Orange County CA Real Estate

There is much confusion and accidental mis-information about the current state of  Home and Condo Prices in Orange County, CA.   Part of the confusion results in the unique market conditions we are now in in which the lower end of the house pricing spectrum is more negatively impacted then the higher end.  The accidental mis-information comes into play by the established organizations that report on housing prices (ie: DataQuick, Major Banks, Major Title Companies) who rely on Average and Median prices, versus Average Price per Square foot.  When you couple to two events together, you wind up with some confusing housing price information. 

We'll illustrate the conflicting numbers, and then hopefully give some clarity to the subject.  But first some basic definitions.   The Average for homes prices, is simply the sum total of the sales prices of all homes sold in a certain area (ie: Orange County, Santa Ana) during a certain period of time (ie: 12 months, 6 months, 3 months), and then dividing by that total number of homes sold. 

The Median is determined by taking the same list of sold homes, and calculating the sales price at which half of the homes sold were below this price, and half of the homes sold were above this price.  Although the Median is a bit harder to calculate, it is considered to be a bit more accurate representation, since the Average can be more easily skewed to the high side by a few very high priced homes sales during the period.  Both of these calculations though, can give mis-leading representations when you have a change in buyer habits... which is exactly what is happening now in Orange County. 

As an example of the confusion caused by Averages and Median in a changing market, take a look at this recent DataQuick report by the Orange County Register reporting Median home prices for all cities in Orange County.  Buena Park is showing a 20% drop in prices, while Cypress is showing a 6% increase in the same time period.  Dana Point shows a 21% increase in prices, while the adjacent city of Laguna Niguel shows a 10% drop during the same period.  What gives ?  Logic dictates that something is wrong with this type of statistical analysis.  The misleading statistics are a result of looking at Median and Average prices, instead of Price per Square Foot, and also combining Condo sales with detached Home sales. 

Below is a table of statistics that we gathered for the Average, Median and Price per Square Foot for the Past 3 months (Sept, Oct, Nov), and the same calculations for the same 3 month period 1 Year ago, for various Cities throughout Orange County, for detached Homes only (not including condos).  As can be seen, some Cities show only a small drop in Average home prices, and others yield an increase in the Average price, but a decrease in the Median price... while a few other cities are actually reporting an increase of almost 17% to 35% in the past year in Average or Median prices.  For instance, Dana Point and San Juan Capistrano are showing large increases in the Average or Median prices in the past 12 months.  But ask anyone on the street, and they tell you this is preposterous.  The actual truth about home pricing in these two cities (and the rest for that matter) are more closely revealed by looking at the Price per Square Foot which shows a 5.8% drop in Dana Point and a 10.5% drop in San Juan Capistrano.

Sept, Oct, Nov  2006'

City	Average	Median	Price per SqFt
Anaheim	600,565	585,000	416
Orange	763,933	690,000	404
San Juan Capistrano	936,449	766,000	421
Costa Mesa	826,849	743,500	488
Mission Viejo	737,033	689,900	378
Laguna Niguel	1,085,506	905,000	419
Fullerton	713,397	629,000	394
Dana Point	1,516,212	980,000	644
Irvine	953,457	800,000	431

Sept, Oct, Nov  2007'

City	Average	Median	Price per SqFt
Anaheim	514,599	495,000	341
Orange	722,213	607,000	348
San Juan Capistrano	1,236,999	1,039,925	377
Costa Mesa	759,597	720,000	443
Mission Viejo	730,547	639,000	347
Laguna Niguel	987,340	860,000	386
Fullerton	690,645	627,000	363
Dana Point	1,784,459	1,300,000	608
Irvine	974,121	760,000	413

