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That Was a Close One!

That Was a Close One!

January 14, 2018


What follows is a newsletter that I subscribe concerning the real estate market in Orange County. I find it useful in understanding where the real estate market is heading and how it affects property values. I hope you agree.

After starting the year with nearly nothing on the market, the inventory of active homes is on the rise.

Not 2013: The active listing inventory increased by 9% since New Year’s Day.

The housing market has been on a tear for six years now and is showing no signs of letting up. Two long-term trends emerged during the run that are also showing no signs of diminishing anytime soon: unrelenting, hot demand and a chronic lack of homes on the market.

Demand has been juiced by historically low interest rates for the entire six-year run. In spite of experts and prognosticators forecasting a rise in the long-term rate for years now, mortgage rates have remained steady, never exceeding 4.5% (reached in September 2013). In fact, today’s rates are still bouncing around 4% and are not expected to rise much in 2018. These persistent, historically low rates dramatically improve home affordability, and, ultimately, prop up demand.

The chronic lack of homeowners placing FOR SALE signs in their front yards has been the Achilles heel to this housing run. Years of juiced demand and a low supply of homes on the market has resulted in rapid appreciation, fewer total yearly home sales, and frustrated buyers, especially entry level, first-time buyers. Multiple offers and sales prices at or above their list prices is the norm for homes priced below $1 million (81% of all closed sales in 2017). It has been a deep seller’s market for years now with nothing indicating a change on the horizon. Buyers will have to continue to navigate the harsh reality of plenty of competition with very few choices.

Fewer choices is exactly how 2018 started. On New Year’s Day, the active listing inventory was at 3,397 homes, the second lowest start in the past 13 years. Only 2013 was lower, with 3,161 homes on the market. With such an anemic inventory, the biggest worry to start the year was that 2018 would shape up to be just like 2013. In 2013, the inventory did not increase much at all for the first three months and the market heavily favored sellers (typically, the inventory rises from January through mid-August).

The expected market time dropped to 33 days for all of Orange County by March 2013. Sellers were able to stretch their asking prices quite a bit over the most recent sale and they often got their price. It felt impossible for buyers to secure a home, especially if they had a small down payment. They just would not be able to compete. The 2013 housing market proved to be extremely challenging.

Yet, 2018 is shaping up to be completely different than 2013. Since starting the year at 3,397 homes, the active inventory has increased by 9%, adding an additional 310 homes, and now totals 3,707. The expected market time is currently at 77 days, quite a bit slower than the 45 day expected market time at the beginning of 2013. It is not as deep of a seller’s market; so, homes will not appreciate as fast as they did in 2013. Remember, home prices are a lot higher today compared to 5 years ago. Buyers are not willing to dramatically overpay for a home compared to the most recent closed sale. If a home is placed on the market and is not priced according to its Fair Market Value, opting to significantly pad the price and take a stab at getting more, it will sit on the market and will not sell.

Careful pricing is a fundamental ingredient in achieving the objective in selling a home. In December, 59% of all closed sales had to reduce the asking price at least once. It was not the time of the year; it was the inability for many sellers to price their homes accurately right out of the gate.

From here, we can expect the inventory to continuously rise from now through mid-Summer. It will fall short of the long-term average of 8,000 homes, which is where the inventory needs to be for an extended period of time for the market to transition into a balanced market, one that does not favor a buyer or seller.

Demand: Demand decreased by 10% in the past couple of weeks.

In the past two weeks, demand, the number of new escrows over the prior month, decreased by 158 pending sales, or 10%, and now totals 1,447. This is a true reflection of cyclically the slowest time of the year, the last 30-days. This period encompasses all of the holidays and all of its distractions. Also, with so few homes coming on the market, coupled with very limited choices of active listings, it’s no wonder demand has dropped to such a low level. As more homes enter the fray, expect demand to start to rocket upward by the end of this month.

Last year at this time, demand was at 1,562 pending sales, 115 more than today, or 8%.

The expected market time, the amount of time it would take for a home that comes onto the market today to be placed into escrow, increased from 67 to 77 days, a slight seller’s market with mild appreciation. Last year’s expected market time was at 84 days. The expected market time will significantly drop by the end of this month.

