What is the world coming to when official stats finally show what anybody with a brain has already figured out? Home prices are falling throughout the southland, but Orange County has always held a special place in our hearts. No bad things could ever happen there, right?
And, a mix shift to higher priced units doesn’t hide declining prices anymore.
The OC Register tells us about CAR’s (California Association of Realtors) sheepish admission to the fall:
The median price of a Orange County resale house fell to $688,610 in January, down 1.5 percent from January of 2006, the California Association of Realtors reported Tuesday.
The median price has been down from the year before for five of the past six months in the CAR index.
Prices for Orange County resale houses peaked in June at $725,190, association data shows. Last month’s median was the second-lowest since April 2005, when the median price was $682,197.
So, we’re in for a soft landing, huh? Not if you bought at 725K and how sell at 682K. To put it in perspective, the median price has fallen nearly $43K in 7 months. Annualize that fall, and we’re shedding prices at $73K per year. That’s the median household income… Where in years’ past, we were gaining value in our homes about that much per year, we’ve got to take it on the downside.
Not so great for homeowners. The most surprising part of the fall is that we haven’t yet seen any fallout from the subprime lending implosion, or the likely future stock market slide. Those won’t become apparent for probably another 3 or 4 months. Want to know the future of prices in OC… follow the volume. Volume ALWAYS precedes price. ALWAYS.
In similar news, Freddie Mac has decided to end purchasing of certain kinds of ARMs, you know, the ones that are so widely used here. The ones with payment shock… option pay-arms and teaser rate arms. Yes, those.
Official stats on exactly how many people have Option ARMs is difficult to come by for the layperson, but we know that much of the IE has been using them at least 25% of the time, and it wouldn’t be much of a stretch of the imagination to see that most everywhere it’s been about the same or higher. However, it has been noted that Option ARMs (the dragon of ARMs) are just a small portion of the problem because as much as 80% of all loans were of the adjustable ilk over the past 2 years. Affordability products because of our abysmal affordability (something like 6% before the CAR did away with “traditional” measures).
And yet, we still have sky-high asking prices.
Which is no wonder why, when the CAR released their numbers recently that we saw the outrageous volatility in prices that we are seeing. The volume is cratering. This month’s volume was down over 20% over last year, following last years’ cratering of 30% off the prior. That’s a lot of volume missing.
Which is no wonder why we are now seeing realty offices close– even in Orange County. It was no surprise when the CAR announced that 500K agents now call California home. All you had to do to was sell 2 homes per year, and you had the median income. Good agents did quite well. But, when 1 out of every 76 people is an agent… pickings get slim.
From the article:
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- Coldwell Banker closed two offices, shutting down the 53-year-old McGarvey-Clark brokerage in north Fullerton in September and consolidating two north Laguna Beach offices in August.
- Prudential California Realty in south Orange County combined five Laguna Beach offices into three: In June, Prudential closed its Three Arch Bay office and moved about 60 agents into its Treasure Island office 1.5 miles to the north. In December, it closed its north Laguna office and moved about a dozen agents into its office in downtown Laguna.
- Century 21 Grisham-Joseph in La Mirada bought the Century 21 Ambassador in Brea as part of an expansion in which it bought two brokerages and hired four former brokers who shut down their own offices.
And, that’s just the local area. The problem is national, and getting worse.
All of this consolidation and agents going without makes me wonder why many local agents are not working to convince their clients to lower their prices. Perhaps their strong-willed positive thinking dissonance has not yet kicked in. Perhaps they really are as clueless about the downturn as they sound. Either way, keeping their clients’ prices high will only serve to do 2 things… burn their marketing budgets while no income comes in and frustrate their buyers enough to leave and go to another agent or go it on their own. Either way, the agent is getting paid nothing.
The overarching catalyst of all of this is that buyers were borrowed from tomorrow to elevate the sales of yesterday. With homeownership at its highest level in history and vacant homes also at a peak (at least since the census has been keeping track in 1956), it’s unlikely that we’ve seen much of the slowdown yet. It will likely get much worse than it already is. The argument that insatiable demand has outstripped supply has been soundly trounced without the slightest shred of credibility remaining. Yet, people’s opinions have not changed.
What will cause them to change it? When they are forced to.
Great post.
Finally some evidence that backs up the housing crash claims may indeed apply to “sacrosanct” Orange County California! I was beginning to think that the unsustainable OC housing prices were protected by a thick layer of industrial grade teflon. Oh, what will the local real estate agents tell their prospects now?
“Well, buy now because OC housing prices “almost” never go down!” ?
Just looking at the BMIT site.
Inventory levels are already well ahead of last years. We are end of April inventory at the end of Feb. Both LA and Orange.
In my area there doesn’t seem to be anything on the market. A lot more high priced home rentals are appearing though. The rental rates are out of whack. You can go to rent.com look for a 3/2 in Torrance in a good area. Prices are in the 1750$ range. The rental houses are in the 2500+ range.
I guess they will sit for a while.
In the business section of the Inland Valley Daily Bulletin a few days ago an article claimed that the average sale price in Rancho Cucamonga is up a percent or two but sales are down more than a third in Jan year over year. I hope the IE catches up with the other areas you all comment on. I visited a Lennar group of model homes up in North Rancho and almost every house has a sold button under the little glass case in the lobby. With the nationwide data showing home builder earnings in the tank, what gives with them almost selling out the phase. Anyone out there think the builders might be lying about the properties they have sold? I would like your comments.
It is unlikely they are actually sold out. They are probably lying to create a sense of urgency in buyers. Even if they actually have contracts on these lots (which is doubtful) with cancellation rates running over 30%, about 1/3 of those sales will fall through.
Don’t buy now. Three years from now you will be able to get the same home for about half price.