Percent (%) Change in Past Year

City	Average	Median	Price per SqFt
Anaheim	-14.3%	-15.4%	-18.0%
Orange	-5.5%	-12.0%	-13.9%
San Juan Capistrano	32.1%	35.8%	-10.5%
Costa Mesa	-8.1%	-3.2%	-9.2%
Mission Viejo	-0.9%	-7.4%	-8.2%
Laguna Niguel	-9.0%	-5.0%	-7.9%
Fullerton	-3.2%	-0.3%	-7.9%
Dana Point	17.7%	32.7%	-5.6%
Irvine	2.2%	-5.0%	-4.2%

How can this be you may ask ?  In the past 12 months, there have been fewer entry level buyers purchasing lower price detached homes using low down payment financing in Dana Point and San Juan Capistrano.  While there has been a relativity larger percentage of higher income buyers purchasing larger - higher priced homes, but at sales prices substantially lower then they were 1 year ago.  

The major reporting agencies (DataQuick, Banks, Title Companies) have relied upon  Averages and Median prices for years since this data is easier to gather then Price per Square Foot, and is also easier for the average consumer to relate too.  A newspaper Headline that reads "Average Home prices in Irvine have now reached $800,000" is a lot more eye catching then to say "Average Price per Square Foot in Irvine has now reached $433"...   But as can been seen by the above tables, Averages and Medians can offer some very mis-leading conclusions about home prices during times of change in a marketplace.

We have been tracking the Months of Inventory in south Orange County, Ca. along with Active versus Pending sales, and Price per Square statistics, since July of 2002'.  As most everyone is aware, the real estate market here is southern California has slowed down substantially compared to 2 years ago.  Homes are setting on the market for sale much longer,  prices has decreased substantially, and mortgage loan delinquencies have resin dramatically. 

But in the midst of all of this bad press, we have noticed a very interesting trend... albeit a short term one.  For the past 7 weeks, the number of homes Pending in escrow has been steadily increasing for homes priced less then $450,000.  On October 8, 2007 there were 84 homes under contract in escrow in this price range in south Orange County, Ca.   That number has steadily increased and now stands at 150 homes pending in escrow.  That's an increase of  21% in the midst of all of the negative press, and the traditional seasonal holiday slow down in the local marketplace. 

What is this due to one may ask ?  Well it is certainly NOT due to "not ready for prime time" home buyers who are using zero down, stated income purchase money loans, for those loan programs essentially have been deleted from the marketplace.  What we do see is the drop in home prices by about 10% to 15% that has occurred in the past 10 months, has resulted in seasoned prospective home buyers and investors now seeing some true values in the marketplace who are increasingly making offers to purchase.  Will this continue throughout next year ?  Well it may be too soon to draw any type of long term conclusions, but I think that this is a good early indicator. 

Our charts of Price per Square foot for both detached SFR's and Condo's, has shown that the peak in home pricing occurred in May of last year at about the $407/SqFt level for detached homes.  Prices have been slowly decreasing since that time to a level of $356/SqFt today for detached single family homes.  This represents a decrease of 12.5%, and since closed sales prices are always a lagging indicator, and given the recent sales that I have seen in certain areas, I predict this number will show prices having already fallen to a level of 15% to 20% for certain areas and product types.

For more information about the local real estate market here in Orange County Ca., please feel to call us at:  949-388-3396 or drop us an email at:  Info@SearchOCHomes.com  or Text Message us at:  (949) 283-4679.   

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. --- For FULL Article, CLICK HERE --->   more »

There are some great bargain home prices now available for sale in Rancho Santa Margarita.   There are currently 260 detached homes for sale ranging in price from a low of  $399,900 for a 2 bedroom, 2.5 bath, 913 square foot home on Calle Del Los Ninos street in the Los Abanicos tract, on up to $2,995,999 for a 9 bedroom, 5.5 bath, 7,179 square foot estate on Hamilton trail in the Hamilton Oak subdivision.  The Median price of these 260 homes is $725,000.

Compared to the third quarter of 2005', the average price per square foot of detached homes that sold and closed 1.5 years ago was $372/SqFt.  Today, the average price per square foot of these 260 homes active for sale is $350/SqFt, which represents a 6% drop in prices based upon the asking price.  And today, detached homes are selling for about 4% below their asking prices.  So the expected drop in prices at this time will be about 10%. 