Luxury End: Luxury demand continued its holiday/winter plunge.
In the past two weeks, demand for homes above $1.25 million decreased from 187 to 170 pending sales, down 9%. The luxury home inventory decreased from 1,391 homes to 1,376, a 1% drop in the past two-weeks. Since the start of November 2017, luxury demand dropped by 52%, while the luxury inventory dropped by only 20%. Expect both demand and the inventory to rise from now through the Spring Market. The current expected market time for all homes priced above $1.25 million increased from 223 days to 243.

For homes priced between $1.25 million and $1.5 million, the expected market time increased from 123 to 157 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 196 to 188 days. For homes priced between $2 million and $4 million, the expected market time increased from 266 days to 285 days. In addition, for homes priced above $4 million, the expected market time increased from 667 to 695 days. At 695 days, a seller would be looking at placing their home into escrow around December 2019.

Orange County Housing Market Summary:

The active listing inventory increased by 310 homes since the start of the New Year and now totals 3,707. Expect the inventory to increase from now through mid-Summer. Last year, there were 4,376 homes on the market, 669 more than today.

There are 31% fewer homes on the market below $500,000 today compared to last year at this time and demand is down by 28%. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly disappearing.

Demand, the number of pending sales over the prior month, plunged by 158 in the past couple of weeks, down 10%, and now totals 1,447, most likely its lowest point of the year. The average pending price is $839,613.

The average list price for all of Orange County decreased to $1.8 million after reaching a record $1.9 million two weeks ago. This number is high due to the mix of homes in the luxury ranges that sit on the market and do not move as quickly as the lower end.

For homes priced below $750,000, the market is HOT with an expected market time of just 46 days. This range represents 38% of the active inventory and 62% of demand.

For homes priced between $750,000 and $1 million, the expected market time is 67 days, a slight seller’s market (between 60 and 90 days). This range represents 17% of the active inventory and 19% of demand.

For homes priced between $1 million to $1.25 million, the expected market time is 101 days, a balanced market that does not favor a buyer or seller.

For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 123 days to 157. For homes priced between $1.5 million and $2 million, the expected market time decreased from 196 to 188 days. For luxury homes priced between $2 million and $4 million, the expected market time increased from 266 days to 285 days. For luxury homes priced above $4 million, the expected market time increased from 667 to 695 days. The luxury end, all homes above $1.25 million, accounts for 36% of the inventory and only 12% of demand.

The expected market time for all homes in Orange County increased from 67 days to 77 in the past two weeks, a tepid seller’s market (60 to 90 days). From here, we can expect the market time drop dramatically by the end of this month.

Distressed homes, both short sales and foreclosures combined, make up only 1.3% of all listings and 2.7% of demand. There are only 17 foreclosures and 33 short sales available to purchase today in all of Orange County, that’s 50 total distressed homes on the active market, dropping by 11 in the past two weeks and reaching its lowest level since the very beginning of the Great Recession. Last year there were 112 total distressed sales, 124% more than today.

There were 2,269 closed residential resales in December, down by 9% from December 2016’s 2,484 closed sales. December marked a 6.5% drop from November 2017. The sales to list price ratio was 97.3% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales and short sales accounted for 0.9%. That means that 98.3% of all sales were good ol’ fashioned sellers with equity.


Experience Counts: Garbage Disposals

Experience Counts: Garbage Disposals

If you have a garbage disposal, you know how handy it can be when you are the washing dishes and disposing of waste. Frequently, we get calls from our tenants, complaining about clogged or frozen garbage disposals or the kitchen drain backing up. Unfortunately, some of our tenants think the garbage disposal can dispose of everything but the kitchen sink, leading to problems and a mess.

If not operated or maintained properly, a garbage disposal can break down or lock. Clogged or blocked disposals can cause nightmares for the tenant, owner and property manager.

Here are a few tips and tricks for the proper care and feeding of your garbage disposal.

