Orange County Housing Report: An Early Oktober-Housingfest
Despite the Autumn Market, demand is hot thanks to the early arrival of the end of the year surge in housing.
The leaves are changing, the days are getting shorter, and the Halloween decorations are beginning to emerge from their attic slumber. As the seasons change, so does the housing market. The hottest time of the year, the Spring and Summer Markets, are now in history books for 2016. The Autumn and Holiday Markets are all that remain for housing.
The Autumn Market runs from the end of August through mid-November. Typically, the active listing inventory drops along with demand. As a result, the expected market time, based on supply and demand, does not change that much. Up until now, Orange County real estate had been right on track. From mid-August through mid-September, the listing inventory dropped 3% and demand dropped 7%. It looked as if it was business as usual… until now.
In the past couple of weeks, the active inventory shed another 4%, but demand did an about face and increased 3%. Consequently, the expected market time for Orange County properties dropped by 7%. What in the world is going on? Why is housing revving its engine and it is almost October? “Oktoberfest” for housing has arrived a bit early this year.
More real estate activity takes place during the spring because buyers are looking to move their families during the summer months. Contracts to purchase that are put together in the spring take anywhere from 30 to 60 days to close, enabling many buyers to close during the summer months. The summer is the most advantageous time of the year to move a family, while the kids are out of school on break.
Even though autumn is a slower time of the year for real estate activity, there is a cyclical surge in demand that occurs in October. Families may not like to move as often outside of the spring and summer months, but there is a small window of opportunity for them and it is right NOW. Simply put, some families are willing to make a move while the kids are on their holiday break. In order to make that happen, contracts are put together in October through mid-November so that they can close in December.
Since 2010, the average increase in closed sales from November through December was 14%. The trend indicates that buyers prefer to close in December. And, if they don’t close by the end of the year, they are definitely not looking to close in January. The average drop in closed sales from December to January is 26% (from 2011 to 2016). That is a staggering drop in activity that is a direct result of the Holiday Market, which begins in mid-November, the slowest time of the year for real estate.
This year is a bit different because the Oktober-Housingfest surge in buyer activity is already underway. It will be interesting to see if the current strong pace in demand can continue with a rapidly dropping inventory. The inventory will continue to drop for the remainder of the year. Fewer choices may equate to fewer pending sales. There just are not enough homes on the market to satiate the strong buyer demand. Historically low interest rates are boosting demand right now. Today’s rates are nearly a half a point cheaper than last year at this time. Rates around 3.5% are a total gift. Buyers do their homework and realize that these ultra-low rates cannot last forever. So, they are out in full force attempting to cash in on this exceptional deal.
Sellers that are on the market today, or those just about to enter the fray, must understand that they have about a month-and-a-half to take advantage of the additional activity, aiming for a December closing. The window shuts around mid-November. In order to find success in the time remaining, it is imperative for sellers to be priced as close to their Fair Market Value as possible. This is not a time to test the market and stretch the asking price. Overpricing a home today, results in not being able to find success until next spring, about six months from now.
Luxury End: Luxury demand increased by 3% in the past couple of weeks.
In the past couple of weeks, demand for homes above $1 million increased from 417 pending sales to 430, a 3% increase. The inventory of luxury homes now totals 2,512, a drop of 62 homes, or 2%, in the past two weeks. As a result, the expected market time dropped from 6.17 months to 5.84 months.
For homes priced between $1 million to $1.5 million, the expected market time decreased from 125 days to 122 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time increased from 159 days to 168 days. For homes priced above $2 million, the expected market time dropped significantly from 385 days to 306 days.
From $1 million to $2 million, demand (the number of pending sales over the prior month) is up by 18%, 327 pending sales today compared to 276 last year. The inventory is up by 12%, 357 homes compared to 318. For luxury homes above $2 million, demand is up by 8%, 103 pending sales compared to 95, a difference of 8. The inventory is up 17%, 1,049 homes today compared to 894 last year, a difference of 155. Even though demand is up a few pending sales, there are a lot more luxury homes on the market competing against each other.
Active Inventory: The active inventory shed 481 over the past month, a 7% drop.
In the past couple of weeks, the active inventory dropped by 254 homes, the largest drop so far this year. The 4% drop resulted reaching levels not seen since the beginning of June and now totals 6,786. A drop in the inventory is typical for the Autumn Market, but there has not been this significant of a drop since 2012 when the market was sizzling. For proper perspective, there were 4,676 homes on the market back then, significantly fewer than today. The inventory will continue to drop for the remainder of the year.
Last year there were 173 more homes on the market, an additional 2%, totaling 6,959.
Demand: In the past two-weeks demand surged by 3%.
Demand, the number of new pending sales over the prior month, increased from 2,719 to 2,812; that’s 93 more homes, or 3%. It is the hottest end to September since 2012. Demand is considerably stronger than last year at this time when there were 275 fewer pending sales that totaled 2,537. There is 11% more activity today compared to 2015.
The expected market time decreased from 78 days two weeks ago to 72 days today.
Orange County Housing Market Summary:
- The active listing inventory dramatically dropped in the past couple of weeks, shedding 254 homes, or 4%, and now totals 6,786, the first time below the 7,000 mark since June. The inventory will continue to drop through the end of the year.
- There are 19% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 7% as well. The trend of a disappearing lower range continues with fewer and fewer homes available as home prices continue to rise.
- Demand, the number of pending sales over the prior month, increased by 3% from 2,719 to 2,812 in the past two weeks. Demand was at 2,537 last year, a staggering 11% fewer than today. The average pending price is $786,807.
- The average list price for all of Orange County is $1.5 million.
- For homes priced below $750,000, the market is HOT with an expected market time of just 49 days. This range represents 45% of the active inventory and 67% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 75 days, a slight seller’s market (between 60 and 90 days). This range represents 19% of the active inventory and 18% of demand.
- For luxury homes priced between $1 million to $1.5 million, the expected market time is at 122 days, decreasing by 3 days in the past couple of weeks. For homes priced between $1.5 million to $2 million, the expected market time increased from 159 days to 168 days. For luxury homes priced above $2 million, the expected market time dropped considerably from 385 days to 306 days.
- The luxury end, all homes above $1 million, accounts for 36% of the inventory and only 15% of demand.
- The expected market time for all homes in Orange County decreased from 78 to 72 days in the past couple of weeks, a slight seller’s market (between 60 and 90 days).
- Distressed homes, both short sales and foreclosures combined, make up only 1.8% of all listings and 3.1% of demand. There are 40 foreclosures and 80 short sales available to purchase today in all of Orange County, that’s 120 total distressed homes on the active market, decreasing by 5 in the past two weeks. Last year there were 220 total distressed sales.
There were 3,056 closed sales in August, an 8% increase over July and up 12% over August 2015’s total of 2,725 closings. The sales to list price ratio was 97.4%. Foreclosures accounted for 1% of all closed sales and short sales accounted for 1.1%. That means that 97.9% of all sales were good ol’ fashioned equity sellers.