Prices across most of Orange County continue to decline. The OC Register reports prices have hit a near three-year low. My own analysis of the MLS data shows Irvine teetering on the brink of taking out the 2009 low and setting a new eight-year record low.
O.C. home prices hit 31-month low
December 13th, 2011, 9:39 am 
Orange County’s home pricing got hit with autmun’s chill, as builders had a record-worst sales month.
DataQuick reported this morning that 2,297 residence sold in November. That is up 1.8% from a year ago. That gain came at a price. Literally.
Median selling price was $400,000 — the lowest since April 2009 and off 8.0% in a year. Orange County’s median first hit $400,000 in May 2003.
Anyone who has been reading my writing is not surprised by these numbers. Ever since the spring rally fizzled out in May, I have been predicting a big drop in the fall and winter. When December’s numbers are posted, they should be even worse.
By the slice:
- 1,495 single-family residences sold last month. That is up 6% from a year ago.
- 664 condos sold last month. That is up 8% from a year ago.
Increasing sales and decreasing prices means the decline is accelerating. The sales volumes are still well below historic norms, but the fact that volume is increasing is a good sign for those waiting for lender capitulation as a sign of a market bottom.
- Builders had 138 new-home sales last month. That is down 42% from a year ago. It was the slowest November for developers in DataQuick records that date to 1988.
And more analysis …
- $400,000 median selling price is 38% below June 2007′s peak of $645,000.
- Current price is 11.1% below 2010′s peak (May and July) of $450,000; 2% below end of 2010′s median ($410,000.)
- The most recent median is 8% above the cyclical low hit in January 2009 at $370,000 — so the median has recouped 11% of the $275,000 price drop from the peak.
- Compared to cyclical low, single-family house median is 10% higher ($418,250 in January 2009); condo median is 1% higher ($252,000 in March 2009.) Builder prices for new homes are 35% above June 2009′s $424,000 bottom.
See the follow up post below reminding everyone of how the low of the median in 2009 was an illusion created by the changing mix of houses sold.
- The median selling price of a single-family home is 37% less than their peak pricing (June ’07). Condos sell 46% below their peak in March 2006. Builder prices for new homes are 34% below their February ’05 top.
- Single-family homes were 80% more expensive than condos in this period vs. 71% a year ago. From 1988-2010, the average house/condo gap was 57%.
- Builder’s new homes sales were 6% of all residences sold in the period vs. 10% a year ago. From 1988-2010, builders did 14% of the Orange County homeselling.
These are dismal numbers. There is no way the bulls can convincingly spin this. Prices will fall through January or February, then we will see the start of the season uptick for next year’s spring rally. Expect the usual suspects to call the bottom.
Just as a reminder, the median is not the best measure of price performance:
It seems like there may still me a few people who do not understand that the median low is not necessarily and most often not the absolute low of any statistic. The 2009 Orange County median low for residential home prices was not the low for home prices as can be evidenced by anyone who has been actively been watching home prices for the last few years. Anyone that is, who is not a moron.
From Wikipedia: In probability theory and statistics, a median is described as the numerical value separating the higher half of a sample, a population, or a probability distribution, from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one. If there is an even number of observations, then there is no single middle value; the median is then usually defined to be the mean of the two middle values.
Here are two lists which provide examples of median prices using a sample of ten prices each:
Sale Prices Sale Prices $200,000 $200,000 $200,000 $250,000 $225,000 $300,000 $225,000 $400,000 $250,000 $500,000 $250,000 $600,000 $500,000 $700,000 $1,000,000 $800,000 $1,500,000 $900,000 $2,000,000 $1,000,000 The median of the first list is $250,000 while the mean is $635,000.
The median of the second list is $550,000, more than the median of the first list, while the mean is less than the mean of the first; only $465,000.
Although they show opposite results, neither the median nor the mean are flawed, but both are limited by their definition and the data set applied.
The Orange County Median Low in 2009 was not the low for home prices and anybody who has been watching home prices for the last few years can attest to the same. The Orange County median reached a low in 2009 because of the mix of homes being sold. 2009 had an unusually large percentage of distressed sales of lower end homes purchased in 2005/2006 or refied in 2005/2006 by subprime borrowers with 2/1 and 3/1 Option Arm mortgages. The mortgages recast in 2006 to 2008 and these subprime borrowers had little to no reserves with which to make their larger recast payment, and the resulting distressed sales occurred relatively quickly compared to present default times. Of course, none of this is news to anyone who has been paying attention or is not denying the facts.
