South OC market snapshot

Steve Thomas at RE/MAX recently posted this newsletter and market analysis for Orange County. We've broken out the South OC figures from his report to show you the active listings and number of foreclosures and short sales (distressed properties). All info is as of March 20.



Five South County areas - Lake Forest, Foothill Ranch, San Juan, RSM and Portola Hills - are in the top 10 in the county in terms of highest percentage of distressed inventory. Laguna Woods has the lowest percentage of distressed inventory in the county.

As you can also see, about 28.4% of the entire South OC inventory for sale on the MLS is either a foreclosure or short sale right now.

Here is more info from Thomas' report, which includes the number of pendings in the past 30 days, the market time (amount of time it would theoretically take buyers to absorb all the active listings at the current pace) and the average list price of current active properties.

Note: The average South OC asking price is a weighted average that takes the number of active listings in each area into account.



Some notes on the information:

• No surprise here: South OC as a whole is a buyers market right now, as there is 7.13 months of inventory on the market.
  
  
• The average list price is almost $1 million. We can thank Laguna Beach and its $3 million average price tag, and Coto at $2.2 million, for some of that. The area with the lowest average asking price (other than Laguna Woods) is Lake Forest, at $484,000. This is also the city in South County with the highest percentage of distressed inventory.
  
  
• Foothill Ranch and RSM are the two areas with the shortest market time. But, each has distressed properties that make up more than 40% of its total inventory.
  
  
• By simply eyeballing the data, the common pattern is that inventory levels in most areas are generally lower than they were four weeks ago (Feb. 21), but higher than they were one year ago (March 22, 2007). Not surprising, since this is the start of the spring buying season, so we would expect transactions to pick up compared to the winter and buyers to begin working through some of the inventory.
  
  
• While this is also the time of year when many sellers begin listing their homes (adding to the inventory), there is anecdotal evidence from real estate agents suggesting that fewer sellers are "testing the market" and are only listing if they really need to sell, which would limit the inventory hitting the market. It would support the idea, then, that many homes that are coming up for sale are forced, distressed sales, which in turn is pushing the percentage of distressed properties upward.
  
  We also know that we are beginning the season with more inventory than last year - including more distressed inventory. Since foreclosure numbers continue to run high, we would expect the number of distressed sales to increase or stay constant for at least the next few months. And, don't forget about the ARM resets.
  

Something off in Stanton?

Photo credit: OC Register

Each Sunday, the OC Register publishes a feature in its Marketplace (formerly Business) section called "Buying it in..." where it features a recently sold property and describes various types of financing that would be needed to purchase the subject property at the sales price.

It's a nice little feature - and informative as well, because it gives one a snapshot of the type of income needed and financing options available to buy different types of homes around Orange County.

Today's subject property was particularly intriguing since it is located in Stanton. A little background: Stanton (ZIP code 90680) is the No. 7 poorest ZIP in OC, according to the Register's analysis of IRS 2005 income data. The Register pegged the median income in that city in today's story as $45,445. The 4th quarter median resale home price there was $400,000.

Suffice to say, Stanton and its 32,188-person population is a working-class area with a fairly low average income - at least for Orange County standards. Now, to the subject property, 10160 Fern Avenue.

Size: 3 beds, 2 baths, 1,127 sq ft (built in 1958)
Purchase price: $430,000
Purchase date: 1/24/08
Price/sq ft: $382

Financing options

(all assume market interest rates as of Thursday, with no points and $4,000 in closing costs)

30-year fixed
Assumes 5% down, 7.25% interest (7.28% APR)
Down payment: $21,500
Loan amount: $408,500
Monthly payment: $2,787
Required income: $128,724
Cost as % of income: 33%

30-year due in seven
Assumes 10% down payment, 7% interest (7.03% APR)
Down payment: $43,000
Loan amount: $387,000
Monthly payment: $2,575
Required income: $117,830
Cost as % of income: 33%

30-year adjustable
Assumes 20% down payment, 1.5% interest (8.14% APR). Adjusts annually with 7.5% cap per adjustment and a life ceiling of 9.95%, tied to 12-month Treasury average (4.662%), plus a 3.45% margin.
Down payment: $86,000
Loan amount: $344,000
Monthly payment: $1,187
Adjusted payment: $2,551
Required annual income: $110,872
Cost as % of income: 33%

Notice the required income for all these financing options? To afford the adjustable loan option, you would need $86,000 in savings and an income of $110,872.

