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Orange County Housing Report November 21st, 2016

Orange County Housing Report:  Presidential Impact on Housing

Immediately after the election, interest rates climbed higher, pushing along the evolution of the Orange County housing market.

Find out more in this Orange County Housing Report for November 21st, 2016.

Presidential Impact: the immediate impact of the election results on housing is a bump in interest rates from 3.5% to 4%.     Orange County Housing Report

The evolution of the housing market is inevitable. Regardless of who takes office, the housing market will change over the next four years. Historically low interest rates at 3.5% could not last forever. The five year run in Orange County real estate that has resulted in a significant rise in home values cannot continue to outstrip the rise in local incomes. The unbelievably low, anemic housing inventory will someday climb beyond the long term average.

Before everybody gets too carried away, these changes will not happen overnight like the recent bump in interest rates. Yes, interest rates jumped from 3.5% to 4% in a week. But, that had more to do with way too much capital being parked in United States long term bonds, a “safe haven” for investors from around the world.

Economic experts are attempting to read the tea leaves to determine how the economy will unfold in the coming years under a new presidential administration. There is some uncertainty surrounding the upcoming differences between campaign promises and actual governing, where the rubber meets the road. There have already been some major compromises since election day. Nonetheless, significant changes are coming.

One of the biggest changes that will have a profound impact on most Americans is a tax cut, putting more dollars into consumers’ wallets. This coupled with the promise of fiscal stimulus has experts pointing to an increase in inflation. As a result, investors from around the world are preparing for a radically different presidential administration. Long term bonds were sold at a record pace and interest rates jumped from 3.5% to 4%, levels not seen since last January.

So, what does all of this mean for housing right here in Orange County? Let’s take a look at the impact on the rise in interest rates. Buyers locking their interest rates today, compared to prior to the election, are looking at paying an additional $161 per month for the median detached residential resale home at $710,000. That’s an increase from $2,551 per month prior to the presidential election to $2,712 today. Over a year, that’s an extra $1,932.

Orange County Housing Report

 

If the threat of inflation continues to climb after inauguration, long term rates could rise to 4.5%. The rise would probably be more gradual than the past couple of weeks. A rise to 4.5% would be an extra $327 per month compared to where rates were just prior to the election. That’s an additional $3,924 per year.

With a more vibrant economy, down the road we can expect interest rates to top out at 5%, historically still a very low rate. That’s nearly $500 per month more compared to the 3.5% interest rate, or almost $6,000 per year. For proper perspective, rates were at 10% in 1990, 8% in 2000, and 6.6% just prior to the Great Recession. At 6.6%, the monthly payment would be an extra $1,000 per month. Although interest rates will not increase to these levels, they are a great reminder of where rates have been and how great they are today.

So, a 4.5% rate doesn’t seem all that bad compared to history. As rates climb, affordability will be squeezed and the Orange County housing market could move from a seller’s market to equilibrium, a market that does not favor sellers or buyers. The active inventory would climb, adding more competition for sellers and more choices for buyers.

Do not get too carried away by anticipating a buyer’s market. The biggest reason there has not been a market favoring buyers for a long time is that homeowners are not moving as often as in the past, so the active inventory has been nothing short of anemic. Orange County homeowners are moving on average of once every 23 years. This ongoing trend started back in 2008 and has been repeated every year since. The active inventory needs to be sustainably above 8,000 homes for a long period of time before it tips in favor of the buyer. This year’s height was achieved in mid-July, 7,329 homes. Currently, there are 5,655 homes on the market, and, as is customary for this time of the year, the inventory will continue to fall until we ring in a New Year. The inventory on January 1, 2017, will be somewhere around 4,700 homes. To build a sustainable inventory above 8,000 homes will take some time and will not occur overnight. The last time the inventory was above the 8,000 mark for a sustainable long period of time was in 2011, five years ago.

It is important to note that nobody knows yet how the new presidential administration will truly unfold. It is mere speculation based upon gut feelings of what most likely will occur. Everybody will have to stay tuned. One thing is for certain, the Orange County housing market will eventually evolve and higher interest rates will be the catalyst of that evolution.

Luxury End: Luxury demand dropped by 5% as the inventory dropped by 3%.

