Orange County Lowers Prices; California Mortgage Applicants Still Don’t Bite

Real estate is no longer “cooling” or “in a lull” or “returning to normal” in this California housing market.

The start of Orange County real estate’s 2007 has been a major disappointment, at best.

Hopes had circled that buyers would shed last year’s indifference and get their shopping patterns reinvigorated by the generous selection of homes for sale, a growing flock of somewhat motivated sellers and relatively affordable California mortgage loan financing.

Instead, buyers are increasingly saying “No, thank you.”

DataQuick stats show 10,661 O.C. homes of all stripes sold in the first four months of this year. That’s down 21 percent from 2006 after a 21 percent year-over-year drop in 2005. It puts 2007’s buying pace 22 percent behind the 1988-2007 average.

This is not some small statistical sliver. We’re talking about one third of an entire year here.
And this year’s sales pace is so sluggish that only two years – 1993 and 1995 – started any slower for home buying in DataQuick’s two decades of Orange County sales history.

Yes, 1993 and 1995 – right smack in the heart of the last painful real estate slump in this town. Not that we’re saying present conditions are on par with that dark era – or that we’re headed toward such a debacle.

But let’s be honest: This is a significant sales slump we’re living through. Nobody expected the market to keep up with the hectic sales pace of a few years back. But few folks expected such extended balking by mortgage seekers.

When you slice the data, the cheaper end of the market looks to be taking a heftier brunt of the sales drop. That makes some sense considering the huge affordability challenges buyers face after a house-rally that essentially triples the cost of a local residence in the past decade. The loss of bad credit mortgages and other aggressive lending likely helped to ground the budget-challenged home shopper.

For starters, it’s worth noting that old condos – the market’s affordable option – suffered a slightly larger two-year sales drop than single-family homes by a 45 percent to 39 percent margin. Meanwhile, builders lost only one percent of their local 2005 sales volume. How? You can bet a 18 percent drop in median selling prices moved new residences and converted apartments.

Also, look at sales drops by O.C. ZIP codes over the past two years. The biggest slips? In Anaheim’s 92806 (off 67 percent) and Santa Ana’s 92704 (off 66 percent) – two of the county’s most affordable neighborhoods.

If you slice the county neighborhoods into three, ranked by two-year sales drops, the ZIPs with the deepest declines had a median sales price of $600,000 this year vs. $661,250 for the ZIP codes where sales performed the best on a percentage change basis. Not so curiously, these bigger sales volume declines came in ZIP codes where price had typically grown 12 percent the past two years vs. a 7 percent rise in the best-selling ZIPs.

Perhaps California housing prices rose too fast for some communities.

Or look at this another way: Sales declines since ‘05 ranked by a community’s median sales price. The one-third of local ZIP codes representing the cheapest housing in the county had average sales drops of 45 percent since 2005 vs. a drop of 37 percent for the entire market.
That’s not a huge gap. Nor is it like we’re seeing the bottom falling out of the bottom of the market. But affordable neighborhoods do appear to be a harder sell.

Weakness at the bottom of the market can magnify itself throughout housing’s food chain.

Without ample home purchase loan borrowers for the county’s cheapest properties, folks thinking about moving up from those abodes to pricier residences – thus, powering the higher slices of the market – may decide to stay put as they struggle to sell their current homes.

What’s clear is that many shoppers – for now – are choosing to watch, not act. What’s unclear is what will get them to become active.

Builders have aggressively cut prices to lure customers. And these developers aren’t wild about their resulting lackluster financial results.

Will owners, who watched the median selling price rise 11 percent in two years as sales badly slumped, have to do the same?

SOURCE: The OC Register