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Orange County Housing Report:
“The 10-Year Drought”

Orange County Housing Report February 24th, 2019

Ever since the Great Recession, far fewer homeowners have been selling their homes annually, a trend that is not going away.

 

Lack of Sellers: Fewer homeowners are opting to sell in spite of homes appreciating to record levels.

Millions flock to the Hawaiian Islands to escape the grind of everyday life and bask in the tropical sun and warm waters.
After relaxing for hours on the sand and swimming in the aqua blue surf, so many vacationers forget to reapply
sunscreen. Upon returning to the hotel room, the inevitable has occurred. Looking in the mirror they confirm they have a
lobster red sunburn from head to toe. Nearly everybody has experienced the pain of a deep sunburn. It is hard to sleep,
hard to take showers, and hard to go back out in the sunshine again. The pain is a reminder to never forget to reapply
sunscreen again.
Similarly, homeowners across the nation watched the housing market take a pounding during the Great Recession as
their equity vanished in a blink. Many lost their homes to short sales or foreclosures. Everybody either personally got
stung by the correction or knew of somebody who did. As a result, a new trend emerged to avoid a lobster red burn in the
future: homeowners stay in their homes a lot longer. There are far fewer homeowners who opt to sell every year. Even
with record home values, the trend continues.
From 2000 to 2008, there were an average of 1,347 more homes that came on the market every single month compared
to the past 10 years. That is an extra 16,158 sellers every year, 39% more. That has been the storyline for a decade, not
enough homes are offered for sale. It is not just an Orange County phenomenon. Nor is it isolated to California. A lack of
sellers has been a national issue that has plagued the real estate market and made it very difficult for buyers to isolate a
home.
The lack of supply and years of red-hot demand, juiced by historically low interest rates, has resulted in homes
appreciating to record levels in Orange County, erasing the losses and sting of the Great Recession. This 10-year old
trend is now the norm. Homeowners are simply not moving as often as they used to.
Based upon 2018 closed sales, the turnover rate for the Orange County housing stock is once every 21 years, matching
the rate of 2016. It is a little bit longer than 2017’s once every 20 year, but slightly better than 2015’s once every 23 years
and 2014’s once every 24 years. Regardless, once every 21 years is a long time to hold onto a home before opting to sell.
In 2018, the markets with the best turnover rates were in South Orange County and along the coast. From the south,
Ladera Ranch and Rancho Mission Viejo top the list once again with a turnover rate of once every 11 years. Talega,
Laguna Woods, Coto de Caza, San Juan Capistrano and Dove Canyon, all from the south, are all turning over faster than
the rest of the county. Newport Coast and Corona del Mar, two of the most expensive zip codes in the county, also made
the top eight list. Many of the top eight are newer areas, which tend to turn over more rapidly.
The lowest turnover rates can be found in more established, older cities in North Orange County: Garden Grove, Buena
Park, Santa Ana, Fountain Valley, Cypress, La Palma, and Westminster round out the bottom seven with the lowest
turnover rates. The lowest rate in Orange County can be found in Westminster where homeowners are moving at a pace
of once every 28 years.

There are numerous reasons that homeowners in Orange County and across the nation are opting to stay put. After
feeling the burn from the Great Recession, many are turning their homes into “Forever Homes.” A majority of homeowners
have refinanced to historically low interest rates, some as low as the mid-threes, making moving a lot more challenging as
rates rise. Most baby boomers plan on staying put instead of downsizing after retirement. They are not moving like many
had originally forecasted. They have been selling at a much slower pace than prior generations. This could be due to a
longer life expectancy and a healthier lifestyle. They are happy just aging in place. And, builders have not been building
homes, especially in the lower ranges, like they did in prior decades. All of these factors combined have contributed to the
low turnover rate in the housing stock.
Currently, the active inventory is at its highest level since 2012. That is not because suddenly homeowners are finally
deciding to sell at a faster pace. In fact, the number of homeowners coming on the market is slightly less so far this year.
Instead, the higher inventory is due to muted demand, a result of interest rates in the mid-4’s.
Buyers must understand that the low turnover rate in the housing stock is here to stay. In some area, homes are coming
on the market at a snail’s pace. Here is a great tip for buyers: realistically approach the market with market data, patience,
persistence, and a solid game plan, utilizing the expertise of a professional REALTOR®.

Active Inventory: In the past couple of weeks, the active inventory increased by 3%.