In the past two weeks, demand for homes above $1 million decreased from 387 to 367 pending sales, a 5% drop, and its lowest level since February. The luxury home inventory dropped from 2,235 homes to 2,165, a 3% drop, its lowest level since April. With a larger drop in demand, the expected market time increased slightly from 173 days to 177 days for all homes priced above $1 million, just shy of six months.

For homes priced between $1 million to $1.5 million, the expected market time in the past couple of weeks decreased from 122 days to 118 days. For homes priced between $1.5 million to $2 million, the expected market time increased from 169 days to 174 days. For homes priced above $2 million, the expected market time rose from 281 days to 319 days. At 319 days, a seller is looking at placing their home in escrow around the start of October of next year, based upon today’s current activity and heightened competition.

Orange County Housing Report

 

Active Inventory: The active inventory is dropping rapidly, typical for this time of the year.

In the past couple of weeks, the active inventory dropped by 300 homes and now totals 5,655, its lowest level since March. That’s the second largest drop so far this year. Two weeks ago was the largest drop. In the past month, the inventory has shed 682 homes, 11%. The holidays are upon us and sellers know that this is the slowest time of the year for real estate activity. This cyclical drop will continue through the end of the year, picking up speed in December. Fewer homes come on the market and many unsuccessful sellers pull their homes off of the market completely.

Last year at this time there were 5,885 homes on the market, 4% more.

Orange County Housing Report

 

Demand: Demand dropped by 5% in the past couple of weeks.

Demand, the number of new pending sales over the prior month, decreased from 2,468 to 2,339, a drop of 129, or 5%. That’s the biggest drop for this time of the year in four years, the last time we had a presidential election. We can expect demand to continue to drop as we progress deeper into the holidays.

Last year at this time, there were 108 additional pending sales, totaling 2,447.

With a giant drop in both the active inventory and demand, the expected market time increased slightly from 72 days to 73 days, still a slight seller’s market.

Orange County Housing Market Summary:

  • The active listing inventory dropped in the past couple of weeks, shedding 300 homes, or 5%, and now totals 5,655, the lowest level since April and the second largest drop so far this year. The inventory will continue to drop through the end of the year and will pick up steam in December.
  • There are 23% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 20% as well. Fewer and fewer homes and condominiums can now be found priced below $500,000.
  • Demand, the number of pending sales over the prior month, decreased by 129 in the past couple of weeks and now totals 2,339. This 5% drop is the largest in four years, the last time there was a presidential election. Demand was at 2,447 pending sales last year. Today’s demand is 4% less than last year. The average pending price is $794,311.
  • The average list price for all of Orange County is $1.5 million, remaining the same since August.
  • For homes priced below $750,000, the market is HOT with an expected market time of only 48 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 18% of the active inventory and 17% of demand.
  • For luxury homes priced between $1 million to $1.5 million, the expected market time is at 118 days, decreasing by 4 days in the past couple of weeks. For homes priced between $1.5 million to $2 million, the expected market time increased from 169 days to 174 days. For luxury homes priced above $2 million, the expected market time increased from 281 days to 319 days.
  • The luxury end, all homes above $1 million, accounts for 38% of the inventory and only 16% of demand.
  • The expected market time for all homes in Orange County increased in the past couple of weeks from 72 days to 73, a slight seller’s market (between 60 and 90 days).
  • Distressed homes, both short sales and foreclosures combined, make up only 2% of all listings and 3% of demand. There are 50 foreclosures and 73 short sales available to purchase today in all of Orange County, that’s 123 total distressed homes on the active market, down 10 in the past two weeks ago. Last year there were 196 total distressed sales, 59% more.
  • There were 2,560 closed sales in October, a 7% drop from September, but up 6% compared to the 2,412 closed sales posted in October 2015. The sales to list price ratio was 97.6% for all of Orange County. Foreclosures accounted for just .63% of all closed sales and short sales accounted for 1.5%. That means that 97.9% of all sales were good ol’ fashioned equity sellers.

 

Orange County Housing Report

 

Orange County Housing Report

 

 

Orange County Housing Report

 

Orange County Housing Report

 

 

Orange County Housing Report

Orange County Housing Report November 7th, 2016

Orange County Housing Report: It’s About Pricing

The difference between success and sitting on the market with fewer showings and no purchase offers is price.