That is to say, you would need to be making $65,427 more per year than the Stanton median income, or $44,000 more than the countywide median household income, and have an $86,000 down payment just to be able to afford this property, which appears to be a fairly standard (though small) starter home.

If you were to go the "more conservative" 30-year fixed route and had 5% to put down (a much more realistic scenario, since 5% is about the average down payment these days), you would need to make $128,724 per year to afford this house.

Judging by similar properties for rent on the MLS, this would rent for about $1,900 per month. If we were to assume a gross rent multiplier of 160, this property "should" be worth $304,000.

It also means that if you bought this property with a 30-year fixed loan, you would be paying $887 more per month to buy as opposed to rent, not including insurance, property tax, maintenance, or accounting for the mortgage interest tax deduction.

Nobody is arguing the median income household has to be able to afford the median property. But, someone making nearly three times the local median income should sure as heck be able to afford a bit more than a modest, 50-year-old resale starter home in that community.

Foreclosures mounting in OC

The OC Register dished out some more useful data today. This time, it's tracking foreclosure numbers for the past six months, ending in late January, compared to the same time period last year.

As a whole, Orange County foreclosures were up 321% for condos and 274% for single family homes. Clink on the link above to see the entire county, or look below for a summary of the South OC numbers.

Largest % gain in foreclosure total, year over year (condos) - by ZIP code
Dana Point (92629), 450%
Mission Viejo (92691), 443%
Laguna Hills (92653), 360%

Largest % gain, year over year (single family homes)
Lake Forest (92630), 1,080%
San Clemente (92673), 1,000%
Ladera Ranch (92694), 900%

Smallest % gain, year over year (condos)
Laguna Beach (92651), -100%
Laguna Woods (92637), -25%
San Clemente (92672), 100%

Smallest % gain, year over year (SFRs)
Laguna Beach (92651), 20%
Foothill Ranch (92610), 25%
Trabuco/Coto (92679), 111%

Most total foreclosures (condo + SFR)
Lake Forest (92630), 105
Aliso Viejo (92656), 82
Laguna Niguel (92677), 81

Least total foreclosures
Laguna Woods (92637), 3
Laguna Beach (92651), 6
Dana Point (92624), 7

Check out your neighbors' finances!

Well, sort of. The OC Register published a chart with financial information on every ZIP code in Orange County (plus some extra ones the IRS uses because they are apparently tied to P.O. boxes). The list includes average income (we're assuming per household), charity donations and taxes as a percent of income.

Be sure to also click on the "details" link on the right of each city for a more complete breakdown, including income compared with the previous year. Disclaimer: The data is only as recent as the 2005 tax year.

However, we see this as being a potentially very interesting document, since 2005 was a year of good prosperity locally (think finance and real estate) and the housing bubble was still in full swing.

What do you think will happen when 2005 incomes are compared someday to 2006 and 2007 incomes, which would be the years leading up to our current/impending/possible recession - when that information is finally available?

Some quick-hit observations relating to South Orange County cities:

• The highest average income ZIP code was Laguna Beach (92651), with an average of $205,514.54. The lowest was Laguna Woods (92637) at $46,740.71. Neither is surprising in the least.
  
  Other top income-earning areas: Trabuco Canyon (92679): $166,016.54; San Juan (92693): $120,910.86; San Clemente (92673): $113,793.17; Laguna Hills (92653): $113,668.73.
  
  
• In an era where incomes seemed to commonly be expanding by leaps and bounds (for instance, Aliso Viejo's average increased 11.05%), it wasn't the case in all areas. For example, Laguna Niguel (92677) only increased 1.37% and Lake Forest (92630) went up only 2.59%.
  
  
• Dana Point (92629) was a big income gainer - its average increased 15.68% in one year.
  
