Orange County Housing Report: The Holiday Housing Chill
From now through the end of January, the Orange County housing market will come to a crawl.
Read more in this Orange County Housing Report for December 7th, 2016
For most of the country, temperatures drop down to below freezing, a blanket of snow covers the landscape, snowplows scrape the streets beneath, and black ice makes the commute to work extremely challenging. It’s time to grab the snow shovel, or, if you are lucky, the snow blower, and make a path from the door to the car and from the car to the end of the driveway. Whew!
For most of the country, it is easy to understand why the housing market comes to a complete stop. Orange County may not have snow, but any Southern Californian will tell you that it is freezing outside. Anytime the temps drop below 60 degrees, it’s COLD. Even with warmer winters, the local housing market slows. Days are short. Most buyers and sellers take a much deserved break.
Don’t forget about the exterior holiday lights draped along the ridges of roofs and carefully covering all of the shrubs down below, the traditions of decorating every nook and cranny inside houses, holiday shopping, annual work parties that include a white elephant gift exchange, egg nog, and plenty of family gatherings. The holiday distractions are here. After a long year, it is the time of year where we exchange gifts and then ring in a New Year. And, every year, housing slows. This is the Holiday Market.
For the buyers and sellers that remain, along with those considering entering the fray, it is best to properly set one’s expectations in order to properly navigate the holidays and winter season.
Seller Expectations: there may be less competition, but there is also significantly less demand. Yes, the active inventory is dropping to its lowest levels of the year. The inventory is currently at mid-February levels; and, it will continue to fall until it reaches its lowest point of the year, New Year’s Day. By then, the inventory will descend to around 4,200 homes, well below this year’s mid-July height of 7,329 homes. For the sellers that do remain, there will be significantly less competition than any other time of the year.
Similarly, demand drops to its lowest point of the year (demand is determined by the total number of new pending sales over the prior month). Demand is currently at end of January levels. It too will continue to drop until it reaches its lowest point of the year, New Year’s Day. Demand could drop all the way to 1,500 pending sales, a far cry from the early May height of 3,196.
The advantage of less competition is offset by the disadvantage of less demand. During this time of the year, buyers zero in on paying the Fair Market Value for a home. They are uninterested in overpaying during the notoriously slowest time of the year for housing. Keep in mind, homes have appreciated over the course of the year; so, just because sellers are not able to stretch their value a bit more, they are still getting more than one year ago today. Sellers need to price according to the most recent comparable pending and closed sales. Turnkey homes in great condition with plenty of upgrades and are priced right will still sell quickly. However, if some TLC is needed, and there are not that many upgrades, a home is liable to sit on the market with very little action. Today’s buyers are finicky and are not yearning to rehabilitate their new home. They would much rather close the sale and move in with little fuss.
Buyer Expectations: there may be less competition to purchase, but there are also significantly fewer available homes to purchase. From now, during the holidays, through mid-February, it just is not the best time of the year to sell a home. Homeowners would rather focus on the holiday season than have prospective buyers traipse through their home. Selling a home can be inconvenient. A home on the active listing market needs to be ready to show every single day. It is also inconvenient to have to steer clear of their home for an hour or two every time a buyer wants to take a closer look. As a result, fewer homeowners place their home on the market than any other time of the year. Also, unsuccessful sellers are rapidly pulling their homes off of the market and throwing in the towel. Many will list again during the Spring Market after taking a break and waiting out the slowest season for housing. There are not that many homes on the market today, and the inventory is dropping fast. For buyers, there are fewer and fewer choices.
Buyers are not going to find a “deal” just because it is the Holiday Market. Sellers are not going to suddenly become generous in the spirit of the holiday season. Regardless of how slow the market becomes during this time of the year, sellers know they can wait a few more months, if needed, and take advantage of a busier Spring Market. Therefore, buyers need to sharpen their pencils and bring in offers according to a home’s Fair Market Value. Plus, if a home is in great condition, nicely appointed, and priced right, there is a high likelihood of multiple offers.