There are 230 attached condos currently for sale in Rancho Santa Margarita.  These range in price from $159,900 up to $789,900.  Median $398,900   Price per Square Foot is $363/SF.  1.5 years ago the price per square foot for condominiums sold and closed was $397/SqFt.  This represents a drop of 8.5% based upon asking prices, and most likely many of these homes will sell for less.  Currently on average, condos are selling at about 3% less then their asking prices.  So the expected current drop in sales prices from 1.5 years ago for Condos in Rancho Santa margarita is 11.5%.

If you have been sitting on the fence waiting for prices to drop, they have, and now would be a good time to begin searching for a bargain priced home.  There are several little known zero down loan programs (CalHFA, Acorn) with below market FIXED interest rates, that allow you to purchase a home up to a maximum of $500K.  If you would like more information on these great loan opportunities, or if you want to view the inside of some of the bargain priced homes, please give us a call at:  949-388-3396 or Text Message at:  949-283-4679, or email us at:  Info@SearchOCHomes.com

Predicting the tops or bottoms of any market such as Stocks, Bonds or Real Estate, is educated guess work at best.  But there are usually tell-tale signs that often appear around tops and bottoms that give one a sense of  'seeing the light at the end of a tunnel'.  That may be happening now in the Orange County CA. residential real estate marketplace. 

Tell-tale sign number one, has to do with the subprime lending debacle.   A dismal milestone may soon move into the housing market’s rear view mirror.  Homeowners owing a total of $31.8 billion in subprime adjustable-rate mortgages began paying higher interest rates this  month of September.

That is the highest amount of subprime ARM's due to reset over a one-month period in this housing cycle.  By December resetting subprime ARM's are forecast to drop to $25.2 billion. By the end of 2008, they will have fallen to $3.6 billion.  The reason being is that  lenders have largely stopped making such loans to borrowers with spotty credit histories back at the beginning of this year..

The large volume of interest-rate resets to higher levels, has been the largest factor in the jump in foreclosures in the past 16 months.  In August, foreclosure filings rose 36% from the previous month and were up 115% from last year.  As ARM resets reached it's peak, more homeowners will have trouble meeting payments.

Granted, there will be a delayed affect of anywhere from 6 to 12 months.  Here's why... homeowners who have an interest rate reset increase this month don't automatically stop making payments the next month.  Many will try to hang in there, and some will run out of financial gas in 3, 4 or 6 months, then it takes anywhere from 5 to 8 months for the mortgage banks to foreclosure and put the REO property on the market for sale.... So the negative effect of this months the peak in the mortgage rate resets, probably won't be felt in the market as lower priced bank REO properties for sale, until sometime in the Spring and Summer of 2008'.  While we may see additional weakness in the months ahead one might argue that a record supply of foreclosure homes for sale, combined with a peak in ARM resets, means the housing market is near a bottom. 

The other tell-tale sign, is the very low rate of sales as compared to history.  As we wrote about a month ago and as reported in the OC Register newspaper, the low volume of home sales in Orange County CA. is currently at a 20 year low.  Current sales volume is a bit lower then it was back in 1995 when the real estate market hit bottom here locally, and Orange County declared bankruptcy.  Many large volume markets such as Stocks, Bonds and even Real Estate will tend to fluctuate from extreme highs and extreme lows.  Given that Orange County now has considerable higher population and a greater number of homes then it did in 1995, one would have to conclude that today's low sales numbers can't last much longer and will gradually return to more normal levels.  One of the big difference between Stocks/Bonds and Real Estate, is that the former will make turn around in a matter of months, while Real Estate takes years to correct and adjust.

