The Laguna Beach direct oceanfront condominium market has between 6 and 12 months of inventory (depending on whether one goes back six or twelve months), far less than the current inventory of Laguna Beach oceanfront single-family detached homes (54 months – see my blog post from January 8, 2009).  With the listing of a direct oceanfront condominium yesterday, the total number of such properties on the market climbs to two (yes, only two direct, front-row oceanfront condominiums in all of Laguna Beach.)

The prices for the two active listings and the two closed listings since October 2008 range from $1,833/sq ft to $2.533/sq ft — or from $2.2M – $4.2M.  These prices are a small fraction of the price for the average Laguna Beach oceanfront single-family detached home.  So, the entry-price for Laguna Beach oceanfront is still within reach of many potential buyers.  

Two key factors are combining to make a Laguna Beach oceanfront condominium purchase a potentially timely consideration:  (a) there are far more potential buyers in the $2Ms than in the $7M+ range and (b) the supply of direct oceanfront condos (whose prices are in the $2Ms) is extremely limited (2 homes) in comparison to that for the single-family oceanfront market (27 homes).  For those whose dreams have been to own a piece of the Laguna Beach oceanfront, now might be a great time to fulfill those dreams at a fraction of the cost of owning an oceanfront single-family home (40% of Laguna Beach’s oceanfront single-family homes are priced above $10M) — and still at a good discount compared with recent ocreanfront condomium sales. 

For more information on the oceanfront market in Laguna Beach, including comparisons of the various condominium complexes, prices, pocket listings, and more, please contact me at 949-701-2000 or albierogers@firstteam.com.

The number of oceanfront single-family detached homes in Laguna Beach has grown to 27, offering a selection of exclusive properties not seen in years.  For most of 2008, there was very little available under the high $6M level.  However, late in 2008 a couple of homes came on the market in the $4M-$6M, which are still on the market.   Nearly three-fourths of the SFD oceanfront homes in Laguna Beach are priced above $8M and more than 40% are priced above $10M. 

NUMBER OF ACTIVE LISTINGS OF SFD OCEANFRONT HOMES IN LAGUNA BEACH, BY PRICE RANGE

Price Range          # of Properties
$4-$4.999M                             2
$5-$5.999M                             2
$6M-$7.999M                           3
$8M-$9.999M                           9
$10M-$12.999M                       3
$15M-$37M                             8

The table below shows all of the current active listings as of January 7, 2009.

Address                      Beds  Baths  Gar     Sq Ft     Yr Blt        $Ms       DOM