In the past two weeks, the active listing inventory increased by 194 homes, up 3%, and now totals 6,294. It is not rising
that rapidly because demand has increased tremendously in recent weeks while the number of homeowners opting to sell
is a bit subdued. So far this year, 5% fewer homeowners have opted to sell compared to 2018. That could be due to all of
the wet weather. Only time will tell.
From here, expect the inventory to slowly rise until it starts picking up momentum at the end of March. It will then increase
at a higher rate with many more homeowners deciding to sell as the market rolls through the spring.
Last year at this time there were 4,178 homes on the market. That means that there are 51% more homes available
today. This is the highest level of homes on the market for this time of the year since 2012.

 

Demand: In the past couple of weeks, demand increased by 17%.

Demand, the number of new pending sales over the prior month, continued its rapid climb. In the past couple of weeks,
demand increased by 297 pending sales, or 17%, from 1,791 to 2,088. Demand typically ramps up through the month of
February as it prepares for the best time of the year, in terms of pending sales activity, springtime. So far this year,
demand has increased by 79%, even stronger than last year’s 69% rise. Part of demands resurgence is due to interest
rates falling from 4.5% at the start of the year to 4.35% last week. Back in November, rates almost reached 5%. The
retreat has helped demand considerably.
Even with the strong increase in demand, it is important to note that the current demand reading is the lowest for this time
of the year since 2008. It will continue to be muted compared to recent years unless interest rates drop to 4% or below.
Last year at this time, there were 353 additional pending sales, 17% more than today.
The current Expected Market Time dropped from 102 days to 90 days in the past two weeks, a Balanced Market (between
90 and 120 days) and is knocking on the door of a slight Seller’s Market. It is still the highest reading for this time of the
year since 2011. Last year, the Expected Market Time was at 51 days, a HOT Seller’s Market.

Luxury End: Luxury demand increased by 14%.

In the past two-weeks, demand for homes above $1.25 million increased by 35 pending sales, a 14% increase, and now
totals 284, its highest level since the end of September 2018. The luxury home inventory increased by 75 homes and now
totals 1,937, a 4% increase. The overall expected market time for homes priced above $1.25 million dropped from 224
days to 205 over the past two-weeks, a significant improvement.

Year over year, luxury demand is down by 70 pending sales, or 20%, and the active luxury listing inventory is up by an
additional 308 homes, or 19%. The expected market time last year was at 138 days, considerably better than today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the expected market time decreased
from 144 to 132 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from
209 to 173 days. For homes priced between $2 million and $4 million, the expected market time decreased from 241 to
234 days. For homes priced above $4 million, the expected market time decreased from 582 to 573 days. At 573 days, a
seller would be looking at placing their home into escrow around the middle of September 2020.

Orange County Housing Market Summary:

• The active listing inventory increased by 194 homes in the past two weeks, up 3%, and now totals 6,294. Last year, there were 4,178 homes on the market, 2,116 fewer than today. There are 51% more homes than last year.
• In January, 2% fewer homes came on the market below $500,000 compared to 2018, and there were 19% fewer closed sales. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is continuing to vanish.
• Demand, the number of pending sales over the prior month, continued its rapidly rise in the past two-weeks, climbing by 297 pending sales, up 17%, and now totals 2,088, its lowest level for this time of the year since 2008. Last year, there were 2,441 pending sales, 17% more than today.
• The Expected Market Time for all of Orange County decreased from 102 days two weeks ago to 90 days today, a Balanced Market (between 90 to 120 days) and the highest level for this time of the year since 2011. It was at 51 days last year.
• For homes priced below $750,000, the market is a slight Seller’s Market (between 60 and 90 days) with an expected market time of 72 days. This range represents 44% of the active inventory and 55% of demand.
• For homes priced between $750,000 and $1 million, the expected market time is 67 days, a slight Seller’s Market. This range represents 17% of the active inventory and 24% of demand.
• For homes priced between $1 million to $1.25 million, the expected market time is 96 days, a Balanced Market.

• For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the expected market time decreased from 144 to 132 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 209 to 173 days. For luxury homes priced between $2 million and $4 million, the expected market time decreased from 241 to 234 days. For luxury homes priced above $4 million, the expected market time
decreased from 582 to 573 days.
• The luxury end, all homes above $1.25 million, accounts for 31% of the inventory and only 14% of demand.
• Distressed homes, both short sales and foreclosures combined, made up only 0.9% of all listings and 1.3% of demand. There are only 21 foreclosures and 37 short sales available to purchase today in all of Orange County, 58 total distressed homes on the active market, down one from two-weeks ago. Last year there were 40 total
distressed homes on the market, slightly less than today.
• There were 1,461 closed residential resales in January, 19% fewer than January 2018’s 1,800 closed sales. January marked an 18% drop from December 2018. The sales to list price ratio was 96.7% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales, and short sales accounted for 0.6%. That
means that 98.6% of all sales were good ol’ fashioned sellers with equity.

 

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