If you are a potential Buyer waiting on the side lines, you may want to get ready and start to look closely at some of the pricing opportunities coming on the market now in the form of Bank Owned REO properties ans Short Sale foreclosures.  If you would like to receive a list of low priced foreclosures, bank REO's, and short sales as they come on the market for sale, via email, visit our website at: www.OCBargainHomes.com  

The real estate market in Orange County Ca. has softened substantially in the past 16 months, and the same holds true for lake forest, California. The rate of sales are down to their lowest levels since the mid 1990's and prices have decreased about 10% in the past 14 months in Lake Forest.   We will analysis the price of Condos and Detached homes as compared to the peak in pricing 16 months ago. 

In the past 4 months, there have been 92 condos that have sold and closed escrow in Lake Forest Calif.  The median price of these 92 Condos was $390,000 and the Average price was $405,489.  The Average Price per square foot was $364/SqFt and the average days on market was 68 days.

The peak of the market with regard to pricing occurred in the Spring of 2006', and prices have pulled back from that point. We'll compare today's prices to the peak pricing period in 2006'  For the 4 months from March through end of June of 2006' there were  206  Condos that sold and closed Escrow in Lake Forest CA.  The Median price of these 206 condos was $423,000 and the Average price was $443,159.  The Price per Square foot was $400/SqFt and the average Days on Market was 51 days.   These figures translate as follows:  The median price has decreased by about 7.8%, and the Average price has decreased  by about 8.5% and the price per square foot has dropped by approximately 9% fir attached Condos.

For detached Single Family Homes, there were 106 homes that sold and closed escrow in the past 4 months.  The median price was $703,900 and the average price was $730,191.  The average price per square foot was $365/SqFt and the average days on market was 64 days.  Now let's compare these figures to the Spring f 2006'.  For the period of  March through the end of June of 2006' there were  205 detached single family homes that sold and closed Escrow in Lake Forest CA.  The median price of the 205 homes was $727,900 and the average price was $744,132.  The average price per squar foot was $400/SqFt and the average days on market was 46 days. 

These statistics result in the following:  The median price has dropped by about 3.3%, and the average price has decreased by just 1.9%.  On the other hand the price per square foot has dropped by 8.8% in the past 16 months. 

Why the big discrepancy in the home pricing numbers you may ask ?  Simply put, the Median and even more so the Average price calculations, can be skewed by changing buyer habits from one period to the next.  The current fact is that there are more higher price and larger detached homes selling today then lower priced smaller homes... and back 16 months ago, the reverse was happening.  That's why we use the price per square foot as a much more accurate barometer.to the movement of prices.

For Active homes currently lsite for sale, there are 319 detached home on the market currently in Lake Forest, CA.  These detached homes range in price from $455,000 for a 2 bedroom, 2.5 bath, 1,074 square foot home on Rue Fontaine in the Foothill Ranch area.  On up to $1,975,000 for a 4 bedroom, 3.5 bath, 4,300 square foot lake front estate on Erie Ln in the Lake Forest Keys tract.  The median price for these 319 homes in $699,900.

Currently there are 9 homes that are currently pending in escrow.  These home range in price from $598,900 for a 3 bedroom. 2.5 bath, 1,500 square foot home on Skylark Dr. in the Meadowood Homes tract, up to $919,900 for a 5 bedroom, 3 bath, 3,200 square foot estate on Milwood Rd. in the Crestmont subdivision.  The median price for these 9 homes is $629,900.

For attached condominiums, there are 290 condos that are Active for sale.  These condos range in price from $215,00 on up to $1,550,000 for a Lake Front condo.   The median price for the condos listed for sale is  $387,900.  There are currently 25 condos that are pending in escrow in Lake Forest, CA..  These prices range from a low of $224,000 up to $679,900. 

If you would like to see the inside of any home listed for sale in Lake Forest, CA., please feel free to contact us at:  949-388-3396 or email us at: Info@OCRealtyGroup.com   To view all Lake Forest homes for sale online, click here to visit out MLS Search webpage.

