Orange County Housing Report: Hello, Hello, Hello
Ever since the market took off five years ago, there have not been enough homes on the market.
Read more in this Orange County Housing Report for January 17th, 2017.
Fewer homeowners have opted to place FOR SALE signs in their front yards for years now. That has been the main theme of the Orange County housing market since it started the recovery five years ago; and, if the start to 2017 is an indicator of what is to come, this year is not going to be any different.
The annual average inventory dating back to 2005 is 9,237 homes on the market. Over the past five years straight, it has fallen considerably short. As a result, the annual inventory height has come up significantly short of the 10,820 home average as well. Take a look at last year, for example, where the inventory averaged only 5,965 homes on the market and reached a height of 7,329. There simply were not enough homes for sale to satiate demand. That’s the story dating back to 2012.
To keep it simple, the inventory needs to be above the 8,000 threshold for a sustainable amount of time for the market to tilt towards the buyer’s favor. Yet, the last time that occurred was in 2011. In the past five years, the active inventory has only eclipsed the 8,000 mark once for four weeks during the summer of 2014, not long enough to make a significant impact on housing.
This year, the Orange County housing market started the year with an inventory of 4,071, the second lowest start to a year behind 2013’s anemic 3,161 homes. The 2017 start is down 7% compared to last year.
One of the main reasons that there is not enough inventory is because of a changed mindset in Orange County since the Great Recession. Homeowners are simply not opting to sell their homes at the rate that they did prior to the recession. In vogue is not moving. With this mindset, homeowners are remodeling their homes instead of jumping from home to home.
Another reason the inventory is extremely low to start the year is that many “would be” sellers are waiting for the Spring Market, notoriously the best time of the year to sell in terms of activity. While that may seem like a logical choice, the facts don’t completely back it up in the lower ranges, below $750,000. The expected market time, from putting a sign in the ground to going into escrow, is at 60-days or less. That is a hot market and the year has only begun. There’s not a lot of competing sellers on the market today in the lower ranges. Later in the spring, there will be more buyers, but there will also be a lot more sellers. This is an advantageous time to place a home on the market with plenty of pent up demand.
A home that is in good condition, nicely appointed, and priced at or close to a home’s Fair Market Value, will fly off the market with multiple offers. This value can be obtained by diligently researching the most recent comparable pending and closed sales, comparing location, upgrades, lot size, etcetera. Listing at or close to the Fair Market Value does not mean tacking on an additional $10,000, $15,000, or $20,000. In this market, a seller does not need to leave extra room for negotiating. When a home is priced right, it tends to capture close to the asking prices. Intentionally overpricing just to test the market, or tack on extra dollars to leave room for negotiations, will only result in the need to adjust the asking price down the road, squandering away the most valuable market time, the first few weeks after initially coming on the market.
The current market is not as hot as it was in 2012 and 2013 when values were skyrocketing upwards and the expected market time for the lower ranges was at about 30 days. Today’s market is appreciation, but at a much slower rate, about 5% over the course of a year. That means that it takes 365 days to increase 5%. That does not mean pricing a home 5% above the most recent comparable sale will result in success. It will take a year to get there. In order to find success today and net the highest amount possible, the bottom line is this: it is ALL about PRICING right initially. If a home is overpriced, the market will speak loud and clear; it will sit with no success in spite of the sizzling temperature of housing.
Since the first of the year, the active listing inventory has increased by 305 homes and now totals 4,376. Last year at this time there were 200 more homes on the market, 5% more. The expected market time for all of Orange County is 84 days, a slight seller’s market, meaning that homes are appreciating very little right now. The expected market time last year was at 86 days, very similar to today.
Demand: Since January 1st, demand has actually dropped slightly.
Most likely due to an extreme shortage of inventory, demand, the number of homes placed into escrow within the prior month, dropped by 66 pending sales since January 1st, or 4%, and now totals 1,562. The robust Orange County housing engine is having trouble starting the year because of an extreme lack of new, fresh inventory. There are 7% fewer homes to come on the market for the first 12 days of the year compared to 2016.
As everybody collectively moves past the holidays and New Year’s resolutions drop by the wayside, more homes will ultimately come on the market and demand will rise. The first boost in both supply and demand will occur after the presidential inauguration; and, the second will occur after the Super Bowl. By then, housing will be revving its engine and accelerating into the Spring Market. In the middle of Spring, demand for housing will be nearly double where it is today and a lot more homes will be coming on the market daily as well.
Last year at this time there were 31 more pending sales totaling 1,593.
Luxury End: Demand is up, but so is the luxury inventory.
Demand is up for Orange County’s luxury home market, 22 additional pending sales compared to last year at this time; however, there is a lot more competition. The luxury inventory is up by 127 homes. That extra competition translates to more seller who are not successful on a monthly basis.
For homes priced between $1 million to $1.5 million, the inventory is up by 21 homes compared to last year, and demand is up by 8 pending sales. Yet, above $1.5 million, the inventory is up by 106 homes, and demand is up by only 14.
In the past two weeks, demand for homes above $1 million decreased from 261 to 245 pending sales, a 6% drop, and its lowest level since one year ago when it totaled 223. The luxury home inventory is nearly the same after dropping from 1,708 homes to 1,705, its lowest level since the end of January of last year. The expected market time increased in the past couple of weeks from 196 days to 209.
For homes priced between $1 million to $1.5 million, the expected market time in the past couple of weeks increased from 132 days to 147 days. For homes priced between $1.5 million to $2 million, the expected market time remained the same at 169 days. For homes priced above $2 million, the expected market time rose from 345 days to 370 days. At 370 days, a seller is looking at placing their home in escrow around the end of January of next year.
Orange County Housing Market Summary:
- The active listing inventory increased by 7% since January 1st, adding an additional 305 homes and now totals 4,376. It’s the first increase since July 2016. The inventory will continue to increase from here, peaking sometime during the summer.
- There are 25% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 13%. 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 4%, or 66, since January 1st and now totals 1,562. Today’s demand is 2% fewer than last year. The average pending price is $794,770.
- The average list price for all of Orange County is $1.6 million, dropping from $1.7 million at the end of December.
- For homes priced below $750,000, the market is HOT with an expected market time of just 55 days. This range represents 45% of the active inventory and 69% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 90 days, an equilibrium market that does not favor sellers or buyers (between 90 and 120 days). This range represents 17% of the active inventory and 16% of demand.
- For luxury homes priced between $1 million to $1.5 million, the expected market time is at 147 days, increased by 15 in the past couple of weeks. For homes priced between $1.5 million to $2 million, the expected market time remained the same at 169 days. For luxury homes priced above $2 million, the expected market time increased from 345 days to 370 days.
- The luxury end, all homes above $1 million, accounts for 39% of the inventory and only 15% of demand.
- The expected market time for all homes in Orange County increased in the past couple of weeks from 75 days to 84, a slight seller’s market (between 60 and 90 days).
- Distressed homes, both short sales and foreclosures combined, make up only 2.6% of all listings and 3.6% of demand. There are 42 foreclosures and 70 short sales available to purchase today in all of Orange County, that’s 112 total distressed homes on the active market, 5 fewer than two weeks ago and the lowest total since prior to the Great Recession. Last year there were 153 total distressed sales, 37% more.
- There were 2,474 closed sales in December, a 1% increase from November, and nearly identical to the 2,746 sales that closed in December 2015. The sales to list price ratio was 97.3% for all of Orange County. Foreclosures accounted for just 1.25% of all closed sales and short sales accounted for 1.25% as well. That means that 97.5% of all sales were good ol’ fashioned equity sellers.