After 2009, the mix of homes being sold changed with 3/1, 5/1, and 7/1 Option Arm mortgages recasting on Alt-A and prime borrowers with more reserves and larger incomes from which to delay a distressed sale on more expensive homes. This is most easily evidenced by the longer and longer times to foreclosure from default initialization, but Coto Housing Blog readers can probably deduce this from their own observation.
Home prices did not rise as is claimed by the delusional and the logically challenged, (read moron), but rather the rise in the median price reflected a greater percentage of more expensive homes sold. A trend in any price or metric cannot be accurately determined by observing only one statistic to the exclusion of others.
I have also written about this issue in the past:
This condo is a 1995 rollback! This property cost more at the bottom of the last housing bubble when interest rates were between 8% and 10%. With today’s 4% interest rates, the monthly cost of ownership is much lower.
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This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but it seems that we're having some problems loading MLS # S681277 from our database. Please check back soon.
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Proprietary OC Housing News home purchase analysis
3710 South BEAR St Unit H Santa Ana, CA 92704
$89,900 …….. Asking Price
$92,500 ………. Purchase Price
3/7/1995 ………. Purchase Date
($2,600) ………. Gross Gain (Loss)
($7,400) ………… Commissions and Costs at 8%
‘============================================
($10,000) ………. Net Gain (Loss)
‘============================================
-2.8% ………. Gross Percent Change
-10.8% ………. Net Percent Change
-0.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$89,900 …….. Asking Price
$3,147 ………… 3.5% Down FHA Financing
3.95% …………. Mortgage Interest Rate
30 ……………… Number of Years
$86,754 …….. Mortgage
$40,097 ………. Income Requirement
$412 ………… Monthly Mortgage Payment
$78 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$22 ………… Homeowners Insurance at 0.3%
$100 ………… Private Mortgage Insurance
$424 ………… Homeowners Association Fees
============================================
$1,036 ………. Monthly Cash Outlays
$0 ………. Tax Savings
($126) ………. Equity Hidden in Payment
$4 ………….. Lost Income to Down Payment
$31 ………….. Maintenance and Replacement Reserves
============================================
$945 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$2,399 ………… Furnishing and Move In at 1% + $1,500
$2,399 ………… Closing Costs at 1% + $1,500
$868 ………… Interest Points
$3,147 ………… Down Payment
============================================
$8,812 ………. Total Cash Costs
$14,400 ………. Emergency Cash Reserves
============================================
$23,212 ………. Total Savings Needed
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I suppose one of the most difficult problems in Real Estate is to craft a single number
that will describe the health of the market yet encompass many variables such as selling price, location, house style, lot size, age, etc, etc. and be comprehensible to the average buyer.
Median price seems to be the most common headline metric quoted in the MSM. Yet as noted above, few people truly understand what the median really is.
It would seem to me that price/square foot would be a more realistic measure and more well understood. Yet, I see it rarely used. Any ideas why?
In the monthly reports I create, I rely on the $/SF to measure price change because I believe it is more accurate. The main weakness I see in that measure is it doesn’t give a number people can relate to. The median is a number that approximates the value of a house. People understand $500,000.
The $/SF is more nebulous. What does it mean to say a market is selling for $300/SF? There is no anchor to prices that makes sense to most people. The Case-Shiller has this problem to an even larger degree. The index number they report doesn’t even relate to money.
Reporters want to report a number which has meaning to its readers, so they rely on the median despite its obvious weaknesses. To some degree, I do to.
Octal77,
I agree with IR on this too. Also, Price/SF will vary depending on the size of the unit. Typically (not always the case) larger homes will have a lower price/sf assuming the comparable homes are in the same development. This happens when large differences in home size are developed in very similiar lot sizes in the same neighborhood with the same “view premiums.”
The price/sf is a good metric, just not the only one to use. One has to consider median, mean, price/sf and case shiller as well. As to identify which is the best one to use…I don’t really know. It think it is better to use more factors rather than less in the home buying process. Anyone else has an opinion on which data points are best?