Last week the Orange County register published an article about OC home sales still sliding using homes sales data from DataQuick.   This article included a graph (shown at right) that showed the number of homes sold and closed per month for the past 20 years.  This graph shows that last month (July 2007’) was the lowest level of sales in DataQuicks 20 year recording history.  And last months rate of sales was a bit lower then the lowest monthly total in 1995, which was the lowest years total during the real estate crunch in the early and mid 1990’s.  I see some good news in these numbers though, and it's not just because I'm an internal optimist.  Here's why. 

First, there are many more people living in Orange County CA. today then there were in 1995.. by about 300,000 to 400,000 people I estimate (See below graph) … California actually had a net negative population growth for several years during the mid 1990’s, but not today.  Also there are more homes in existence today then in 1995.  Not a whole lot more though, since available buildable land has been scarce for several decades.  (By the way, the number of homes built during these years has not kept pace with population growth.)   We now have a stronger job market today then in 1995. The overall economy in Orange County was much worse in 1995, and Orange County, CA actually went bankrupt in 1995, which happens to be the very same year containing the second lowest rate of sales month in the past 20 years.  


Another interesting observation.  Back in 1995, (the lowest rate of sales for the past 20 years) was the very same year when prices hit bottom in Orange County, and prices started to slowly rise in 1996 and beyond.  Am I going out on a limb and claiming that this year will also be the bottom of the pricing cycle (many areas throughout Orange County have already seen price decreases by 10% to 15%).  No, I'm not ready to go that far out on the limb, but if we haven't yet hit bottom in this pricing correction, then my hunch is that we are very close to the bottom. 

On the contrary side, the availability of easy Mortgage money over the last 3 years (zero down, with Stated Income with not so good FICO scores) no doubt artificially swelled the number of available buyers which drove up demand for homes which helped to move  home prices even higher.   Since the Mortgage industry has/is now correcting for this past error, and those loans no longer exist, there will be a period of time when the number of  potential Buyers are down below historic averages during this Mortgage finance correction. 

Another factor keeping the Sales numbers down to there lowest level in the past 20 years, is there is a lot of  'Doom and Gloom' in the press on TV, Newspapers and the Web, which to a certain degree becomes a self fulfilling prophecy.  All things considered, I just don’t think this low sales volume can last much longer, and I would expect the rate of sales to return to the 3,000 to 4,000 per month level in Orange County (or even higher) in the not to distant future (3 to 6 months).

There is now doubt about it... the south Orange County real estate market is going through a market correction... But some market segments are being hit harder then others.  This correction is effecting the entry level market much harder then the older and staid move up markets.  To illustrate this point, we conducted market analysis of distressed properties for sale in the cities of Laguna Beach, Irvine, Dana Point, San Clemente, Laguna Niguel, Mission Viejo, Aliso Viejo, Rancho Santa Margarita, Ladera Ranch and Lake Forest.  This analysis comprised of counting the number of properties currently listed for sale that are either Bank Owned (REO), in Foreclosure, or  Short Sales, for each city.  We then took these numbers and divided by the Cities population (and then multiplied by 1,000).   This gives us a simple ratio of distressed properties for sale per 1,000 population for each city. 

This analysis illustrates that the entry level market is being hit much harder then the move up market.  The result of our analysis is shown in the chart below:   

CITY	Distressed Rate
Laguna Beach	0.10
Irvine	0.23
Dana Point	0.31
San Clemente	0.57
Laguna Niguel	0.65
Mission Viejo	0.80
Aliso Viejo	1.01
Rancho Santa Margarita	1.28
Ladera Ranch	1.55
Lake Forest	1.67

The coastal communities consisting of more expensive and older properties, have a much smaller percentage of distressed properties for sale compared to the more affordable and newer inland communities.  For example, Lake Forest has a 16 times higher rate of distressed properties  (bank REO, foreclosure, shore sale) for sale then Laguna Beach.    The reasons for this are several.  A higher percentage of the homes in Ladera Ranch, Rancho Santa Margarita, Aliso Viejo and Lake Forest (including Portola Hills, Foothill Ranch) are newly built in the past 15 years and geared towards entry level or first time move-up home buyers.  Compared to Laguna Beach, Dana Point, and Laguna Niguel which have a higher percentage of older properties that were targeted for move-up and estate buyers. A higher percentage of the newer entry level buyers who bought in the inland communities used lower down payment financing, some with adjustable rate mortgages, and some of these home owners have no equity or negative equity (short sale) due to the recent pull back in property values.  Whereas many of the home owners in these coastal communities bought long ago, or recently purchase with large down payments which shelters them from market corrections such as this one, in case they have to sell and move. 