31895 Circle Dr              2        2/1      2       1,404    1933          $4.2         70

1285 Ocean Front           5        5/5      2 A           0    1955         $4.85        80

775 Gaviota Dr              6         5/5       2             0    1948        $5.975      96

1235 Ocean Front           4         4/4       2      1,000    1948        $5.999     163

31881 Circle Dr              3        4/3        2      2,470    1998        $6.995     215

109 S La Senda Dr          3        3/2       2     2,300     1949        $7.595     260

31515 Bluff Dr                 2        2/2     2 A   2,200     1929        $7.595      47

1275 Ocean Front            4        3/3     2 A           0      197        $8.499     204

11 Camel Point               3         4/3     2 A   3,206     2008        $8.599      218

31889 Circle Dr              3         5/3    2 A           0     1960        $8.9        240

32181 Coast Hwy            4         4/4     2 A   4,634    1953        $8.995      279

31051 S Coast Hwy          3        4/3     2 A   3,100    1972         $9.45        61

990 Oceanfront                3        4/3     3 A    3,800    2009       $9.495       65

32007 Coast Hwy             8        5/4       2            0    1963       $9.5        162

31897 Circle Dr               4         5/4     2 A     2,559     2007      $9.99      518

4 Mar Vista Ln                 4         4/4      2 A     3,150    2006      $9.995     184

1 Barranca Way              3         4/3     2 A      3,000    2007     $10.499       23

1163 Marine Dr                4        4/4     2 D       3,200   1970     $11.495       72

765 Gaviota Dr                5         7/5    4 A       4,200   2007      $12.995      98

31721 Seacliff Dr             4         6/5     2 A       4,806    1982     $15.5         7

1855 Ocean                     5         6/5     3 D       5,100    1934      $15.9       30

178 Emerald Bay              5         5/3      2 A      4,900    1950      $16.5      197

171 Emerald Bay              5         10/6      4 A   12,400   2010       $19.5      138

111 S La Senda Dr            3         3/3        2        3,695   1949      $19.5     128

23 Shreve Dr                    4         5/4      3 A             0    2006      $19.9     118

32 N La Senda Dr              4         4/3      2 A       5,144   1970       $23.5     124

106 Emerald Bay               5         6/5        2        5,900   2007       $36.9      27

Source: SoCal MLS.

SOLD LISTINGS OF OCEANFRONT SFD HOMES IN LAGUNA BEACH IN 2008

Six oceanfront single-family homes were sold in Laguna Beach in 2008.  With the current active listings of oceanfront homes numbering 27, it would take about 54 months to sell the current inventory assuming the sales pace of 2008 continues into 2009 and beyond.  These numbers would suggest that unless the demand increases due to factors other than price, many of these homes will not sell unless the prices decline to levels that will increase the demand.

Despite the expectation of lower prices for these homes in 2009, buyers can be wise to negotiate their purchase now — even if they expect prices to go down — if they are able effectively to communicate the actual market conditions and their implications for price.  By encouraging sellers to get ahead of what appear to be virtually inevitable pricing trends, sellers can offer a more favorable price/value relationship than their competitors before the market ultimately moves to a lower price level.  Sellers get their properties sold at a discount to current market, but without having to compete with 54 months of inventory at lower price levels in the future.  Sellers who are motivated are then able to accomplish their goal of selling the property, and buyers are able to acquire some of the most desirable properties given the high inventory levels — and at an appropriate discount off current market prices.  Pursuing these opportunities now can represent a win-win situation for buyers and sellers alike.

SOLD OCEANFRONT SFDs IN LAGUNA BEACH IN 2008

Address                     Beds    Baths  Gar     Sq Ft     Yr Blt      $Ms           DOM

2015 Ocean Way               3         3/     2 A      2,677     1929       $7.0            91 

1371 Circle Way                4         4/     2 A     3,100     1946       $8.85          236

845 Cliff Dr                       3        5/4     2 D     3,300     2000       $9.6            100 

881 S Coast Hwy               5       5/4        4       4,000     1948       $9.5            132 

3 Camel Point Dr               6          8/      3 D     6,100     1995      $12.5          103 

25 Bay Dr                         4         5/4     2 A      7,000     2003        $NA            71 

Source: SoCal MLS.

For more information, please contact me at 949-701-2000 or albierogers@firstteam.com.

The number of months of inventory in Newport Beach jumped 42% from 2007 to 2008.  This means that in 2008 there was either more inventory at the same pace of sales or a slower pace of sales with the same inventory, or a combination of the two.  Higher inventory levels combined with slower sales usually means lower prices.  The biggest area of price pressure coming in to 2009 will likely be at the $4M+ price levels given the elevated months of inventory: 37 months ($5M+) and 18 months ($4-$4.999M) vs. 13.9 months (Newport Beach as a whole).  Interestingly, the months of inventory in the $2M – $4M range remained fairly steady from 2006 to 2008 suggesting a somewhat more resilient market to date in this price range.  The $1.25M-$1.999M market had relatively greater increases in months of inventory, reflecting a stronger buyer’s market in this range. 

The number of months of inventory is a traditional measure of the extent to which a market is a Seller’s Market, Neutral Market, or Buyer’s Market.  In general, three months or less of inventory suggests a Seller’s Market; 3-6 months a Neutral Market; and 6 or more months a Buyer’s Market. 

See chart and table below.