  
• San Juan Capistrano's (ZIP 92675) average income actually dropped 8.14% between 2004 and 2005.

CAR November data is out

It's not pretty at all. The Calif. Association of Realtors (CAR) is showing a 5.4% decline in November median price of a single family house ($661,580) compared to October and September, which were both $673,770.

The stunning part is how quickly the median has fallen - the peak was $747,260 earlier this year and it has already declined 11.4% since then. What will 2008 bring?

Here is the recent data point with in an updated OC median single family home price graph - including a revision of the peak ($747,260 in April 2007).

How do they do it?

It is probably not too surprising that the asking rates for these rental properties - all actives pulled off the MLS - are far below what the monthly carrying costs would be if they were instead purchased with non-risky loans and 20% downpayments.

These properties also are intriguing since it doesn't seem likely that, even if successfully rented at their full monthly asking rates, any would collect nearly enough monthly income for the landlord to cover their carrying costs.

In essence, these properties would be generating negative cash flow for their owners while the tenants would be enjoying full, temporary use of them at a rate well below the cost of ownership. Not a good short-term picture for the landlords.

How then, are these landlords making ends meet? Unless you believe these properties were either purchased with cash or incredibly large downpayments, exotic loans are likely in play, since they could substantially bring down the carrying costs (for a while at least).

30962 Via Mirador, SJC, 92675
Asking rental rate: $5,900
Purchase price: $1,750,000
Purchase date: 5/12/05
Est. monthly holding costs*: $10,582
$ "saved" per month by renting: $4,682

179 Mcknight #4, L. Beach, 92651
Asking rental rate: $1,900
Purchase price: $720,000 (was this for the full complex or one unit?)
Purchase date: 5/18/2007
Est. holding costs: $3,893
$ "saved" by renting: $1,993

1911 Colina Salida Del Sol, SC, 92673
Asking rental rate: $4,100
Also for sale: $1,098,000
Purchase price: $1,125,000
Purchase date: 6/29/2006
Est. holding costs: $6,626
$ "saved" by renting: $2,526

*To calculate the monthly holding costs for the landlord, we assumed a very conservative 6.5%, 30-year fixed interest rate loan and a 20% downpayment. Property tax is based on the amounts at Zillow. HOA dues are based on those reported by comparable properties for sale, where available. If not available, no HOAs were included. Insurance was also not included. We assumed the landlord did not live in this property recently and for long enough to quality for a mortgage interest tax deduction.

Finding a buyer in...Dana Point

There are currently 15 homes that are pending for sale in Dana Point through the MLS, according to my search. There's a chance that not all of these sales will close (for unexpected reasons, like a sudden lack of financing or a bad inspection), but since a buyer and seller have connected, these can be interesting indicators of what it took for the sellers to successfully locate buyers in this market.

Here is more than you probably ever wanted to know about these Dana Point properties:
*11 of the 15 properties (condos and single family homes) that are pending lowered their asking price at least once. One property actually increased its asking price by $100,000 (initially lowered it by $100,000 and then raised by $200,000 - it's pictured at the left). Remember, though, that this does not mean much - the agreed sales price could be higher or lower than the asking price in all these situations.

*The average (mean) price cut among the properties that lowered their price was a whopping $214,408. The median price cut was $109,988. Average price cut of all properties was $146,000. Median price cut of all properties was $77,500. This tells you there were a few extremely large price cuts.

*The most expensive pending property had an asking price of $4,588,000 (its view is pictured at the top of the entry- it's in Ritz Cove). It was listed on Nov. 28 and went pending on Dec. 2. There was no price reduction. The cheapest property had an asking price of $289,900 (pictured right). It underwent $109,976, or 27.5% in price cuts from its initial listing price in August.

*Largest nominal price reduction: $624,000 (property pictured left). This same property also underwent the largest price cut percentage wise at 31.22%. Second-largest price reduction: $590,000.

*The average (mean) asking price of all the pending single family properties is $1,748,292. The median is $1,595,000. The median of all properties (including condos) is $1,390,000, and the mean is $1,557,173. The average of the two condos alone is $314,900.

How bad is it now?