Another angle to this analysis is the following.  We have been tracking the months of inventory for the south orange County real estate since July of 2002'.  The entry level price range of "Less Then $450K" has always been the hottest market segment until recently.  Now this price range  is the softest market segment at 10 months of inventory. 

It is hard to know how long this correction will last, but I guesstimate that the recovery will occur sometime in mid 2008', which actually makes this a good time to be thinking seriously about buying a home.  For more information about the orange County real estate market please feel free to contact us at:  949-388-3396 or email us at:  Info@SearchOCHomes.com    To view any home for sale, please visit:  south Orange County Real Estate

The real estate market in southern California has slowed down considerably in the past 18 months, but home prices is Dana Point have held up well and have actually increased by a healthy percentage.  Currently there are 225 homes currently active for sale in Dana Point, CA.  These detached homes range in from $550,000 for a 2 bedroom, 2 bath, 855 square foot home on Calle Juanita in Capistrano Beach. The maximum price is $10,199,900 for a 5 bedroom, 2 bath 1,842 square foot older home on Beach Rd., which essentially makes this a land purchase for a double sized ocean view beach front lot.  The median priced home is $1,299,000 and the average priced detached home for sale in Dane Point is $1,791,173.  The average price per square foot is $667 and the average days on market is 94 days. 

On this date, there are 27 detached homes in Dana Point under contract In Escrow.  These homes range in price from $655,000 for a 2 bedroom, 1 bath, 1,100 square foot home on La Cresta in the Lantern Village area of Dana Point.  On up to $6,995,000 for a 3 bedroom, 4.5 bath, 6,500 square foot estate on Beach Rd. in Capistrano Beach boasting of  sweeping Ocean views. The  median priced home is $1,095,000 for home pending In Escrow.

In the past 90 days, there have been 62 detached homes that have sold and closed in Dana Point, CA.  These homes range in price from a low of $595,000 for a 2 bedroom, 2 bath, 1,060 square foot home on Via Catalina in the Capistrano Beach area.  On up to $12,425.000 for a 5 bedroom, 7 bath, 7,652 square foot estate on Ritz Cove with sweeping ocean view in Monarch Beach. The median priced home is $1,135,000 and the average priced detached home that sold and closed in Dana Point in the past 3 months was $1,598,064.  The average price per square foot was $602, and the average days on market was 74 days.

Comparing the above sales prices to last year, we find that there were 55 homes that sold and closed in the same 90 period 1 year ago.  The median priced home back then was $999,000 and the average price home was $1,222,054.  The average price per square foot was $568/SqFt and the average days on market was 74 days.  Comparing today's prices to one year ago, we find that the median price has increased 13%, the average priced detached home increased 30% and the average price per square foot increased 6%.  The price per square foot is considered the most accurate measure of the price movement of a given market.  Even in the face of a major correction in the orange county real estate market, Dana Point homes prices have maintained well and actually increased by 6% in the last 12 months. 

For more information about Dana Point home prices or to view any home for sale in Dana Point, please feel free to contact us at:  949-388-3396 or email us at:  Info@SearchOCHomes.com  

Even though much of the news regarding the local Orange County CA. real estate market is negative, I truly believe that now is a good time to buy a home in Orange County, CA.  Prices are down, interest rates are still low, the current and long term local job markets look healthy, coupled with the great quality of life... and much of the news regarding the local real estate market is negative.  Recovering technologies such as semi-conductors and Internet, new technologies such at Bio-Tech and Asian trade, are all strong employers here in Orange County which will keep the job market strong and relatively high paying.