Market Activity Index = Months of Inventory

Market Activity Index - Newport Beach (provided in tabular form)
                                 By Price Level in $Millions

		2006	2007	2008
TOTAL		8.3	9.8	13.9
<$1		6.5	8.2	10.3
$1-1.249		8	10.1	9.4
$1.25-1.499		9.5	12.9	15.6
$1.5-1.999		8.9	8.3	18.8
$2-2.499		8.7	12.6	13.9
$2.5-2999		10.5	11	13
$3-3.999		11.6	11	13.6
$4-4.999		6.2	7.5	18
$5+		10.6	11.5	36.8

This report is based on data supplied by the SoCal, Sandicor, MRMLS, and DARMLS or their MLSs. Neither the Associations nor their MLSs guarantee or are in anyway responsible for their accuracy. Data maintained by the Associations or their MLSs may not reflect all real estate activities in the market. Information deemed reliable but not guaranteed. COPYRIGHT © Bankers Funding Company.

Buyers and sellers alike should take a look at months of inventory as an important input into determining a fair market price for a given property.  The Market Activity Index can be instrumental in assessing market conditions that are likely to affect future pricing.  Armed with this information, buyers can determine an offer price that is reflective of the market and be better able to convince sellers of the reasonableness of their offer.  Similarly, sellers can use this measure to price their properties appropriately and avoid the all too common scenario of chasing the market down rather than pricing in advance of the market and ultimately realizing a higher price.

For specific questions or further analysis of the Newport Beach market or any other market in Southern California, including specific price ranges, please contact me at 949-701-2000 or albierogers@firstteam.com.

The Market Activity Index shown below is a measure of the number of months it will take to sell the average inventory of homes based on the average pace of sales during, in this case, a given year.  In general, three months or less of inventory suggests a Seller’s Market; 3-6 months a Neutral Market; and 6 or more months a Buyer’s Market. 

While the Market Activity Index for nearly every price level in Corona Del Mar since 2006 reflects a Buyer’s Market, the degree of Buyer’s Market increased overall by 54% from 2007 to 2008.  This means that either more properties are on the market or the properties on the market are taking longer to sell, or both.  The other significant development is that properties priced at $4M and above have a substantially higher number of months of inventory than price levels below $4M: 28 months vs. 13 months for all price levels. 

Corona Del Mar’s overall Market Activity Index is about 30% lower than that for Laguna Beach (13.1 months vs. 18.6 months, respectively).  In addition, the $5M+ market is stronger in Corona Del Mar (29 months of inventory) than in Laguna Beach (55 months of inventory) .  (See my post from January 4, 2009.)  See graph and table below.

Market Activity Index = Months of Inventory

Market Activity Index - Corona Del Mar (provided in tabular form)
                                 By Price Level in $Millions

		2006	2007	2008
TOTAL		9.2	8.5	13.1
<$1		11.3	13.3	12.7
$1-1.249		10.7	4	10.9
$1.25-1.499		7.3	6.6	14.3
$1.5-1.999		10.1	6.5	11.4
$2-2.499		6.7	7.4	9.1
$2.5-2999		10.9	16.7	21.3
$3-3.999		14	9.2	10.4
$4-4.999		2.4	8.6	28
$5+		6.7	14.9	28.6

This report is based on data supplied by the SoCal, Sandicor, MRMLS, and DARMLS or their MLSs. Neither the Associations nor their MLSs guarantee or are in anyway responsible for their accuracy. Data maintained by the Associations or their MLSs may not reflect all real estate activities in the market. Information deemed reliable but not guaranteed.  COPYRIGHT © Bankers Funding Company.

The Market Activity Index can be used as a tool to help forecast market trends including sales, inventory, and price levels.  From this analysis, it would appear that the greatest price pressure in 2009 would be for homes priced over $4M given the relatively high inventory levels combined with the relatively slow pace of sales within this price segment.  It is important that both buyers and sellers be familiar with the applicable Market Activity Index for a given property in order to price their offers or listings realistically and in line with current market conditions and incipient market trends. 

For specific questions or further analysis of the Corona Del Mar market or any other market in Southern California, including specific price ranges, please contact me at 949-701-2000 or albierogers@firstteam.com.

The Market Activity Index shown below is a measure of the number of months it will take to sell the average inventory of homes based on the average pace of sales during a given year.  In general, three months or less of inventory suggests a Seller’s Market; 3-6 months a Neutral Market; and 6 or more months a Buyer’s Market. 