Here is the median price per square foot of a single family detached home in Orange County from 1980-1993, according to the LA Times:
1980: $73
1981: 84
1982: 85
1983: 84
1984: 85
1985: 88
1986: 93
1987: 104
1988: 125
1989: 149
1990: 152 (108% increase since 1980)
1991: 147
1992: 142
1993: 133 (Prices would not reach $130 again until 1997)

Here are median price/sq ft numbers for Orange County from the following years, which I collected from other sporadic LA Times stories. Since this data is from different articles, it's not going to be perfect; the importance is not the exact data points themselves but their directionality.

1994: $124
1995: Not available
1996: 124
1997: 129 (This was the highest point in two years)
1998: 147

These numbers suggest Orange County real estate prices were highest in that cycle in about 1990, and hit a bottom in about 1996. Yes, there were concerns about the market well before 1990, but median prices were still going up until that point (sound familiar?).

The 1990s downturn, then, took about six years to go from peak to trough. The median price/square foot of an OC house fell from $152 in 1990 to approximately $124 in 1996 (this was the lowest number I could find). That's a nominal decline of roughly 18% over the course of about six years.

Also notice that despite the huge rally in 1998, the median still had yet to top the number it had achieved eight years earlier.

"South OC" (Laguna Beach, Lake Forest, Newport Beach and San Clemente) had an average price per square foot in 1992 of $234.70, according to an LA Times story. This number was 64% higher than the county median at the end of 1992 and "bucked the trend" of price declines in other regions. Since Laguna, Newport and San Clemente were on this list, it is not surprising this area fared best, since the luxury market tends to hold up better.

Fast forward to now. Vincent Bindi recently posted on ocrealestateblog.com about South County price/sq ft numbers for all detached homes. The short answer: Not good news. How bad? Here are his numbers:

2006 at the peak: $4o7/sq ft
Now: $356
Decline: 12.5% from the top. Bindi goes on to say, "...since closed sales prices are always a lagging indicator, and given the recent sales that I have seen in certain areas, I predict this number will show prices having already fallen to a level of 15% to 20% for certain areas and product types." Wow.

To sum up: OC's nominal peak-to-trough, six-year decline in the early '90s, in terms of price/sq ft, was about 18%
Nominal decline from the peak to the current price for South County only, in a little more than one year, has been estimated by a real estate pro to be as high as 15-20%, depending on the type of product and its location.

Sure, individual regions can certainly be more volatile than the overall county. Bindi's numbers include detached condos, while the previous data was for single family detached homes, so that culd easily factor in as well. And yes, this is an apples to oranges comparison, since the information is from two different sources and tracks two different sets of data.


The point, though, is that the magnitude of the median price/sq ft decline estimated to have already taken place in segments of South County real estate is very close to the amount of decay OC as a collective whole witnessed during the entire length of the 1990s housing slump.

Pretty interesting stuff, especially since many think this latest downturn is still in its beginning stages. But considering how much faster and further prices escalated during the recent upswing, is it really that surprising how quickly they're falling back down?

Watch for falling knives

If some housing bulls are correct, there is a small army of potential buyers already assembled that's chomping at the bit to enter the market at the first sign of either a bottom or possible soon-to-come stabilization - heck, some would even have you believe that we're at or near the bottom already.

Then, again, Wells Fargo just called the current housing market the worst since the Great Depression, but hey...not everyone can always agree on everything.

Don't buy anything based on blind faith. Do your own research. Learn about and track prices for your target neighborhoods/cities - historically, during the bubble run-up, and now going forward.

That way, you'll be the first to know when prices approach reasonable levels for your focus areas. By reasonable this includes taking into account realistic appreciation rates that are standard for the area. No, 25% appreciation per year is not normal - not even in Laguna Beach.

If you jump in too soon, you'll either catch a falling knife or be snared in a real estate bear trap. Yes, this is not too big of a problem if you plan to stay in your house for a long period of time, since prices will recover eventually. But why pay more for a place to live than you have to, if all it takes to avoid the mess is some additional due dilligence? And why risk you and your family's financial future if life heads in an unexpected direction and you're forced to sell?

