Orange County Real Estate Report – Ideal time to move on up

Orange County Real Estate

Now is the Ideal Time to Move-up!

Move-Up Sellers: Timing is everything and the timing is perfect for move-up sellers.

For the latest Dana Point Real Estate Report click here

For the latest Orange County Real Estate Report click here

There are a lot of Orange County homeowners that are waiting for a variety of reasons to place their homes on the market.  Last year we witnessed 15% fewer homes come on the market compared to 2011 and 30% fewer compared to the average over the prior decade.  January of this year continued the trend and 16% fewer homes came on the market compared to 2012.

While there are valid reasons to wait to list for some homeowners, if you’re a move up seller now is the ideal time to list your Orange County home for sale.  Unless that seller turned buyer would like to lose net worth by waiting, it is strongly recommended to act now.

Let’s illustrate what waiting means in real dollars to that move-up seller.  A homeowner looking to upgrade their $500,000 home to $750,000 decides to wait a year until their home increases a little more in value so that they have a bit more equity.  What would happen if homes appreciate 10% in that year?  Their home would be worth an additional $50,000, or $550,000.  However, the $750,000 home would be worth an additional $75,000, or $825,000.  The end result, the homeowner that waited paid an additional $25,000 by waiting, the higher the price, the bigger the penalty.

Also the higher the priced property the softer the market tends to be in Orange County real estate right now. Meaning if you are a move up buyer you can expect to see more options and have a bit more negotiating power than the buyers lining up in the hopes of buying your home.

Often sellers worry about where they will go when their house sells. Well in this market it is easy to get buyers to agree to wait until you have secured your next home to move their stuff in. With the right contractual wording you are perfectly protected and have nothing to worry about.

Here’s another point to consider.  Interest rates have been at historical lows for some time now and everybody has become accustom to these once in a lifetime levels.  WARNING: do NOT take these low rates for granted.  The current rates are unprecedented and they simply cannot last. As rates move up potential buyers of your home have less buying power, so someone who was looking at spending 500k may only be able to spend 475k making your home no longer an option. Additionally your move up home ends up costing you more money in the long run as well.

For the $750,000 earlier example, if a buyer puts down 20%, the difference between 3.5% and 4% is $170 per month, every month, year in and year out.  That is $2,040 per year, or $10,200 in five years.  Everybody can use an additional $10k.

Remember, the move-up seller now has to pay $825,000 for the Orange County home as it appreciated 10%.  Let’s take a look at what happens to payments.  First off, the loan amount at 20% down would be $660,000, which is jumbo financing, a higher rate (add an additional .375% today).  The conventional loan limit is $625,500.  The difference between jumbo and conventional in this example would be an additional $144 per month, $1,728 per year and $8,640 in five years.

So, in this example, when you consider the additional jumbo financing and the increase in rates by a half of a percent, the additional payments for waiting would be $314 per month ($144 + $170).  That is $3,768 in a year, a nice vacation, and $18,840 over five years, a large chunk of change.

This may be an example, but in the case of moving up in an appreciating market like today, it is best to pull the trigger and make a move as quickly as possible.  In reality, the absolute best time to move-up in Orange County real estate was last year.  This year will be great too, but the longer one waits, the more it will cost them in the long run. A rate increase combined with appreciation might just price you out of that move up home you have been dreaming of.

Active InventoryThe inventory increases again, slightly.

Two weeks ago, the Orange County real estate inventory increased for the first time in 19 months.  The trend continued this week, but by only 27 homes, less than 1%.  The active listing inventory now sits at 3,276.  The overall inventory remains at anemic levels.

Orange County Real Estate inventory

The anemic levels are here to stay until the Spring Market starts and more homes are placed on the market, which begins in the next couple weeks. The inventory is not expected to skyrocket higher though and will continue to be an issue throughout the year.  Last year at this time there were 7,823 homes on the market, 4,547 more than today.

DemandDemand finally pushes upward by 20%.

Even with fewer homes being placed on the market, essentially muting the number of homes placed into escrow over the past month, demand managed to climb by 424 homes in the past two weeks and now totals 2,596.  When there is nothing to purchase, it is difficult to witness an increase in demand.  Compared to last year at this time, there are 538 fewer pending sales.  The market was taking off back then, but there were a lot more homes to choose from, more than double on the market and a lot more being placed on the market every day.

 

More homes are starting to come on the market, which will increase as we propel into the Spring Market; but it is a matter of time to see if there will be enough to satiate the ravenous appetite of buyers or if demand will remain muted.  Interestingly one third of all Orange County home purchases last year were cash sales, many by investors. If these investors keep gobbling up the limit Orange County real estate traditional buyers will find it harder and harder to find a place to call home.

 demand

 

The Distressed Market: The distressed inventory dropped by 9 homes, a 3% drop.

It is hard to believe that a 9 home drop in the distressed inventory, both foreclosures and short sales combined, is 3% of the inventory, but the inventory is so low that the slightest increase or decrease appears a lot bigger than reality.  There are 350 distressed homes within the active listing inventory, a level not seen since April 2007, nearly six years ago.  After increasing by three homes about a month ago for the first time in 15 months, the distressed inventory has shed an additional 50 homes, or 13%.  Only 11% of the total active inventory and 28% of demand is distressed; compare that to 34% of the active inventory and 60% of demand last year.

 

In the past two weeks, the foreclosure inventory decreased by 8 homes, totaling 93, and has an expected market time of 20 days. The short sale inventory decreased by 1 home in the past two weeks, totaling 257, and has an expected market time of 13 days.  Short sales are the hottest segment of the Orange County housing market today.

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