Now that Thanksgiving has passed, the Holiday Market is in full swing. It will continue to slow through the end of the year and will not reverse course until after the annual ball drop at Time Square. From there, the market will slowly thaw through mid-February. That’s when housing will rev its engine and both inventory and demand will sharply increase.
Luxury End: Luxury demand remained the same while the inventory dropped by 8%.
Unlike the bulk of the Orange County housing market where demand dropped significantly in the past couple of weeks, demand in the luxury end, homes above $1 million, remained the same with 367 pending sales. Before anybody gets too excited, the current level is still the lowest since February. The luxury home inventory dropped from 2,165 homes to 2,000, an 8% drop, its lowest level since the start of March. With unchanged demand and a large drop in the inventory, the expected market time decreased from 177 days to 163 days for all homes priced above $1 million.
For homes priced between $1 million to $1.5 million, the expected market time in the past couple of weeks decreased from 118 days to 101 days. For homes priced between $1.5 million to $2 million, the expected market time increased from 174 days to 188 days. For homes priced above $2 million, the expected market time decreased from 319 days to 296 days. At 296 days, a seller is looking at placing their home in escrow around the end of September of 2017, based upon today’s current activity and heightened competition.
Active Inventory: In the past couple of weeks, the active inventory experienced its largest drop of the year.
In the past couple of weeks, the active inventory dropped by 478 homes, an 8% drop, and now totals 5,177, its lowest level since the start of February. In the past month, the inventory has shed 778 homes, 13%. The Holiday Market is here and the giant drop is due to fewer sellers coming on the market combined with unsuccessful sellers throwing in the towel after being exposed to the market for months. The sharp drop will continue until it bottoms out on New Year’s Day.
Last year at this time there were 5,388 homes on the market, 4% more.
Demand: In the past couple of weeks, demand experienced its largest drop of the year.
Demand, the number of new pending sales over the prior month, decreased from 2,339 to 2,116, a drop of 223, or 10%. That’s the biggest drop so far this year and its lowest level since the end of February. We can expect demand to continue to steadily drop before bottoming out on New Year’s Day.
Last year at this time, there were 45 additional pending sales, totaling 2,161.
With a giant drop in both the active inventory and demand, the expected market time remained the same at 73 days, still a slight seller’s market.
Orange County Housing Market Summary:
- The active listing inventory experienced it largest drop of the year in the past couple of weeks, shedding 478 homes, or 8%, and now totals 5,177, the lowest level since the start of February. The inventory will continue to drop through the end of the year until it bottoms out on New Year’s Day.
- There are 23% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 16% 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, experienced it largest drop of the year in the past couple of weeks, declining by 223 pending sales, or 10%, and now totals 2,116. Demand was at 2,161 pending sales last year. Today’s demand is 4% less than last year. The average pending price is $838,919.
- The average list price for all of Orange County is $1.6 million, the highest level ever for the county.
- For homes priced below $750,000, the market is HOT with an expected market time of only 49 days. This range represents 45% of the active inventory and 66% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 77 days, a slight seller’s market (between 60 and 90 days). This range represents 17% 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 101 days, decreasing by 17 days in the past couple of weeks. For homes priced between $1.5 million to $2 million, the expected market time increased from 174 days to 188 days. For luxury homes priced above $2 million, the expected market time decreased from 319 days to 296 days.
- The luxury end, all homes above $1 million, accounts for 38% of the inventory and only 17% of demand.
- The expected market time for all homes in Orange County remained the same in the past couple of weeks, 73 days, 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 4% of demand. There are 45 foreclosures and 75 short sales available to purchase today in all of Orange County, that’s 120 total distressed homes on the active market, down 3 in the past two weeks ago, matching the lowest total since prior to the Great Recession reached earlier this year in September. Last year there were 188 total distressed sales, 57% more.
- There were 2,443 closed sales in November, a 5% drop from October, but up 26% compared to the 1,937 closed sales posted in November 2015. The sales to list price ratio was 97.3% for all of Orange County. Foreclosures accounted for just .9% of all closed sales and short sales accounted for .8%. That means that 98.3% of all sales were good ol’ fashioned equity sellers.