July 2009

This is not a mis-print.  Condo prices have actually gone up about 15% in the past 7 months in south Orange County Ca.    I know it sounds hard to believe in the mist of the the severe recession and the drastic real estate downturn that started back in the Spring of 2006′…  so let me explain.

First some background…. eVantage Real Estate has been collecting statistics for the south Orange County residential real estate since July of 2002′ on a weekly basis. We’ve been charting Months of Inventory, Active vs Pending and Price per Square Foot using our own proprietary indicators which are more time responsive and accurate compared to what is published by the traditional sources.(ie: Major Banks, Title Co’s, News Periodicals).  Most of the major media outlets us 3 to 6 month averages of the prices of homes sold.  Two big problems with this technique.  One, it is delayed in time by about 6 months.  Two, if  the buying habits of the local public changes, and you use average prices of homes sold, then you will produce mis-leading data.  In other words, currently there are many more lower priced homes and condos selling right now to first time homebuyers and investors, then there are Million dollar homes being sold, compared to the sales habits of 2 years ago.  Here is a simple example of what I am talking about… If you Average together 10 Condo sales at $250,000 each,  with one home sale of $2 Million, and compare that to 7 Condo Sales at $350,000 , and 4 homes sales at $2.5 Million from 2 years ago, you will get erroneous numbers.  The Average will tell you that home prices have dropped by 63%… but using this example, Condo prices have only dropped 28%… Gross example, but useful to illustrate the point that this is what is occurring in the south Orange County marketplace.

Below is our Graph of the Months of Inventory of homes in 5 different prices range.  The high end of the market above $1Million, is still very soft at about 12 months of Inventory (a soft Buyers market)… but the low end of the market is a very Hot Sellers market at less then 1 Months of Inventory.  There are many more $200,000 Condos that are selling now, and not very many $2Million estates are selling, as compared to 2 years ago… and this change of buying habit will greatly effect the Average Price of Homes Sold.

So how does one better represent the actual price values of homes ?… Back in July of 2002′ we devised a rolling average Price per Square Foot indicator – one for Condos and another for detached Single Family Homes.  These indicators are much more time sensitive, and more importantly, are not affected by the changing buying habits of the local marketplace.

The Graph below shows our Price per Square Foot indicator.   As we have estimated some months ago, the strong demand at the lower end would actually result in a rise in prices in the near future… and sure enough it has… As can be seen in this graph, the Condo market has now seen a jump in actual sales prices of about 10 to 20% in the past 7 months ….   Albeit, many of these sales have been Bank foreclosed REO’s and Short Sales… but the strong demand for this price level of product, coupled with the relatively low supply, has driven up sales prices for lower priced Condos in the past 7 months.  There is simply not enough inventory to fill the demand, so buyers have been bidding up prices in the low end of the pricing range…  In addition, the detached homes Price per Square Foot indicator has be leveling off now for about 5 months..

The Million dollar question is – does this signal the long term bottom, or is this a short term reaction, with more downside to go… Well I wish I knew the exact answer… My educated guess is this super hot demand will subside somewhat  in the future, and Inventory will rise somewhat.  I think prices may hold at these levels, or possibly drip down a bit more, and then a long term bottoming process will set in before prices begin to rise long term…