There is lots of worry in the residential marketplace today in Orange County, Ca. Prices have dropped about 30% to 35% from their peak values that occurred in the summer of 2006′. But I see some signs that we may be reaching the bottom of this pricing downturn. How you may ask ?

First sign… I have been tracking the internal market stats for residential real estate in south Orange county, CA since July of 2002′ on a weekly basis. I’ve been charting Months of Inventory, Active vs Pending and Price per Square Foot using our own proprietary indicators which are more time responsive by about 4 to 6 months then what is published by the traditional sources.(ie: Major Banks, Title Co’s).   The Months of  Inventory is a very sensitive indicator that is a leads the movement of prices by about 6 months.  The Months of Inventory dramatically dropped about 4 months ago, and if the rate holds, I expect prices to bottom out by the end of this year.  Now this indicator does not have any long term predictive powers, and if interest rates where to dramatically rise, of the lending markets where to freeze up and become illiquid then all bets are off.   (See Chart Below)

Second Sign — I know a little bit about the stock market, and one of the signs indicating that a bottom may have been reached is if the stock price does not react negatively upon the release of negative news that should have affected the stock.  I’ve noticed this phenomena in real estate prices. Albeit the price movement in real estate move at a much slower pace then stocks. During the tragedy of 9-11-01, the Orange County, Ca real estate market slowed done, but prices did not budge.  Then at the beginning of the following year, prices continued to rise.  During the the financial meltdown that started about 3 weeks ago, in which many financial advisers where fearful that this may have started a Great Depression II, the number of homes under contract (In Escrow), hardly changed.  Sure we new of a few clients here and there, who backed out of their transactions, but I was expecting a large number of contract cancellations… but it didn’t happen.  Evidently, the vast majority of buyer in escrow during this time feel confident that they are buying property at bargain basement prices.  That I say is a sign of an approaching pricing bottom.  See the graph below that shows that the number of homes in escrow, has essentially held steady for the past 6 months.  In addition, the number of homes in escrow has nearly tripled since the 20 year low set in January of this year, while the number of homes Active for sale has dropped considerably. (see graph below)