O.C. Housing Market: Sales Are Booming, Prices Are Not

The Orange County residential real estate market—which we semi-obsess over around here because it’s so close to ground zero of the real estate crunch, and because the Orange County Register helpfully publishes copious amounts of data about it—keeps bouncing back. Home sales rose by 66.6% last month from a year ago. That compares to a 62.3% rise in September, and a 18.7% rise the month before that. Sales have now been running at pre-crackup levels for four straight months. Take a look:

The bad news? Prices, of course! They’re off by 50% or more in some markets. Even so, if you squint at the data the right way, you might get a sense that the rate of decline is at last slowing.

 

Not a great market, but not one’s that still in the midst of a freefall, either. . . .

Comments

[sbrunton1956:]

Uptick rule NOW...

2008 Nov 21 02:02 AM

[1 of 4:]

Matt, I live in Fullerton which is in North OC. Long time subscriber of the OC Register and agree that they do a good job covering the Real Estate Market here. Their Business Editor, Jonathan Lansdner was squawking about the over priced real estate market back as far as 2004. At the peak, the median priced home financed using a traditional fixed 30 year mortgage would have consumed 68% of the average household income in OC. When you consider that the underwriting standard for the GSE is a max 38% of income for a 30 year fixed rate mortgage, then you knew that those homes were being bought with ARMs and it was a non-sustainable situation.

I myself worked at WAMU from 2001 to 2004 in their failed effort to build a commercial bank in California. Based on the mortgage activity I saw there, I knew the market was not sustainable. When the Fed started to raise rates, the easy money mortgage refinancings resulting from 50-year low rates on 30-year USTBs started to dry up. The push was for new purchase loans and with the ever increasing real estate prices the shift was towards ARMs, Option ARMs and subprime to keep the game going. There were people in my office with high school degrees making half a million a year answering the phone to originate mortgages. They all thought it was due to their smarts and good looks. I knew it would not last. I also felt that prices would break back to about 2003 and they have. My big mistake was not proactively taking advantage of the impending burst of the bubble.

All that said, I agree with your assessment. The real estate market here has past the worst phase of the subprime crisis. The next washout will be due to collateral damage from the credit crunch and recessionary downturn. Most of the subprime damage has been concentrated in the central part of OC where the lower income housing is. The higher priced housing has just sat and those owners are riding it out, holding their breaths (myself included). We'll see, but I think the worst is over.

Steve

2008 Nov 21 02:50 AM

[Griz:]

If "50% price reduction in some markets" is not a free-fall, then I don't know what is. An interim burst of foreclosure-clearing activity does not constitute the bottom… probably just a clearing rally. Three things that will push prices down on the middle/upper end homes (i.e. the ones we've been waiting to buy): 1) Mounting job losses which will accelerate after the new year, 2) realtors have just about burnt through their cash reserves amassed in 2006-2007 and 3) a MASSIVE wave of Alt-A resets on the 3-27 and 5-25 products used extensively to purchase the mid-upper end homes, which will be peaking in 2009. Let’s not even talk about the long-wave impact of boomer’s retirement and their need to liquidate assets. All-in-all I think nominal prices will continue to fall until mid 2011 and will remain flat in real terms until the next bubble comes along.

2008 Nov 23 08:55 AM