Take the following examples. On the surface, these properties seem like good deals, and could be tempting to buy. But watch out. These are only good buys when you compare them with bubble-induced prices that are not connected to reality. If prices fall better in line with incomes and rents due to the return of sane lending - as many believe - then you're going to be upside down for some time.

Property 1: 24342 Barbados, Dana Point
Asking price: $680,000
Previous sales price: $800,000 on 1/22/2007
Reduction from last sale (not incl sales csts): $120,000
Forecasted price*: $442,432.94
Based on: $257,500 sale on 6/1/1999

Property 2: 23235 Sky Dr, Lake Forest
Asking price: $649,800
Previous sale: $705,000 on 5/17/2005
Reduction: $55,200
Forecasted price: $463,067.43
Based on: $220,000 on 2/23/1996

Property 3: 25271 Bentley, Laguna Hills
Asking price: $650,000
Previous sale: $685,000 on 5/12/2006
Reduction: $70,000
Forecasted price: $436,419.29
Based on: $254,000 on 9/17/1999


Property 4: 53 Bentwood, Aliso Viejo
Asking price: $300,000
Previous sale: $359,000
Reduction: $59,000
Forecasted price: $239,261.44
Based on: $149,000 on 9/19/2000

* - Forecasted price assumes a very generous compounded 7% appreciation rate for each year of ownership, based on a further back past sale that occured before the bubble.

Laguna Beach: immunity or ridiculosity?

There is talk about the possibility of high-end immunity in real estate - that is to say, more expensive properties (usually either on the coast or in a prestigious area) can get the best of both worlds: They appreciate along with traditionally less-expensive areas during bull markets, but when the inevitable correction comes, they don't seem to fall much in value at all (or even show gains). Perhaps it's because "land is scarce," or that "there is never-ending demand for these exclusive places."

This demand, some would even argue, means escalating prices of luxury homes are of little concern to those with excess cash who want to buy coastal properties and don't care how much more they have to pay for the privilege. In that scenario, these types of properties really could go up in value perpetually, assuming more people with huge cash reserves are ready to step in and continue to bid prices up.

We will use Laguna Beach as a case study of what can happen to prices in a luxury market before, during and after the past two real estate bull markets. This city is one of the most expensive areas of South OC, and home values are still generally holding up fairly well in comparison to the rest of the region (though the median here has been getting clobbered recently, if that means anything).

After a few clicks on Redfin, it's very apparent that even sellers who purchased in 2004 and later think their properties have not only staved off any sort of depreciation, but that they've instead continued to steadily increase in value.

We'll use the example of 1089 Miramar St., since the past two times it was sold happen to coincide with bottom of the market in 1997, and the general peak in mid 2005. Note: We assume the house has not undergone any extreme renovations (e.g. a teardown and rebuild situation), but instead the homeowners renovated as necessary to maintain and update the property to keep it in good condition as it aged. Here is the sales data:

7/18/1997: $260,500
5/24/2005: $1,195,000

The realized appreciation for that eight years of ownership was $934,500, or 21.4% per year. Notice the years of ownership include a few (1997-2000) that occurred before values really shot up. That means a large amount of appreciation probably occurred in the final few years of ownership as real estate in general took off.

By the way, the current owners are now trying to unload this place for $1,425,000. If they sold at full asking price, it would equate to a gain of about 19% since 2005 (about 12% per year annually). Not exactly 20% per year, but not half bad for only holding a property at a time when most other areas have seen prices fall precipitously.

So, then, is the "normal" appreciation rate for a Laguna Beach property with a killer ocean view that has been held for more than a couple years still running at about 21% per year?

Well, let's look at 21673 Ocean Vista Drive #27. This property also, coincidentally, saw an appreciation rate of exactly 21.4% between the sales in 2000 and 2003. But check out the sale before that: $225,000 on 8/2/1988, which means an appreciation rate of 5.5% per year for 12 years (1988-2000). Yes, the property was going up in value, but at a much more modest rate than it did later on.