Find out more in this Orange County Housing Report for November 7th, 2016

Pricing: In October, just last month, 1,285 homes were pulled off the market, failing to succeed in today’s market.   Orange County Housing Report

Everybody is well aware of the incredible run that the Orange County housing market has enjoyed for nearly five years now. The press has reported on the record median sales price. REALTORS® have distributed lists of recent neighborhood sales that provide proof that property values are way up from just a few years ago. Common knowledge is that multiple offers is the norm and that there is a limited supply of homes on the market.

As a result, sellers are inclined to get carried away with pricing. This dilemma occurs in every single price range, even the hottest ranges, homes and condominiums priced below $750,000. Just because a price point is considered “hot” does not mean that a buyer is willing to pay thousands more than the most recent comparable sale. Buyers are not looking to overpay for a property. On the contrary, they are very price sensitive and are inclined to pay at or extremely close to a property’s Fair Market Value.

How does a homeowner determine a home’s Fair Market Value? It’s no different than how an appraiser determines the value of a home. It boils down to carefully selecting similarly sized, recent comparable sales and then adjusting the value based upon the condition, upgrades, amenities, location, and lot size. A huge challenge for sellers is to pull the emotion out of the process and look at all of the data objectively. This is no small task. Sellers are emotionally invested in a home. They have poured their own personal touches and money into their asset. And, it is not just an “asset,” it is their “home.” It is where their kids learned to ride their bikes, where the doorjamb was used as a growth chart, where memories were forged for years. It almost feels like there should be a value for all of the emotions we feel towards our homes. Unfortunately, that’s just now how it works.

Condition is one of the most crucial elements in determining a home’s value. It starts out with curb appeal, as a potential buyer pulls up and walks to the front door. Then, while the buyer waits for the REALTOR® to provide access, it’s the front door appeal. If a home’s landscaping is overgrown and the front door has cobwebs and needs a few good coats of paint, there are already a couple of obstacles to landing an offer AND the buyer has not even seen the inside. Soiled carpet, scuffed paint, non-neutral colors, cracked tiles, vinyl flooring, and water stained, peeling cabinets all detract significantly from value.

A home that has been freshly painted with brand new carpet, wood flooring, granite counters, plantation shutters, crown molding, new kitchen and bathroom cabinets, professionally trimmed landscaping, and a newly painted entry door, enables a seller to achieve top dollar in today’s market. But, that does not mean that they are able to obtain tens of thousands of dollars above recent comparable sales, especially if any of those have similar upgrades and are in similar condition. It is also important to understand that even though remodeling projects add value to a home, many do not add enough value to recoup the full cost of the project. For example, a bathroom addition results in recouping about 50% of the cost. A swimming pool, family room or master suite additions, a new patio deck, a kitchen remodel, and so many other home improvement projects will not allow a homeowner to recoup the cost of the job.

Homes that are in great condition, nicely upgraded, and are priced at or extremely close to their Fair Market Value, will result in multiple offers for just about every home below $750,000. When multiple offers are generated, a seller is often able to pit them against each other and often sell at their asking price or, in many cases, for even more.

Yet, far too many homeowners stretch their price out of bounds, adding an additional $20,000 to $50,000 above the last comparable sale; ultimately, they just sit on the market without any success. Some sellers are worried about leaving extra money on the table, so they arbitrarily pump up the price. Others want to leave a little extra cushion for negotiating, mistakenly thinking that every home is discounted to some degree. Many simply overvalue their home, honestly feeling that their home is the best in the neighborhood.

The market below $750,000, two thirds of all closed sales, is extremely hot and will continue to be even in the midst of the Holiday Market. If a home priced at $650,000 sits on the market without an offer, it’s the price. It is that simple. It’s not the REALTOR’s® marketing strategy, lack of open houses, or any other of the laundry list of reasons given for why a home has not sold. Quite simply, if an offer is not generated within the first couple of weeks, it is a direct result of being overpriced. Initially overpricing and then reducing at a later date, results in missing the opportunity to be priced correctly upon initially hitting the market. That’s when there is the most interest in a home, when if first enters the fray. Reducing at a later date will get some buyer’s attention, but the likelihood of obtaining multiple offers drops considerably, losing out on the chance to pit them against each other in order to achieve a higher value.

The bottom line for sellers is simple: carefully arrive at a home’s Fair Market Value initially and take full advantage of obtaining the best and highest price possible for your home.

Luxury End: Luxury demand dropped by 3% as the inventory dropped by 5%.

