For homes under $500,000 in Orange County, we have experienced a market shift. Demand is up 45% over last year and at levels not seen since 2005, supply is shrinking and buyers are competing for the same properties. In addition, interest rates are low, tax credits are still in place and prices seem to be stabilizing as multiple offers are creating a 98 - 100% ratios of sold price to list price. In short, it appears we are hovering at the market bottom in this price range.
But is the bottom real? Some industry professionals believe we're experiencing a false bottom. They expect a new wave of foreclosures that will once again force prices to spiral further downward. We don't agree.
Yes, we can expect a wave of new foreclosures - probably several waves throughout 2009 and 2010. However, we say - bring it on! Unlike 2008, we have the demand to quickly absorb this inventory. As an industry, we define demand as either properties sold or properties entering escrow. However, this is merely a snapshot of historical demand, and further, only represents the small portion of buyers who were successful with their offers.
Real, current demand is nearly impossible to quantify, but is what we call "pent up demand". These are the buyers that have been sitting on the fence and are now in bidding wars, trying to buy a property in Orange County. To date, they are been unsuccessful. With less than a three week supply of foreclosure inventory, there is not enough supply to absorb the pent up demand. They will either continue trying or sit back on the fence waiting for more inventory and less competition.
When the new wave of foreclosures hit the market, we should expect to see a demand increase even higher as "pent up demand" translates to trackable demand and more sales. Can we provide quantitative support of our "pent up" demand theory? Only from the trenches. As listing agents, our bank owned properties get an average of 16 offers each. As buyers agents, our averages are better, but only because we provide our clients the right information to make strong offers that get to the top of the stack.
Nancy Moeller, CPA, Real Estate Broker
Seven Gables Real Estate
Direct (714) 276-7006
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www.OCMarketUpdate.com (Real Estate Blog)
www.ZeroShort.com (No Cost Short Sales)
www.OCBankDeals.com (Search Foreclosures)
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We're seeing exactly the same thing in Los Angeles. Between the low prices, low interest rates and the desire to take advantage of the tax credit, everything in the $500K and less market seems to be flying off the shelf in multiple offers. I agree that a new wave of REO properties would actually be a good thing since there are so many buyers looking in this price range and not enough to go around. I feel particularly sorry for my clients that are offering with 3.5% down again high-down and all cash offers. How do you keep them trying when they've already been outbid 8 or 10 times and they are already writing over asking?!