The Orange County, Calif., housing market and its titanic home prices are not unsinkable. The inventory of for-sale homes is growing, the pace of home resales is slowing and home-price appreciation is starting to stagnate in the county, which has been one of the hottest housing markets in the nation. And while things are not going swimmingly anymore, it doesn’t mean that the market is drowning, either, say local real estate professionals.

Home sales were down about 17 percent in Orange County from July 2003 to July 2004, and down 13.3 percent from June 2004 to July 2004, according to DataQuick, a company that tracks real estate data. In 2003, home sales were up 6.1 percent from June to July – the summer months are typically the busiest season for home sales.

And the California Association of Realtors reports that the inventory of existing, detached homes has grown from 1.4 months in April to 7.5 months in July–the last time it reached 7.5 months was in October 1998. This monthly supply refers to the number of months it would take to exhaust the housing supply at the current sales pace.

“I’ve got a number of clients who have been trying to sell their houses now for over 60 days. If you look four months back – that would’ve been inconceivable,” said Norm Bour, owner of Priority Plus Lending in Laguna Nigel, Calif. “Inventory is hugely up. Now, instead of having to write the offer up on the back of a car trunk, like they were having to do, they can look at (a home) and talk about it for a couple of days. All indications are that what we’re seeing now is reluctance from first-time buyers for fear that they’re buying at the top of the market.”

Bour said that in his 25 years of experience in the industry, the latest housing boom has been the greatest housing boom – which makes it difficult to predict the market’s future. “There’s no precedent for what we’ve seen. This (cycle) started earlier and lasted longer than any I’ve seen.”

A bit of realism has been injected into the local real estate market, said Debbie Ferrari, a Realtor who works in the Orange County market. “We’re seeing prices come down only because they were priced way above where they should have been in the first place. I still don’t think it’s a buyer’s market, though. I feel we still have more buyers than we’ve got properties to sell them,” she said.

While inventory is growing and homes are spending more time on market, Ferrari said she explains to buyers that price gains may be slowing but they probably aren’t going to stop. “I deal mostly with buyers who are coming from out of the area,” she said. “A lot of them say they’re going to wait until prices come down. I say, ‘You know what? Prices are not going to come down.’ There are not a lot of places to build, not a lot of major employers going out of business. Interest rates are still great.”

Robert Kleinhenz, deputy chief economist for the California Association of Realtors, said year-to-year sales numbers have been on a declining trend since the start of the year in Orange County, “probably because it’s very much a supply-constrained market. It was that supply constraint that drove price appreciation in the last few months.”

And while price appreciation has eased, Kleinhenz said the market should still remain strong. “It’s the second largest county in the state, and one of the largest in the country, adding about 40,000 to 50,000 residents a year. I would not be surprised to see sales activity continue to be very robust for the rest of 2004.”

Kleinhenz said the rising inventory appears to be “a temporary spike in unsold inventory, not an indication of a change in the trend from low to significantly higher inventory levels.”

According to the association’s numbers, sales of existing, detached homes are down 35.7 percent from July 2003 to 2004, and have dropped 7.7 percent this year through July. Still, price appreciation has ranged from 30 percent to 40 percent for the Orange County market for much of the year, he said. DataQuick reported that overall home prices were up 36.4 percent from May 2003 to May 2004, compared with 22.7 percent from July 2003 to July 2004. And the median price for Orange County homes in May was $543,000, compared to $525,000 in July, DataQuick also reported.

Roger Mason, an appraiser who works in the Orange County market, said that in his opinion there are a few warning signs to watch in the Orange County housing market. The volume of low-down payment and no down-payment loans has been piling up in some parts of the county, he said, and this could become an issue as interest rates climb. Also, the number of listings has increased substantially–and quickly–in some areas of the county, said Mason.

There were 354 homes listed in Mission Viejo area on May 24, compared to about 787 homes listed at one point this week, for example, he said. “It’s almost like watching stocks.” And a type of condominium unit that sold for $270,000 in May more recently sold for about $239,000, he said. The Orange Market “seems like it’s more volatile” than the overall Southern California market, he said. “We’re going to see what happens in about 12 to 16 months.”

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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