Since January 2006, Laguna Beach has been a Buyer’s Market at all price levels with three exceptions: <$1M and $1.25M-$1.499M in 2006 and $1-$1.25M in 2007, which were Neutral Markets.  2006 and 2007 had similar market activity indexes except that in 2007 the index increased for properties over $3M, reflecting a stronger buyer’s market at the upper end of the market that year.  Interestingly, the Market Activity Index for 2008 nearly doubled over that for 2007 for most price levels, which means that either inventory levels doubled for the same volume of sales or sales came in at half the rate for the same inventory levels or a combination of the two.  In any event, 2008 was substantially more of a Buyer’s Market than it was for 2007 or 2006.

The most significant development beyond a doubling of the Market Activity Index for 2008 was the sharp increase in the index for properties above $5M in 2008.  The $5M+ price level had an average of 55 months of supply of homes, which compares with 18.6 months of inventory for Laguna Beach as a whole.  See graph and table below.

 Market Activity Index = Months of Inventory 

Market Activity Index – Laguna Beach (provided in tabular form)
                                 By Price Level in $Millions

		2006	2007	2008
TOTAL		8.1	10.3	18.6
<$1		4.9	6.5	10.6
$1-1.249		7.3	5.8	13.5
$1.25-1.499		4.4	8.8	17.7
$1.5-1.999		9.5	9.7	19.7
$2-2.499		8.1	8.1	16
$2.5-2999		16.5	15.8	22.4
$3-3.999		8.2	17.3	21.4
$4-4.999		10	22	16.9
$5+		12	20.7	55

This report is based on data supplied by the SoCal, Sandicor, MRMLS, and DARMLS or their MLSs. Neither the Associations nor their MLSs guarantee or are in anyway responsible for their accuracy. Data maintained by the Associations or their MLSs may not reflect all real estate activities in the market. Information deemed reliable but not guaranteed.  COPYRIGHT © Bankers Funding Company.

The Market Activity Index can be used as a tool to anticipate market trends including sales, inventory, and price levels.  From this analysis, it would appear that the greatest price pressure in 2009 would be for homes priced over $5M given the high inventory levels combined with the relatively slow pace of sales within this price segment.  It is important that buyers know the applicable Market Activity Index so that they know what would be a realistic and appropriate offer price — and the same is true for sellers so that they price their property in line with the market and market trends.

For specific questions or further analysis of the Laguna Beach market or any other market in Southern California, at specific price ranges, please contact me at 949-701-2000 or albierogers@firstteam.com.

With more than double the percentage of active listings under $1M compared with Corona Del Mar (10.7%) or Laguna Beach (11.7%), Newport Beach, California at 25.2% would be expected to have relatively more REO/Short-Sale listings than its two neighboring communities to its south.  Such is the case: 9.3% of Newport Beach’s active listings are REO or Short-Sale, compared with 3.1% for Corona Del Mar and 6.8% for Laguna Beach.  The driving variable for the penetration of REO/Short-Sale listings again appears to be price level: the more properties below $500K and to a less extent below $1M, the more REOs and Short-Sales there are as a percentage of active listings. 

Consistent with Orange County data as a whole, REOs and Short-Sales account for a disproportionately high percentage of escrows compared with standard equity sales.  In the sub-$1M market, REOs/Short-Sales account for 12 of the 21 escrows (57%) even though they account for only 27% of active listings.  The same is true in the $1M+ market, where REOs/Short-Sales account for 2 of the 17 escrows (12%) even though they account for only 3% of active listings.

Newport Beach’s sub-$1M REO listings are much more likely to close than their sub-$1M Short-Sale counterparts: i.e., 4 times more likely at 36% vs. 9% (calculated by taking closed listings during the prior 30-days / active listings).

In the $1M+ Newport Beach market, there were no REO/Short-Sale closings within the prior 30-days, again, reflecting the limited penetration of REOs/Short-Sales in the $1M+ market in Newport Beach.

