To Be Bullish or Bearish in Orange County Real Estate?

The great Warren Buffet was once quoted as saying, “Be fearful when others are greedy. Be greedy when others are fearful.”  I think this speaks volumes for the current real estate market as a whole.  Speculative investors and everyday home buyers were driving up home prices all over the country for the last few years and everyone was so-called “jumping on the band wagon” until eventually it all came crashing down.

But now we are all in a peculiar position with U.S. and global financial markets experiencing their worst financial crisis since the Great Depression.   Some feel as if we’re experiencing the Great Depression of our time– crushing hard working citizens’ retirement portfolios, gas prices on a frenzy, staple items such as milk, eggs and bread costing a prettier penny every week and unemployment at its highest level in over two years.  While the media continues to paint a grim picture for financial and real estate markets, let us take a closer look at our Orange County market.

Real estate is very hard to generalize as it is made up of many micro markets.  As U.S. Treasury Department Secretary Henry M. Paulson, Jr. recently noted, “There is not a national housing market, but a collection of regional markets.”  Sales of single-family, re-sale homes in Orange County rose 83.9% in September compared to the year before. This is the third month in a row home sales have been up year-over-year.  So what does this mean?  Basically that the gloomy picture the media has been creating is a very macro and general synopsis of the real estate market.  Remember that everyone loves Orange County's perfect weather and those forty-two fabulous miles of sun, sand and surf.   Our county has strong fundamentals and an unyielding infrastructure.  For example, Orange County’s educational and health services sector continues to expand. Through the year ending in the third quarter, employers in this industry added 2,200 workers for a 1.6 percent gain.  Furthermore, in Marcus & Millichap’s third quarter analysis they reported that the renter-age population in the Irvine submarket is projected to grow over the next five years as the student population at the University of California, Irvine, expands at a rapid clip. The twenty to twenty-four year-old cohort is forecast to gain eleven percent through that time, while the number of twenty-five to thirty year-olds is anticipated to rise 3.9 percent, supporting renter demand for apartment properties.  

The Orange County apartment market fundamentals alone remain among the strongest in the nation and emerging demographic trends support a positive outlook for properties in the metro.  These types of examples are what make Orange County unique and offer sound fundamentals to investors and home buyers alike.   The deep discounting is definitely luring back shoppers that recognize these elements and want to capitalize on historic price levels.  For the month of September alone it marked the fastest rate of sales increase since May 1996.  According to DataQuick, closed sales transactions more than doubled in seventeen Orange County zip codes.  

So what other signals should you look for?  Well, the most effective indicator to show market stabilization and improvement would be the number of new active listings.  When the number of new listings decreases, inventory starts to decrease, resulting in a stabilization of prices.  This would be a good statistic to follow in the coming months especially if we continue at this ramped pace.   In my opinion a good rule of thumb to follow is if you can buy real estate in areas with sound fundamentals coupled with prices near 2003 levels at minimum, you’ve favorably leveled out your risk layer.