Orange County Housing Report: Foreclosure Forecast

The Distressed Market

Foreclosures and short sales make up less than half a percent of the listing inventory and demand.

Today, there are only 11 foreclosures and 7 short sales to purchase in all of Orange County, which is 18 total distressed listings, the lowest level since initially tracking distressed listings began back in 2007. It represents only 0.4% of the active listing inventory and 0.4% of demand.

Compare that to January 2009 when there were 5,104 distressed listings, 44% of the active listing inventory, and demand (the last 30-days of pending sales) was at 1,428 pending, 67% of total demand. 

Distressed

Today, the supply of homes to purchase is low, demand is high, and home values are on the rise. Multiple offers are once again the norm. Homes are flying off the market and into escrow. And, tight lending qualifications continue to be the bedrock and strength of housing.

It was the pandemic that caused the recession and not a single sector of the economy. This is precisely why the recovery has been distinctly different than a customary recovery. Housing has seen a “v-shaped” recovery, and so has manufacturing and retail sales.

There are about 4 million homeowners in active forbearance, which is 7.5% of all active mortgage. Of all current forbearances which are past due on their mortgage payment, 77% have at least 20% equity in their homes, and 90% have at least 10% equity.

Upon exiting forbearance, homeowners can negotiate a payment plan to pay back the missed mortgage payments or defer the payments to the back end of their loans. If they are continuing to experience a hardship and are forced to sell, most will have plenty of equity to tap into that will allow them to sell, avoiding the short sale or foreclosure route.

With about 10% of homeowners in forbearance with less than 10% equity, those owners are vulnerable to becoming a distressed sale if they experience financial hardship. That amounts to approximately 400,000 homeowners. But not all 100% will suffer this fate. Also, with values on the rise, their equity positions will increase in time. Some will not be able to avoid becoming a foreclosure or short sale statistic, but that is a 2021 story. It will be more of a ripple in the market than a wave.

The bottom line: do not count on a wave of foreclosures or short sales due to the economic fallout of the COVID-19 recession. While there may be a bit more distressed in 2021, a slight rise, it will pale in comparison to the Great Recession. Nobody should expect any type of a deal anytime soon, especially with mortgage rates that dipped below 3%, reaching yet another record low.

Active Listings:
The current active inventory decreased by 3% in the last two weeks.

The active listing inventory shed 141 homes in the past two weeks, down 3%, and now sits at 4,449, the lowest level for August since tracking began in 2004. The active inventory reached a peak back in May at 5,044 homes and has dropped by 12% since. Expect the active inventory to continue to slowly drop from here and pick up steam during the holidays. It appears as if 2021 is going to start at a record low level.

Last year at this time, there were 7,488 homes on the market, 3,039 additional homes, or 68% more. There were a lot more choices for buyers last year.

OC listing inventory

Demand:
Demand increased by 3% in the past two weeks.

Demand, the number of new pending sales over the prior month, increased from 3,200 to 3,281, an additional 81 pending sales, up 3% in two weeks. This is the highest demand reading since September 2012, eight years ago. 

The velocity of this current market is unprecedented for the summer months. Once the kids go back to school later this month, anticipate demand to slowly drop. It may not be as large of a drop due to record low mortgage rates and the ability for families to move more readily with online learning.

OC demand

Last year, demand was at 2,606, which is 375 fewer pending sales compared to today, or 21% less.

In the past two weeks, the Expected Market Time dropped from 43 to 41 days, a Hot Seller’s Market (less than 60 days), where sellers get to call the shots during the negotiating process and home values are on the rise. This is the strongest level since June 2013. Last year the Expected Market Time was at 86 days, much slower than today.

Luxury End: 
The luxury market continued to improve with a drop in the supply and a rise in demand.

In the past two weeks, demand for homes above $1.25 million increased by 9 pending sales, up 2%, and now totals 575. Luxury demand remains elevated at unprecedented levels. Demand is not growing as much and should reach a peak very soon, but it appears that it will remain at a strong level.

The luxury home inventory shed 59 homes, a 3% drop, and now totals 1,711. With a small rise in demand coupled with a slight drop in the supply, the overall Expected Market Time for homes priced above $1.25 million decreased from 94 to 89 days in the past couple of weeks. The luxury market remains healthy and strong. 

Year over year, luxury demand is up by 244 pending sales or 74%, and the active luxury listing inventory is down by 796 homes or 32%. The Expected Market Time last year was at 227 days, drastically slower than today. 

OC Market Time

Not sure what this means for your situation? Contact me and we can go over it in as much detail as you’d like.

Taylor DeMaio
C: 949.478.2629
Email:[email protected]

Data and comments provided by Steven Thomas, Reports On Housing – All Rights Reserved. Copyright 2020

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