To sum it up:
*Laguna Beach was always a nice place to live and commanded a justifiable premium before the real estate boom. What really changed between the time before and after the market started shooting up (other than the town being the scene of an MTV show) to justify the types of price run-ups experienced here? If places like Laguna Beach participated in bubble behavior that catapulted prices, it seems only natural that it would have to take at least some tangible hit as the market deflates.
*If the first property we mentioned had seen the 5.5% yearly gains the second one experienced during 1988-2000, it would only have been worth $399,786 when it sold in 2005, not $1,195,000. The appreciation rate it actually saw between 1997-2005 was almost four times higher than the one experienced by the second property between 1988 and 2000.
*If the second property had continued to rack up 21.4% appreciation every year since 1988, it would now be worth a whopping $8,960,610. Instead, the actual appreciation rate between 1988 and 2003 was a much more modest 7%.
*Some current sellers believe the area still warrants appreciation rates similar to those seen during the boom years. If these asking prices are still in line with what buyers can and are willing to pay, they will sell. If these prices are out of line with the current market, these properties will sit unsold.

It's likely that, when all is said and done, well-appointed, ideally located properties like these that were held long-term will keep some of the paper gains recorded during the real estate boom even after a down market (after all, our second example weathered the storm of the 1990s bust quite nicely). But it's not realistic to assume that recent appreciation rates are, in fact normal, and that they could somehow continue on at a rate even close to what we've recently seen in a non-bubble environment.

All's not well in South County

Interesting post over at Jon Lansner's OC Register real estate blog today that outlines which county areas have the highest rate of "distressed" properties for sale - meaning foreclosures and short sales listed as up for sale. For the complete list, follow this link.

The top two - Santa Ana and Anaheim - are not surprising at all. These are lower-income areas where subprime lending ran especially rampant. Considering how far prices detatched from income fundamentals, it's not surprising how property values have fallen. But I was surprised at how many of the other areas near the top of the list are in South County.

Here is how South County areas rank (out of 40 communities in OC), and their percentage of distressed inventory:

3rd - RSM (31.8% of inventory is distressed)
4th - Lake Forest (29.8%)
5th - Laguna Hills (25.4%)
6th - Foothill Ranch (23.2%)
8th - Aliso Viejo (22.6%)
9th - San Juan Cap. (21.7%)
11th - Mission Viejo (19.4%)
12th - Ladera Ranch (19.2%)
13th - Talega (18.3%)
16th - Laguna Niguel (17.1%)
30th - San Clemente (9.2%)
31st - Coto de Caza (8.5%)
32nd - Dove Canyon (8.2%)
33rd - Dana Point (4.9%)
37th - Laguna Beach (2.1%)
40th - Laguna Woods (0.5%)
All OC total - 17.5%
Some notes about the data:
*This data shows 6 of the 10 worst-hit local areas in terms of distressed properties are in South County. Also, South County is also home to 9 of the 15 worst areas. This helps prove our assumption that the market is worse in South County than some realize.

*One would assume the distressed properties in RSM are skewed heavily toward the bottom end of the price scale (think condos), since nearby Coto and Dove Canyon are not seeing nearly the amount of problems.

*It is not surprising that some of the areas with the highest prices (Laguna Beach, Dana Point, Dove Canyon) are low on this list, since their prices have tended to be stickier than, say, Lake Forest. Other expensive areas like Newport Beach, Corona del Mar and Villa Park are also at the bottom. That is not to say, though, that you can't find short sales and foreclosures in these areas; they're just not as prevalent.

OC RE market: Close to the bottom?

A recent post appeared on ocrealestateblog.com with the title "Signs that the Orange County Real Estate Market may be close to the Bottom" Here's a link to that entry.

The prognostication has probably taken a credibility hit considering on the front page of today's OC Register it mentions how CAR economists are predicting 2008 could be the worst housing market in 25 years...precisely the same time this blog is saying the market could be already back on the way to recovery.

Here are the blog post's main points: "Tell-tale sign number one...the subprime lending debacle. A dismal milestone may soon move into the...rear view mirror. Homeowners owing a total of $31.8 billion in subprime adjustable-rate mortgages began paying higher interest rates (in) September...That is the highest amount of subprime ARM's due to reset over a one-month period in this housing cycle."

