Orange County Housing Report August 1st, 2018
Orange County housing is moving away from a Seller’s Market to a Balanced Market.
A Balanced Market: With demand continuing to drop to levels not seen in over a decade, housing is rapidly evolving into a Balanced Market.
The housing market has favored sellers for years now. That good old-fashioned metal balance scale has been leaning heavily in favor of the sellers with very few homes on the market and tremendous demand. Yet, with more homes coming on the market and falling demand, that metal balance scale has slowly but surely been moving away from that hot seller’s market to a balanced market, one that does not favor sellers or buyers.
Everybody has been talking about not enough homes on the market, dating back to 2012. That lack of supply has fueled the frenzied real estate market; that is, until 2018. The supply problem has evolved into a demand problem. While the supply of homes has increased quite a bit this year, it still remains below the long-term average of 8,000 homes. The real issue is not that there are way too many homes on the market, as in prior slowdowns; instead, it is the fact that housing demand has dropped precipitously.
Demand, a snapshot of the last month of pending sales, has been off all year, especially from mid-April through today. Surprisingly, that is the meat of the housing market, the Spring and Summer Markets. In taking a closer look at demand at the end of July, the numbers are staggering. Demand was 18% higher last year. The last time demand was this low dates all the way back to 2007 when the housing market completely fell apart. It is interesting to take a look at the differences in context to the mortgage interest rate at the time. Today’s national average interest rate is 4.6%, the highest rate since 2011.
The housing run from 2012 through the first four months of 2018 has been fueled not only an extremely low supply of homes on the market; it has also been fueled by ultra-low interest rates. Mortgage rates have been juicing the run-up in values. The only other time that housing slowed a bit during the run was at the end of 2013 through 2014, the culprit, the higher interest rates. In December 2013, interest rates climbed to 4.5% and they remained elevated through the Spring Market of 2014.
As home values have appreciated unabated, the June median sales price reached yet another record level at $739,000. Combining record high values with interest rates that have climbed to heights not seen since 2011, prior to the 6-year housing run, it is no wonder that buyers are not jumping as quickly to purchase.
None of this means that the current market favors buyers. It is still an extremely slight Seller’s Market. The current Expected Market Time (the amount of time it would take to place a home onto the market today and enter escrow down the road) is at 85-days, knocking on the door of a Balanced Market. A Seller’s Market is hot when it is below 60-days. It is a slight Seller’s Market from 60 to 90 days. It is a Balanced Market from 90 to 120 days. Above 120-days is a Buyer’s Market.
Many mistakenly think that it is either a Seller’s Market or Buyer’s Market. That it has to be one or the other. That is not true. A Balanced Market is one that does not favor a buyer or seller. It is like that metal balance scale when it is perfectly balanced. There has been more supply this year, 13% higher year-over-year, and demand is down by 16% year-over-year. More supply and less demand are balancing the scale.
A warning for buyers: buyers are NOT in the driver’s seat, not even close. It is not a Buyer’s Market. The difference is that there are more choices now. The typical home is no longer flying off the market. Only extraordinary homes that are priced right will sell quickly. Buyers no longer need to trip over themselves to purchase. They are finally able to approach the market methodically and at a much more relaxed pace.
A warning for sellers: accurate pricing is fundamental in order to find success. Ignore the recent headlines of a record median sales price. That does not mean that homes are continuing to appreciate TODAY. The June median is a reflection of homes that were placed into escrow in April and May. That was in the past when the market was much hotter than today. Right now there are a lot more homes on the market, meaning a lot more competition. Also, demand has dropped considerably, meaning fewer showings and fewer potential offers. Overpriced, overzealous list prices result in wasted market time and do not generate offers. Pricing at or close to theFair Market Value is the wisest formula for success.
Active Inventory: The active inventory grew by 3% in the past two weeks.
The active listing inventory continued its climb in the past two weeks, adding 180 homes, or 3%, and now totals 6,759, its highest level since September 2016. Expect the active inventory to continue to grow until it peaks, most likely next month.