In the past two weeks, demand for homes above $1 million decreased from 401 to 387 pending sales, a 3% drop, and its lowest level since February. The luxury home inventory dropped from 2,347 homes to 2,235, a 5% drop, its lowest level since March. With a drop in both inventory and demand, the expected market time dropped slightly from 176 days to 173 days for all homes priced above $1 million, just shy of six months.

For homes priced between $1 million to $1.5 million, the expected market time in the past couple of weeks decreased from 128 days to 122 days. For homes priced between $1.5 million to $2 million, the expected market time decreased from 187 days to 169 days. For homes priced above $2 million, the expected market time rose from 258 days to 281 days. At 258 days, a seller is looking at placing their home in escrow around the end of July 2017.

Orange County Housing Report

 

Active Inventory: The active inventory dropped significantly in the past couple of weeks, the most so far this year.

In the past couple of weeks, the active inventory dropped by 382 homes and now totals 5,955, its lowest level since April. That’s the largest drop so far this year as more and more sellers are realizing that the Holiday Market is knocking on the door, the slowest time of the year for real estate. The drop is cyclical for this time of the year and will continue through the end of the year, picking up speed in December. Fewer homes come on the market and many unsuccessful sellers pull their homes off of the market completely.

We can expect the inventory to continue to drop until we ring in the New Year with fewer than 5,000 homes on the market. The long term average for Orange County is an inventory of 8,000 homes, far more than where we stand today, or any other time this year.

Last year at this time there were 6,132 homes on the market, 3% more.

Orange County Housing Report

 

Demand: Demand remained almost unchanged in the past couple of weeks.

Demand, the number of new pending sales over the prior month, decreased from 2,480 to 2,468, a drop of only 12. It is the hottest start to November since 2012, but the year over year difference is getting smaller compared to a month ago. Last year at this time, there were 62 fewer pending sales, totaling 2,406.

With a giant drop in the active inventory and very similar demand, the expected market time decreased from 77 days to 72 days, a slight seller’s market.

Orange County Housing Report

 

Orange County Housing Market Summary:

  • The active listing inventory dropped in the past couple of weeks, shedding 382 homes, or 6%, and now totals 5,955, the lowest level since April and the largest drop so far this year. The inventory will continue to drop through the end of the year and will pick up steam in December.
  • There are 21% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 15%. Fewer and fewer homes and condominiums can now be found priced below $500,000.
  • Demand, the number of pending sales over the prior month, decreased by only 12 in the past couple of weeks and now totals only 2,468. Demand was at 2,406 pending sales last year. Today’s demand is 3% more than last year. The average pending price is $829,431.
  • The average list price for all of Orange County is $1.5 million, remaining the same since August.
  • 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 73 days, a slight seller’s market (between 60 and 90 days). This range represents 18% 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 6 days in the past couple of weeks. For homes priced between $1.5 million to $2 million, the expected market time decreased from 187 days to 169 days. For luxury homes priced above $2 million, the expected market time increased from 258 days to 281 days.
  • The luxury end, all homes above $1 million, accounts for 37% of the inventory and only 15% of demand.
  • The expected market time for all homes in Orange County decreased in the past couple of weeks from 77 days to 72, a slight seller’s market (between 60 and 90 days).
  • Distressed homes, both short sales and foreclosures combined, make up only 2% of all listings and 3.6% of demand. There are 49 foreclosures and 84 short sales available to purchase today in all of Orange County, that’s 133 total distressed homes on the active market, no change from two weeks ago. Last year there were 205 total distressed sales, 54% more.
  • There were 2,560 closed sales in October, a 7% drop from September, but up 6% compared to the 2,412 closed sales posted in October 2015. The sales to list price ratio was 97.6% for all of Orange County. Foreclosures accounted for just .63% of all closed sales and short sales accounted for 1.5%. That means that 97.9% of all sales were good ol’ fashioned equity sellers.

Orange County Housing Report

 

 

Orange County Housing Report

 

 

Orange County Housing Report

 

 

Orange County Housing Report

 

 

Orange County Housing Report

 

 

 

This Month in Real Estate – July 2016

This Month in Real Estate – July 2016

Check out the National Numbers for July, 2016

 

 

This Month in Real Estate – June 2016

This Month in Real Estate – June 2016

Check out the National Numbers for May, 2016