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In Orange County, there are three distinctly different markets. It would be a mistake to make decisions based upon expected pricing for the entire county. So, throw out reports of the median sales price and drill down a little bit deeper. Let’s take a look at the three totally different markets. In the lower ranges, we can expect very little change in pricing. Remember, 76% of the market is below $750,000 and 56% can be found below $500,000. I believe that in some unique areas and neighborhoods, the market could even appreciate slightly. But, distressed properties, 47% of the active inventory in the lower ranges, will keep a lid on any real appreciation. For the middle range, homes priced between $750,000 and $1.5 million, we can expect slight depreciation in prices, less than 5%. Since only 15% of this range is distressed, the pressure on pricing is not as great. In the upper ranges, above $1.5 million, distressed properties do not have as much of an impact, only 5%. Instead, there are just far too many sellers and not enough buyers. Values in the lower ranges dropped over night with a flood of distressed homes, and have subsequently stabilized. The upper ranges have not been inundated with distressed properties; thus, the downward movement in values has been a much slower process. In essence, they are arriving late to the party. Prices are a lot stickier with less distress, but applying simple supply and demand rules, success often comes at the hands of more aggressive pricing. In 2012, prices will be most volatile in the upper ranges just as they were in 2011.

Credit: Steven Thomas, Orange County Housing Report