NEWPORT BEACH HOUSING MARKET STATUS AS OF DECEMBER 31, 2008
             Including Penetration of Short-Sales and REOs

BELOW $1M
                                   Short-Sale              REO                Total
Active Listings               25 (20%)                9 (7%)                  124
Back-Up Offers              3 (33%)                 0 (0%)                      9
Pending Sales                3 (25%)                 6 (50%)                  12
Closed Sales*                1 (9%)                  4 (36%)                   11

$1M-PLUS
                                   Short-Sale              REO                Total
Active Listings                 8 (2%)                4 (1%)                  369
Back-Up Offers               0 (0%)                 0 (0%)                     6
Pending Sales                 1 (9%)                 1 (9%)                    11
Closed Sales*                 0 (0%)                0 (0%)                    10

NEWPORT BEACH TOTAL
                                   Short-Sale              REO                Total
Active Listings                33 (7%)                 13 (3%)               493
Back-Up Offers               3 (20%)                  0 (0%)                 15
Pending Sales                 4 (17%)                  7 (30%)               23
Closed Sales*                 1 (5%)                   4 (19%)                21

*Prior 30-Days.
Source: SoCal MLS.

As suggested in my most recent posts concerning the Corona Del Mar and Laguna Beach markets, it would be advisable to gauge the impact of distressed property sales in the future by looking at factors that can affect the stability of this market including: the direction of the economy, how deep the recession will go, the influence of the new administration on the economy and consumer confidence, how soon the economy will recover from the recession, the supply of active listings above $1M including those being sold as REOs/Short-Sales, the pace of home sales, mortgage interest rates, and so forth.  To a great extent, the Newport Beach $1M+ market has been isolated from the impact of distressed sales, but could be more influenced by them in the future depending on the aforementioned factors.

Despite the limited impact of REOs and Short-Sales in the $1M+ Newport Beach market, prospective buyers can still find good buys if they focus on identifying properties having good long-term value and negotiate a price that reflects a fair value in light of the current economic climate.  Some sellers do price their properties competitive with REOs and Short-Sales even though they are standard equity sales, which gives buyers a price advantage without the negatives associated with REOs and Short-Sales such as long delays, uncertainty, often multiple offers, and issues regarding property condition.  Remember, properties that appeal to the wealthy will continue to lure them over the long-term, especially those properties having special features such as oceanfront, harbor-front, oceanview, or other rare aspects that cannot be duplicated elsewhere.  And, the best time to buy these properties is when the supply is relatively high and the prices are relatively low.

*REOs (real estate owned, meaning bank-owned/lender owned)
**Short-Sales (meaning owners who owe more than the property is worth and are seeking forgiveness of part of their loan upon sale).

For more information, please contact me at 949-701-2000 or albierogers@firstteam.com.

©Albie Rogers.

In Corona Del Mar, California, REOs* and Short-Sales** represent a small fraction of the listings and closed sales within the prior 30-days.  As shown in county-wide data (see my post from December 31, 2008), these kinds of distressed property sales tend to focus on the sub-$500K market and to a less extent to the sub-$1M market.  Of Corona Del Mar’s 159 active listings, only 17 (or 11%) are below $1M, which helps explain why the REO/Short-Sale impact is so much less in Corona Del Mar than in Orange County as a whole. 

While only 3% of Corona Del Mar’s active listings are either REO or Short-Sale, they account for 3 of 11 Back-Up Offers (27%), 0 of 4 Pending Sales (0%), and 1 of 10 Closed Sales within the prior 30-days (10%).  Of the 25 properties in escrow or closed within the past 30-days, only 4 are REO or Short-Sale, representing only 16% of the total.  Therefore, the vast majority of sales taking place in Corona Del Mar, unlike much of Orange County as a whole, are standard (equity) sales.