Sure, that’s easy. Pick out three prototypes: a “starter” smallish 2BR condo, a smallish “family” SFR, say 1600 sq ft 3BR 2BA, and a bigger “tradin’ up” SFR, say 2200 sq ft 4 BR, and then list the prices for each. Most readers can mentally classify themselves into one of those three categories, and make mental adjustments for the degree to which they differ — e.g. I’m looking for an even smaller condo, or a bigger SFR. So the “relating” part of the problem is solved.
Plus, now you have three trend lines to watch, all of which make mental sense, and which track the three most important segments of the market: the starter condo segment, the small family SFR, and the trade-up SFR. Three trend lines is not too many for people to wrap their heads around, nor too many to plot on a handy graph. And by comparing the trend lines, you’d easily see any interesting differences between the market segments, like aha I see condos are cratering faster than SFRs or wow, looks like sales volumes in the tradin’ up category are taking off or whatever.
You can plot everything for these three “prototypes”: typical sales price, typical time on market, foreclosure rates, percentage of sales that are distressed, typical percent equity, whatever you like.
I don’t think it’s a superhard problem. I think it’s often the case that people seek “one number” in part because they’re looking for one number that can spin things the way they want them spun. As they say, there are lies, damn lies, and then statistics.
Also note that many units in this area are: Land Lease
Price is lower, but the expiration of the land lease is closer too.
Hi, Walter. Thanks for stopping by.
Is this unit subject to a land lease? Is that why the price has rolled back so far? I figured it was just because it was an undesirable condo in a bad area. I am used to seeing mid-90s rollbacks in Las Vegas, but not here in Orange County.
I think so. Many of the condos around SCP are land lease, I assume so the Segerstroms can expand SCP if needed.
I own a rental on the other side of Bristol that is land fee, they sell at a higher price even though the complexes around SCP are a bit nicer.
This is not a bad place to live, except the schools are not too good. Good if you want centrally located and are single or DINKS.
I agree with you, Walter. As DINKS, my husband and I were interested in this area before we figured out most of the properties were on leased land. Next to South Coast, close to the 405, not far from the beach, cheap. It ticked all the boxes until I did a little research on land leases.
The complex next door on bear and sunflower is also on leased land. It’s nicer by my standards and has also seen some significant price drops — it’s such a tease!
i believe the land lease on this complex is up in 22 years so there is no financing available that i know of. some of the listings for these units used to state that.
I didn’t see that in any of the remarks, so I didn’t realize these were leased. It probably explains why the price has rolled back so far.
IR,
You should do an informative post devoted to the implications of land leases. RE law can differ massively between, and even within, jurisdictions. (IIRC one episode of the original series of ‘Yes Minister’ is based on the difference between English and Scottish law. These date back to the time when they were separate countries, but are still valid today.)
In case you may think this issue only applies to sitcom, I can tell you it became a HUGE deal in parts of London (England) in the 1950′s/60′s when a slew of 299-year leases issued in the aftermath of the Great Fire were reaching expiry.
Near where I grew up in Central Wisconsin, there is a tourist trap named Wisconsin Dells. I know several of the hotels there were built on leased land. It’s a great deal for the landowner, but for the guy who improves the land, not so much.
As those leases wind down, there is very little incentive for the leaseholder to maintain the property, and they often fall into disrepair. And as is apparently true with these units, nobody will extend any financing for them. A lender would be crazy to do so given that they collateral they are loaning against is declining in value and their claim will evaporate when the lease expires.
Ah, Wisconsin Dells: made in china moccasins, t-shirt shops, fudge and miniature golf. Quick! Sign me up for a timeshare!
Seriously though, I would love to see an informative post about the implications of land leases as well. This is under the radar for many first time home buyers looking at cheap condos. How about that Shady Hollow place in Santa Ana as an example?
BTW: Enjoying the new blog. Glad to see you have expanded your scope to all of Orange County.
“Ah, Wisconsin Dells: made in china moccasins, t-shirt shops, fudge and miniature golf. Quick! Sign me up for a timeshare!”
LOL! I see you have been there.
I’m glad you’re enjoying the new blog.
Hawaii also has fee-simple (freehold, like most states) vs. leasehold properties.
As part of the Hawaiian Home Lands program, residents who can prove 50% native ancestry are eligible for a 99-year lease for $1/year.
http://hawaii.gov/dhhl/applicants/appforms/applyhhl