Last year at this time, there were 5,967 homes on the market, 792 fewer. That means that there are 13% more homes on the market today. The year over year difference is growing week by week. The trend of more homes on the market year over year is here to stay.
Demand: Demand dropped by 2% in the past two weeks.
In the past two-weeks, demand, the number of pending sales over the prior 30-days, decreased by 61 pending sales, or 2%, and now totals 2,393, the lowest demand reading for this time of the year since 2007. Expect demand to drop further from August through the end of the year. Typically, demand downshifts from here because the best time to sell is in the rearview mirror. Fewer families desire to make a move once the kids are back in school, which is going to occur at the end of August. Many families pull out of the house hunt in August and demand drops.
Last year at this time, demand was at 2,835 pending sales, 18% more than today, or 442 additional pending sales.
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 down the road, increased from 80 to 85 days in the past two weeks. At 85 days, it is a slight seller’s market (between 60 to 90 days) where sellers still get to call the shots, but appreciation is muted. Last year at this time, the expected market time was at 63 days, substantially hotter than today.
Luxury End: Demand for luxury homes dropped by 5% in the past couple of weeks.
In the past two weeks, demand for homes above $1.25 million decreased by 17 pending sales, down 5%, and now totals 313, its lowest level since the end of January. The luxury home inventory decreased by two homes and now totals 2,192. The overall expected market time for homes priced above $1.25 million increased from 199 to 210 days over the past two weeks.
Year over year, luxury demand is down by 60 pending sales or 16%, and the active luxury listing inventory is up by an additional 127 homes,or 6%. The expected market time last year was at 166 days, significantly better than today.
For homes priced between $1.25 million and $1.5 million, the expected market time decreased from 126 to 107 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 163 to 187 days. For homes priced between $2 million and $4 million, the expected market time increased from 250 to 300 days. For homes priced above $4 million, the expected market time increased from 511 to 718 days. At 718 days, a seller would be looking at placing their home into escrow around mid-July 2020.
Orange County Housing Market Summary:
- The active listing inventory increased by 180 homes in the past two weeks, up 3%, and now totals 6,759. Expect the inventory to increase from now through mid-August. Last year, there were 5,967 homes on the market, 792 fewer than today.
- This year, 18% fewer homes have come on the market below $500,000 today compared to last year, and there have been 26% fewer closed sales so far this year. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly vanishing.
- Demand, the number of pending sales over the prior month, decreased in the past two-weeks by 61 pending sales, down 2%, and now totals 2,393. Demand peaked in mid-May at 2,726 pending sales. Last year, there were 2,835 pending sales, 18% more than today.
- The average list price for all of Orange County remained at $1.6 million over the past two weeks. 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 57 days, but is knocking on the door of a slight seller’s market (60-90 days). This range represents 38% of the active inventory and 56% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 76 days, a slight seller’s market (between 60 and 90 days). This range represents 20% of the active inventory and 22% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 95 days, a balanced market (between 90 to 120 days).
- For luxury homes priced between $1.25 million and $1.5 million, the expected market time decreased from 126 to 107 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 163 to 187 days. For luxury homes priced between $2 million and $4 million, the expected market time increased from 250 to 300 days. For luxury homes priced above $4 million, the expected market time increased from 511 to 718 days.
- The luxury end, all homes above $1.25 million, accounts for 32% of the inventory and only 13% of demand.
- The expected market time for all homes in Orange County increased from 80 to 85 days in the past two weeks, a slight seller’s market (from 60 to 90 days).
- Distressed homes, both short sales and foreclosures combined, made up only 0.9% of all listings and 1.4% of demand. There are only 27 foreclosures and 32 short sales available to purchase today in all of Orange County, 59 total distressed homes on the active market, down five in the past two weeks. Last year there were 88 total distressed homes on the market, 49% more than today.
- There were 2,851 closed residential resales in June, down by 12% from June 2017’s 3,229 closed sales. June marked a 1% decrease from May 2018. The sales to list price ratio was 98.2% for all of Orange County. Foreclosures accounted for just 0.2% of all closed sales, andshort sales accounted for 0.7%. That means that 99.1% of all sales were good ol’ fashioned sellers with equity.