CORONA DEL MAR HOUSING MARKET STATUS AS OF DECEMBER 31, 2008
             Including Penetration of Short-Sales and REOs

BELOW $1M
                                   Short-Sale              REO                Total
Active Listings                1 (6%)                1 (5%)                  17
Back-Up Offers              1 (33%)               0 (0%)                   3
Pending Sales                0 (NA)                 0 (NA)                    0
Closed Sales*                0 (0%)                0 (0%)                   2

$1M-PLUS
                                   Short-Sale              REO                Total
Active Listings                 2 (1%)                1 (1%)                  142
Back-Up Offers               1 (13%)               1 (13%)                   8
Pending Sales                 0 (0%)                 0 (0%)                    4
Closed Sales*                 1 (13%)               0 (0%)                    8

CORONA DEL MAR TOTAL
                                   Short-Sale              REO                Total
Active Listings                3 (2%)                 2 (1%)                  159
Back-Up Offers               2 (18%)               1 (9%)                   11
Pending Sales                 0 (0%)                0 (0%)                     4
Closed Sales*                 1 (10%)              0 (0%)                   10

*Prior 30-Days.
Source: SoCal MLS.

As suggested in my most recent post concerning the Laguna Beach market, it would be advisable to gauge the impact of distressed property sales in the future by looking at factors that can affect the stability of this market including: the direction of the economy, how deep the recession will go, the influence of the new administration on the economy and consumer confidence, how soon the economy will recover from the recession, the supply of active listings above $1M including those being sold as REOs/Short-Sales, the pace of home sales, mortgage interest rates, and so forth.  To a great extent, Corona Del Mar has been isolated from the impact of distressed sales, but could be more influenced by them in the future depending on the aforementioned factors.

Despite the limited impact of REOs and Short-Sales in Corona Del Mar, prospective buyers can still find good buys if they can identify properties having good long-term value and negotiate a price that reflects a fair value in light of the current economic climate.  Some sellers do price their properties competitive with REOs and Short-Sales even though they are standard equity sales, which gives buyers a price advantage without the negatives associated with REOs and Short-Sales such as long delays, uncertainty, often multiple offers, and issues regarding property condition.

*REOs (real estate owned, meaning bank-owned/lender owned)
**Short-Sales (meaning owners who owe more than the property is worth and are seeking forgiveness of part of their loan upon sale).

For more information, please contact me at 949-701-2000 or albierogers@firstteam.com.

©Albie Rogers.

REOs (real estate owned, meaning bank-owned/lender owned) and Short-Sales (meaning owners who owe more than the property is worth and are seeking forgiveness of part of their loan upon sale) still have little penetration among the active listings in Laguna Beach.  The primary reason is most likely due to the fact that these kinds of distressed property sales are much more prevalent below $500K, and Laguna Beach has only 3 of its 308 active listings priced under $500K.  Of the 36 listings priced below $1M, 1 is an REO and 5 are Short-Sales, representing 3% and 14% of active listings below $1M, respectively.  Despite the low representation of REO/Short-Sales among active listings, they nonetheless account for 4 of 5 Back-Up Offers (80%), 4 of 6 Pending Sales (67%), and 4 of 7 Closed Sales within the Prior 30-Days (57%).  This suggests that buyers in Laguna Beach are heavily focused on buying the handful of distressed properties on the market in Laguna Beach. 

When looking at the 275 listings priced $1M and above, only 15 (or 5%) are REO/Short-Sale listings (compared to 17% of listings below $1M).  At the $1M+ price level, REO/Short-Sales account for 1 of 2 Back-Up Offers (50%), 1 of 5 Pending Sales (20%), and 0 of 10 Closed Sales within the Prior 30-Days (0%).  Again, the influence of REO/Short-Sales in Laguna Beach is more limited above $1M.   See the chart below.

LAGUNA BEACH HOUSING MARKET STATUS AS OF DECEMBER 31, 2008
             Including Penetration of Short-Sales and REOs

BELOW $1M
                                   Short-Sale              REO                Total
Active Listings                5 (14%)               1 (3%)                   36
Back-Up Offers              2 (40%)               2 (40%)                   5
Pending Sales                1 (17%)               3 (50%)                   6
Closed Sales*                1 (14%)               3 (43%)                   7

$1M-PLUS
                                   Short-Sale              REO                Total
Active Listings               12 (4%)                3 (1%)                  275
Back-Up Offers               1 (50%)               0 (0%)                     2
Pending Sales                 0 (0%)                1 (20%)                    5
Closed Sales*                 0 (0%)                0 (0%)                    10

LAGUNA BEACH TOTAL
                                   Short-Sale              REO                Total
Active Listings               17 (6%)                4 (1%)                   308
Back-Up Offers               3 (43%)               2 (29%)                    7
Pending Sales                 1 (9%)                4 (36%)                   11
Closed Sales*                 1 (6%)                3 (18%)                   17

*Prior 30-Days.
Source: SoCal MLS.

