OC Housing Report – February 1, 2015

Orange County Housing Report: Condition Matters When Pricing

Good Afternoon!

In pricing homes, sellers cannot ignore the condition of their home and any deferred maintenance.

Condition and Price: In the current market, condition is an important factor in determining the appropriate price.

The Orange County housing market continues to evolve as we knock on the door of the Spring Market. But, simply pricing a home at the most recent neighborhood sale does not guarantee success. Everybody has heard that the three most important factors in determining a home’s value are “location, location, location.” It is true, location is by far the most important factor. A home that backs up to a busy street or a landscaped slope or another home is not going to fetch the same price as a home that has sweeping panoramic views. Yet, there are other factors in establishing value; and, condition is extremely important.

The condition of a home can be the difference between success and sitting on the market for a very long time, especially in today’s market. The expected market time for all of Orange County is at 78 days, much longer than the 33 days posted back in 2013. Multiple offers, offers to purchase that are much higher than the asking price, and crowded weekend open houses, are no longer the norm. That was circa 2012 through 2013. The market has changed and that should no longer be the expectation of sellers.

However, REALTORS® still talk about some homes that obtain multiple, strong offers and sell for a bit more than the most recent comparable sale. How can that be? They then divulge the secret: it was a home that was highly upgraded, in mint condition, and priced right. They describe them as if they were model homes within a brand new community. Consumers prefer commodities that are upgraded with all of the bells and whistles and they are willing to pay a little bit extra to get just that.

In purchasing a home, buyers want the Fair Market Value for a home. Homes that are highly upgraded and in very nice condition obtain higher prices than homes that have very few upgrades and need work. A home with new carpet, new paint, upgraded cabinetry, granite countertops, and plantations shutters will go for a lot more than a home with soiled carpet, scuffed walls, ceramic tile counters, and aluminum blinds. Outdated homes, homes with deferred maintenance, low quality upgrades, and lack of upgrades all detract from a home’s value. Renovated homes, meticulously maintained homes, top of the line upgrades, and heavily upgraded will all add to a home’s value.

In 2012 through 2013 investors were flipping homes after major renovations that included many upgrades. During those years, it was quite common to see home after home that was in mint condition. REALTORS® have reported that today’s market is a bit different. It seems that many homes are coming on the market that are “a bit tired” and in need of a lot of work. There aren’t as many investor flip properties that have been rehabilitated inside and out.

But that does not have to be the case. A seller may not be able to control the location of a home, but they certainly can control a home’s condition. If needed, new paint and carpet can make a huge difference in value. Addressing major deferred maintenance prevents potential buyers from subtracting thousands of dollars when they attempt to isolate a home’s Fair Market Value. High cost upgrades typically do not pencil out in preparing a home to sell; however, taking care of necessary repairs and improvements will allow a seller to achieve higher net proceeds and will result in less market time.

Active Inventory: The inventory rose by only 1% in the past two weeks.

Typical for this time of the year, the active listing inventory did not change much in the past two weeks, adding an additional 76 homes, and now sits at 5,331. Last year at this time the inventory only added 10 homes in the same two week period. The inventory was at 5,087; so, it is up 5% year over year.

With the wonderful weather of Southern California, the Spring Market arrives early, typically right after the Super Bowl. Expect more and more homes to come on the market and the momentum to pick up by the end of February. With the official start of spring towards the end of March, the housing market will shift into a fast and furious gear, the peak of the most activity. There will be plenty of buyers in the market, but there will also be plenty of sellers.

Demand: Demand increased by 28% in the past two weeks.

Demand, the number of new pending sales over the past month, increased by 454 homes and now totals 2,053 homes. This too is typical for this time of the year, as more and buyers reenter the housing market after taking a bit of a holiday siesta. Now that most everybody is no longer focusing on their New Year’s resolutions, there is more time to focus on isolating a home.

Buyer demand so far this year has been virtually identical to last year’s demand at the beginning of the year. As a matter of fact, today’s demand is only 10 more homes than last year at this time. So far demand in 2015 is practically a mirror image of 2014. It will be interesting to see exactly when this year will start to blaze its own path, but not thus far.

From here, we can expect demand to continue to gain momentum through February and March where it will remain at its highest level until downshifting in June.

Distressed Breakdown: The distressed inventory decreased by 6% in the past two weeks.

The distressed inventory, foreclosures and short sales combined, decreased by 17 homes in two weeks and now totals 250, its lowest level since June of last year. Year over year, there are only 8 fewer homes today. Only 5% of the active listing inventory and 8% of demand is distressed. Distressed properties continue to play an insignificant role compared to just a few years ago.

In the past two weeks, the foreclosure inventory decreased by eight homes and now totals 62. 1% of the inventory is a foreclosure. The expected market time for foreclosures is 43 days, one of the hottest segments of the Orange County housing market. The short sale inventory decreased by nine homes in the past two weeks and now totals 188. The expected market time is 46 days, also a hot segment of the housing market. Short sales represent just 3.5% of the total active inventory.