Let's look at the price and sales data.  We have been gathering market data on a weekly bases since July of 2002'  Since we began gathering this data, we are now at a point of the largest number of homes listed on the market for sale at 4,597.   As an interesting comparison, south orange county had just 500 homes on the market for sale in February of 2004’.  Also, at that time (February 2004’) there were about 1,500 homes sold in escrow, whereas today there are only 763 homes sold in escrow.  

There have been some new recent articles quoting a recent Dataquick report, that the Median Price of homes in Orange County has only dropped by $1,000 from April of this year compared to April of last year, which represents just about a  0.15% drop in prices, which essentially is no drop in prices at all.  That calculation may be true, but if you have been active in selling real estate in this market, like I have, you know this not to be true, so how can this be ?   Our data gathering and analysis give us the answer.    

Dataquick basis there estimates on Median home prices which is the price in the middle in which half the homes sold for a higher price, and the other half sold for a lower price.  This calculation compares small low priced entry level homes, with larger multi-million dollar ocean view estates, and everything in between.  Our graphs have shown that for several years, the sub $400K market was always the hottest market with the lowest months of inventory.  But in the past 5 months or so, this has not been the case, and now the sub $400K is one of the softest markets with one of the highest months of inventory (currently at 9.8 months).  What this tells us is there are now more buyers purchasing larger and higher priced homes as compared to lower priced entry level homes.  This phenomenon then skews the Median Price (and Average Price) calculation to the higher end of the price spectrum. 

According to our calculations which looks at price per square foot for specific product types, prices have actually dropped about 10% nominally since the peak in pricing in May of last year… I predict that this softness in the market will continue throughout the remainder of this year and begin to strengthen next year.

The local market here is south Orange County is soft, but I see signs that we may be  approaching a bottom in pricing. Currently we are at about 8.5 months of inventory in Orange County, which is a solid Buyers Market (greater then 6 months is considered a buyers market).  First, to clear some definitions.  The Months of Inventory is not just the inventory of homes for sale, but is essentially a ratio of the number of homes for sale, divided by the rate at which homes have been currently selling.  This is the true indication of the strength or weakness of any given real state market.  If I said there were 20 homes for sale in  Maryland, Ohio, one may get the impression that's a tight market, but if you later learned that only one home sold in Maryland all of last year, you would soon learn that that is a terrible market for it would take about 20 years to sell the current inventory of homes for sale...    As can be seen by the below graph, the south Orange County residential real estate market has been hovering around 8.5 months since about July of last year (2006'), which means that it would take about 8.5 months to sell the current inventory of homes for sale.  Also of interest, the Months of Inventory dropped substantially early this year, and just after the sub-prime lending meltdown and the associated bad press, the Months of Inventory shot back up to around 8.5 months... the same level as last year.  



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As we stated in a previous article several weeks ago ( Orange County market is Alive Again ), it is our opinion that the downward pricing is coming to an end here in south Orange County.  If we haven't already reached the bottom of the downward pricing cycle, then we are very close to the bottom.  How can I be so confident you may ask ?  Well as they say, it's all in the numbers.  The internal market statistics that best reveals the constant tug of war between buyers ans sellers is called the Months of Inventory.  The Months of Inventory is basically a ratio of the Inventory of homes for sale by the number of homes that have sold over a period of time.  The higher the months of Inventory, the slower the market and visa versa.  Traditionally, major banks and Title companies (and others) will quote this statistic on a quarterly basis, based upon long term averages of actual homes sold.  The problem with this method of calculating this Stat is, it is 'old news' if you are working in the industry on a daily basis like we are. So we derived our own proprietary indicator back in July of 2002' based upon Inventory of homes for sale, and the number of Homes sold in Escrow, which gives us a much more timely measurement of market conditions.  And our proprietary Months of Inventory calculation has been very accurate as well.

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