Until the supply of active $1M+ REO/Short-Sale listings increases, the impact on the $1M+ market will continue to be limited.  However, it will be important to look at factors that influence the supply and demand — and therefore pricing — in this market, including the direction of the economy, how deep the recession will go, the influence of the new administration on the economy and consumer confidence, how soon the economy will recover from the recession, the supply of active listings above $1M including those being sold as REOs/Short-Sales, the pace of home sales, mortgage interest rates, and so forth.  For additional information, please contact me at 949-701-2000 or albierogers@firstteam.com.

©Albie Rogers.

As of the end of December 2008, REO (real estate owned, meaning bank-owned/lender owned) and Short-Sale (meaning owners who owe more than the property is worth and are seeking forgiveness of part of their loan upon sale) listings in Orange County, California dominated the sub-$500K housing market, and began to taper off as price levels increased above $500K.  REO/Short-Sale closings during the prior 30-days also dominated closings below $500K.  See the chart below:

Percentage of Active Listings and Closings (prior 30-days) in Orange County that are REO or Short-Sale by Price Level as of the end of December 2008

Price Level                % Active Listings      % Closings (30-days Prior)

Up to $199K                                62%                                         80%
$200-$299K                                74%                                         79%
$300-$399K                                68%                                         70%
$400-$499K                                53%                                         53%

$500-$599K                                42%                                         42%
$600-$699K                                29%                                         36%
$700-$799K                                21%                                         37%
$800-$899K                                21%                                         26%
$900-$999K                                18%                                         30%

$1,000K+                                     6%                                         18%

Source: SoCal MLS.

In addition to REOs and Short-Sales dominating the sub-$500K housing market in Orange County, they also have a heavy influence on the $500K-$999K market there as well: accounting for between 18% and 42% of active listings and between 30% and 42% of closings in the prior 30 days, depending on price level.

The $1 million-plus market in Orange County to date has had limited impact from REO/Short-Sales as a percentage of listings.  However, REOs and to some extent short-sales are making inroads into this segment of the market (REO closings were double that of Short-Sale closings during the prior 30 days for the $1 million-plus market).  Even though the percentage of sales that are REO/Short-Sale are relatively low, these sales can have a dampening effect on prices of normal equity sale listings.

In light of the significant differences in penetration of REO/Short-Sales across price levels, buyers should recognize that market conditions in one price level might not apply to those in another.  Buyers could miss out on excellent buying opportunities if they evaluate a particular property using inappropriate factors or market conditions.

©Albie Rogers.

Active REO* listings in Orange County, California are more than 8-times more likely to close than their Short-Sale** counterparts.  At the end of December 2008, Orange County’s REO active listings numbered less than a third that of short-sales (1,249 vs. 3,896, respectively), yet REO closed sales within the prior 30-days exceeded those of short-sales by more than 2.5 fold (729 vs. 279).  The number of REO closings during the prior 30 days reached a staggering 58% of the total number of currently active REO listings, whereas the number of short-sale closings during the prior 30 days amounted to only 7% of the number of currently active short-sale listings. 

These statistics have significant implications for buyers and sellers alike.  Buyers: if only 7% of the short-sale listings close in a given month, buyers should be aware of the significant risk of homes taking many months to close, if they close at all.  Therefore, buyers should be very selective in deciding which short-sale home listings should justify their time and consideration.  Qualifying short-sale properties entails asking the right questions of the listing agent and getting the right answers.  Without proper qualification, buyers and their agents are at risk of wasting their time pursuing a purchase that is unlikely to materialize, and missing out on more realistic buying opportunities in the meantime.