This "rear view mirror" idea is slightly contradicted by the later assertion that "there will be a delayed affect of anywhere from 6 to 12 months..." (should be EFFECT). This seems to argue that even if the worst is truly behind us, we won't even begin to feel the impact for at least another six months.

My question is: Since we're already looking at record numbers of foreclosures, how much worse is it going to be once this huge wave finally makes its presence felt?

It also fails to mention that, assuming the info is correct and September has more subprime ARMs resetting than any other month, September is surrounded by many other months with significant amounts of resets. So, even if September represents the biggest bump, it is surrounded (before and after) by other pretty large bumps as well. Click on the chart above to see more.

More info from the Register: A staggering 40.3% of first-time buyers in the state put $0 down on their house purchase in 2006. This number decreased to 29.4% in 2007. Also, 10.2% of repeat buyers didn't put anything down this year, compared to 11.3% in 2006.

Back to the blog..."The other tell-tale sign, is the very low rate of sales as compared to history. Current sales volume is a bit lower then it was back in 1995 when the real estate market hit bottom...Given that Orange County now has considerable higher population and a greater number of homes then it did in 1995, one would have to conclude that today's low sales numbers can't last much longer and will gradually return to more normal levels."

The logic is very fuzzy here, because I'm not sure why it's relevant to compare now to the bottom of the last market in 1995 and conclude that since the sales figrues are similar, we will soon rebound. What it actually shows is just how bad things are now - even though there are a record number of people and houses here, the rate of sales is still suffering. It also doesn't mention that the recent real estate boom was many times more significant than others in the past. Therefore, it would be unproductive to assume that this one will bottom out and rebound in such a short amount of time just because such poor performance "can't last much longer." Unfortunately, it can, and some would argue that it will last much longer.

Commentor bassist provided a good response to the post. Here is a snippet of it: "...No one has a crystal ball to tell the direction of the market at this time, but chances are high that it could get worse. Keep in mind houses are still relatively very expensive and unaffordable to the typical buyer, so prices must drop before we start seeing a recovery. You already know lending standards are now very tight, and it's taking longer and longer to sell a home as very few qualify for mortgages...We're only at the beginning...This whole thing may not hit bottom until 2010 or beyohnd and deep down, like with previous housing downturns, you know it!"

Our take on that blog in general: There's some good info here, but unfortunately they're saddled with the ominous perception-perceived-as-reality issue: If you're not buying or selling real estate, they're not making money. Therefore, they have a financial stake in local real estate and theoretically would want people to perceive it as a good time to jump into the market. Even if their analysis is as fair and balanced as possible and is actually without agenda, some people are going to inevitably assume they have one anyway. Tough situation.

UPDATE: Stick a fork in this argument. The CAR just said that a housing recovery could be as much as three years away.

A closer look: South OC home sales

Here is some data we pulled off Trulia.com on the number of home sales in South OC areas. Totals are at the bottom of the spreadsheet.

FYI: The "change from previous period" column means the difference between the June-August '07 numbers and the March-May '07 numbers. YOY stands for year over year. The YOY percent change in the final row (area totals) is an average of percent changes for all the areas. Link to the spreadsheet here.

Some quick notes on what the data are telling us:

• The number of houses sold during the past three months, when compared to both the previous three months and same period one year ago, is down virtually across the board in South OC. The two exceptions are: Laguna Beach (year-over-year increase of 4 properties sold) and San Clemente (year-over-year increase of 9 properties sold). Total difference between the number of properties sold in June-August 2007 compared to June-August 2006: -373.
• Ladera Ranch saw the greatest year-over-year decline (percentage wise) in number of property sales (9 in the past three months, compared with 22 during the same period in 2006 - a decline of 59 percent). Aliso Viejo had the largest year-over-year decline in the total number of sales (171 in the past 3 months, 248 in the same three-month period a year ago - a difference of 77). Aliso also had the largest drop in number of sales between the past three months and March-May 2007 (-87).
• Mission Viejo was the area that had the greatest number of properties sell (480) in the past three months. No surprise considering it's the most populous part of South OC.