Garbage Disposal Do’s:

  • To keep your garbage disposal clean, pour a little dish soap in the disposal and run it for a minute or so with cold water to get rid of any foul smells. Running a little ice in it is also helpful.
  • Try to remember turn on your disposal once in a while to prevent rust and corrosion and ensure that all parts stay spinning. This prevents obstructions from accumulating.
  • Grind food waste with COLD WATER. Cold water helps keep grease or oils in a more solid state so that they can be ground down.
  • Lastly I like to recommend that my tenants use the disposal for only the smallest scraps or those miscellaneous items that manage to make it down the drain. If you are cutting veggies for a salad or juice for example, place a paper towel in the sink and save all the scraps for a compost pile or toss in your green waste trash. Either way, the greens don’t easily grind up, so throwing it in the trash is the best option.

Garbage Disposal Dont’s:

  • Don’t put anything in the disposal that is not biodegradable. A garbage disposal is not a trash can and is for food scraps only. Non food items can damage both blades and the motor.
  • Don’t pour grease, oil or fat into your garbage disposal or drain. Grease will slowly accumulate and impede your garbage disposal’s grinding ability as well as clog drains.
  • Don’t use hot water when grinding food waste. Hot water will cause grease to liquefy and food to soften clogging the disposal and causing drains to clog.
  • Don’t grind extremely fibrous material like corn husks, celery stalks, onion skins, and artichokes. Fibers from these can tangle and jam the garbage disposal motor and block drains .
  • Don’t turn off the motor or water until grinding is completed. When grinding is complete, turn off the the garbage disposal first. Let water continue to run for at least 15 seconds, flushing out any remaining particles. Then turn off water.
  • Don’t put too many potato peels down the garbage disposal. The starches in the potatoes will turn into a thick paste and may cause blades to stick.
  • Don’t put large amounts of food down the garbage disposal. Feed food into the garbage disposal a little at a time with the cold water running; this will help the food scraps flow down freely through the drain pipes and plumbing.
  • Don’t put expandable foods into your garbage disposal. Foods like pasta and rice expand when you add water in a pot; they do the same thing once inside your pipes or garbage disposal and are the cause of many jams and clogs.
  • Don’t grind animal bones. (throw in the trash)
  • Avoid  putting coffee grounds down the garbage disposal. They won’t harm the garbage disposal and they’ll actually help eliminate odors. However, they can accumulate in drains and pipes, causing clogs. Best to avoid.
  • Don’t use harsh chemicals like bleach or drain cleaners. They can damage blades and pipes. Borax is a natural sink cleaner and sanitizer that effectively works on odor-causing mold and mildew that accumulates in garbage disposals.
Experience Counts: Don’t flush these

Experience Counts: Don’t flush these

IMG_1093On a recent Friday night, I received a call from a panicked tenant complaining that water was leaking from the ceiling below the second floor bathroom into kitchen. After first asking the tenant to turn off the water to the house, I called my plumber and then went over to diagnose the problem

A quick inspection didn’t yield an obvious cause to the leak so we turned on the water try to chase it down. We couldn’t tell where the water was leaking from so we were forced to cut holes in the kitchen ceiling to see where the water was leaking from. The only obvious source was the toilet area but to be sure, we removed the toilet and cut another hole in the drywall behind the toilet. After looking through these openings in the drywall we realized there wasn’t a broken water line after all.

The water was backing up the toilet drain line through the flange in the toilet and out into the cavity between the ceiling and floor above! So we snaked out the toilet drain line and discovered Clorox wipes wrapped around the snake.

Clorox wipes or similar products won’t flush down in the toilet!

The wipes were caught in the toilet drain line, causing the water to back up through the toilet flange. Bottom line — it was tenant caused. They were using Clorox wipes to clean the bathroom and and then flushing them down the toilet.

These wipes do not break down in the sewer lines like toilet paper. They get caught inside the drain line and snag anything else coming down from the toilet, causing the toilet to back up. Yuck!Don't Flush This5

According to the California Association of Real Estate Lease Agreement, Item 11a:

“Tenant shall be charged to repair drain blockages or stoppages unless caused by defective plumbing parts or tree roots invading sewer lines.”

Tenant caused damage is the tenant’s responsibility. Between the plumbing bill and drywall repair, the flushing of wipes of this type will cost the tenant between $1000-$1500.

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