Sellers: should also recognize the reality of these short-sale statistics in their decision-making on how to approach the sale of their home.  Here too the seller should ensure that their agent has the experience to market the property to potential buyers as well as be able to negotiate successfully with the lender or lenders.  Otherwise, a seller could become a statistic of unsold or long-delayed short-sales, which could potentially cost the seller time and money, and negatively affect their credit score. 

Please keep in mind that these statistics can vary significantly by geography, price level, type of property, and so forth.  Both local market statistics as well as broader market statistics should be taken into account when assessing short-sale and REO opportunities.

*REOs (real estate owned, meaning bank-owned/lender owned)
**Short-Sales (meaning owners who owe more than the property is worth and are seeking forgiveness of part of their loan upon sale).

For more information, please contact me at albierogers@firstteam.com.

©Albie Rogers.

After seeing a 10+ year record unit sales volume (seven) in 2007 of direct oceanfront condos in Laguna Beach, 2008 has seen that number drop to two.  Unlike much of the rest of the country, however, the inventory of available homes declined and was limited to two or three the entire year.  For the most part, owners of these properties elected to hold on to them, which, in itself, is one indicator of stability for this market niche.  With very limited supply, buyers decided for the most part to take a wait-and-see approach following the unfolding mortgage / financial crisis that began in August 2007.  Nonetheless, the two units that did sell in 2008 sold for $4.2M and $2.2M, reflecting a price-per-square foot of $2,493 and $1,833, respectively.  Combined, the average price per square foot sold in 2008 rose from $1,968 in 2007 to $2,163 in 2008.  This represents an increase of 9.9%.  As of the writing of this post, only one direct oceanfront condominium remains on the market in Laguna Beach: 31561 Table Rock Drive #101.

©Albie Rogers.

Despite the housing market downturn in much of the country, the market for direct oceanfront condos in Laguna Beach, California continues to remain relatively strong.  In 2007, unit-sales of direct oceanfront condominiums were higher than in any of the prior ten years, and were higher than the unit-sales in 2004, 2005, and 2006 combined.  In addition, the average price per square foot increased 5.1% in 2007 vs. 2006.  This rate of increase, not surprisingly, slowed compared to 2005-2006, which saw a 13.1% increase.  Even still, the average price per square foot in 2007 rose to $1,968/square foot.  Interestingly, of the seven units sold in 2007, five of them were in need of renovation, so the $1,968 figure reflects largely a pre-renovation price average.  Consistent long-term price appreciation seems to be a hallmark of this narrow segment of the real estate market, being largely insulated from the effects of economic slowdown or housing downturns.  From 1999-2007 the average price per square foot increased every year, except for a slight dip from 1999 to 2000. 

A number of factors help account for the resilience of the oceanfront condominium market in Laguna Beach:

– Demographics of owners tend to be high-wealth and many of these properties are 2nd, 3rd, and 4th homes

– The supply is fixed and, for the most part, not subject to expansion

– As wealth is created, many coming into substantial wealth want to live on the ocean.  As the adage goes, “the billionaires have pushed out the millionaires” will one day apply to the Laguna Beach oceanfront

– These properties are typically held for years and years, often multi-generational, so the supply of available properties is very limited at any given time

– Oceanfront properties historically have appreciated faster than inland properties, which tends to reduce the incentive of homeowners to sell

– Many owners of oceanfront properties would not sell at even a highly inflated price because (a) they like their oceanfront location, (b) they do not think they could realistically better their living situation by selling, and (c) their lifestyle typically would not change by virtue of the sales proceeds compared with their overall resources

How can one truly place a value on a choice oceanfront property?  In many ways, oceanfront properties are like art: masterpieces that are unique and irreplaceable.  Yet, when compared to art, they are often far more affordable.  But, unlike art which is static, the canvas of the ocean changes every hour of every day with the positioning of the sun, the ever-changing hues of the ocean, tides, and surf, and the crashing of waves against rock-outcroppings, and the ever-present wildlife: schools of dolphins, flocks of pelicans, pods of whales in season, and seals and sea lions. 

More to come on my next post.  If you would like more information, please visit my website at www.rogersgroupltd.com or contact me at albie@rogersgroupltd.com.

©Albie Rogers.