlike the mis-information reported elsewhere, prices have already dropped by 10% or more… But there may a ray of hope. 
As shown above, we have been charting the Months of Inventory since July of 2002′. A significant drop in the months of inventory just occurred for the first time since May of this year. This is due to the number of homes active for sale slowly and steadily decreasing since August, and more importantly, there has been an increase in the number of homes Pending In Escrow in the past two weeks (See chart at the bottom). Home prices started to decline starting back in June of last year (2006’), and a few more buyers are jumping off the fence and purchasing homes at this low prices. (See chart below)
The above chart shows price per Square Foot for both detached homes and attached Condos, for cities in south Orange County, excluding the beach towns (ie: San Clemente, Dana Point, etc.), for we have found that a few Ocean Front estate sales throws a wrench in the stats for that month. Price per Square Foot is a more accurate measurement of the percentage movement of home prices. Compared to Median or Average prices, the Price per Square Foot is more immune to changing buyers habits, such as more buyers buying more bigger homes now versus more smaller homes years ago. As you can see in the Price per Square foot graph below, home prices peaked in April of 2006’ at about $410 per square foot, and have since pulled back to about $364 per square foot today, which represents a drop of about 11%. Also, these closed sales prices actually lag behind a changing market since they are based upon last months closed sales. Today, homes on average are selling at about 3% to 4% less then their asking prices, and asking prices today are based mostly on recent sales (if not a bit lower). 
Therefore, I expect that in the next several months (Jan of 08’), we’ll see this Price per Square Foot graph drop down another 4% or so to about $345 per square foot. This would place home values at the same level they were at back in May of 2004’, and would represent an overall drop in prices of about 15% from the peak in pricing. If the prospective fence sitting buyers continue jumping off that fence, which I expect they will, homes prices should hold at about the $345 per square foot level for most of 2008’, and then probably start to gradually rise in laste 2008′ or early 2009′. Based upon most every previous year, I also expect the number of sales (Pending homes In Escrow) to gradually rise as well starting in Jan of 08’.
I have a hunch that this correction is going to work it’s way through much faster then the previous correction back in the early 1990’s The last price correction started around early 1990, and lasted until 1996 or so… 6 years. Back then The OC went Bankrupt and many jobs were lost and the population decreased. Also, that was before the Internet age when Buyers and Sellers got most of their information from agents, appraisers, lenders, and the newspapers. Now, a prospective buyer/seller can hop on the Web and instantly gather market info via graphs, charts, reports, research, etc… which ultimately enables them respond in a more timely and less emotional way, which I think will result in this being a much shorter duration correction then the 1990’s
