The Orange County housing market continued to surge in the third quarter, with sales up dramatically in both single-family and condo markets. Pricing was more mixed, but it’s only a matter of time before these sustained levels of buyer demand drive meaningful price appreciation.

Sales. Orange County sales spiked again in the third quarter, rising 31.5% from last year and over 25% for the rolling year. We have now seen sustained sales growth for more than three years, with transactions up four quarters in a row and 13 out of the last 14. Indeed, we are starting to see closings approaching “seller market levels,” with the 880 sales the highest since the third quarter of 2006, and the 2,714 yearlong sales the highest since 2007. To put this in perspective, we note that Orange closed about 1,200 yearly sales in each 2009, 2010, 2011, and 2012.

Prices. Prices were mixed, but “mixed” is a lot better than prices have been in the past few years. Indeed, Orange showed small signs of progress, with the average up 1.4%, the median down 0.4%, and the price-per-square foot up 1.6%. Prices are still down for the year, but at least the trajectory is pointing upward. We believe that prices have fallen as far as they will go, down to 2002-03 levels.

Negotiability. The negotiability indicators were both relatively flat: homes are selling a little more quickly, down from 202 days to 190 days, and are also selling for a bit closer to the asking price, with the listing retention rate up to 95.5%. We expect that sellers will continue to gain leverage as the market tightens.

Condominiums. The condo market simply exploded in the third quarter, with sales up more than 50%. Even with that surge in activity, though, we are still seeing significant downward pressure on Orange condo pricing, because the gap between single-family and condo prices is narrow enough to draw buyers into buying homes instead of condos.

Going forward, we believe that Orange County will not be able to sustain its current torrid level of sales growth, especially now that sales are close to seller market levels. But we still see significant room for price appreciation, given that prices are at attractive 2003 levels and rates are still near historic lows. Even with activity leveling off, we expect that demand will stay strong, and that will start to push prices up by 2016.

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