Orange County Housing Report June 29th, 2018
The window of opportunity to take advantage of the Summer Market is already beginning to close.
Running Out of Time: Demand will remain elevated for only six more weeks.
Summer is here! It is the season of longer days, plenty of Southern California sunshine, beckoning, sandy beaches, and refreshing dips in the pool. With summer comes all of its distractions. There are also family vacations, Disneyland, California Adventure, Knott’s Berry Farm, Magic Mountain, LEGOLAND, Raging Waters, the Discovery Science Center, Sea World, and the San Diego Zoo.
The best time of the year to sell a home, the Spring Market, is officially in the rearview mirror. It is now the Summer Market, the second-best time of the year to sell a home. For some, buying a home takes a back seat to all of the family fun. Many will still purchase, but not with an extreme sense of urgency like the spring.
Sellers and real estate agents have already felt the shift in the marketplace. It actually started a few weeks ago with college graduations. Today, the sense of urgency has shifted from buyers to sellers. Sellers know that they need to open up escrow soon or risk passing up the opportunity to sell during the Summer Market. In fact, they have six-weeks to negotiate a deal before the market slows even further.
Here is the thing. Most potential buyers prefer moving during the summer months prior to the kids going back to school. That means closing on a home and moving into it by the end of August. In order to close by the end of August, a home needs to be placed into escrow by the end of July. Typically, a home takes about a month to close after negotiating a deal and opening escrow. In looking closely at the housing cycle, demand starts to drop at the end of June. From there, it plateaus during the month of July. Finally, demand steadily drops from August 1st on.
There is something to be said about reaching August in the housing market. At that point, the end of the “school summer” is fast approaching. Buyers with school-aged children start backing away from the housing market. Moving during a school year is very distracting; so, many buyers put the home buying process on hold and wait until the following year.
Sellers really need to understand that the window of opportunity is closing. Not only are there only six-weeks left before many will have missed the boat, this year is a bit more challenging than previous years. Demand is down 8% year over year. In fact, demand has not been this low in June since 2007. In addition, the active listing inventory is up 3% year over year and it is poised to continue to grow throughout the Summer Market. With an increasing supply and dropping demand, the Expected Market Time, the amount of time it takes to list a home today and then places it into escrow down the road, will continue to grow over the course of the next six weeks.
For sellers, it is like the tic… tic… tic… of valuable time passing by before the summer housing train leaves the station. In six-weeks, sellers will feel another noticeable shift in the housing market. In order to find success now and truly take advantage of this second best time of the year to sell a home, sellers absolutely, unequivocally MUST price their home with care. Ignore the impulse to arbitrarily price a home, stretching the asking price significantly above the most recent comparable sale. That is a recipe for disaster. Price a home $20,000 above that sale and a seller will sit with very little activity, no offers to purchase and lose valuable market time. Instead, sellers really need to lean into the expertise of a seasoned, experienced REALTOR®. Tic… tic… tic…
Active Inventory: The active inventory grew by 4% in the past two-weeks.
The active listing inventory continued its climb in the past two-weeks and surpassed last year’s height of 5,983 homes reached in mid-July. The inventory rose by 4%, adding 231 homes, and now totals 6,105, its highest level since October 2016. Expect the inventory to continue to grow until peaking sometime between July and August.
Last year at this time, there were 5,905 homes on the market, 3% fewer than today. The trend of more homes on the market year over year is here to stay.
In the past two weeks, demand, the number of pending sales over the prior 30-days, increased by 34 pending sales, up 1%. It now totals 2,699, the lowest demand reading for this time of the year since 2007. Demand most likely reached a peak for 2018 a month ago at 2,726 pending sales. That would be the lowest peak since 2007.
Demand: Demand increased by 1% in the past two-weeks.
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 66 to 68 days in the past two-weeks. At 68 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 60 days, still a hot seller’s market.
Luxury End: Demand for luxury homes dropped by 8% in the past couple of weeks.
In the past two-weeks, demand for homes above $1.25 million decreased by 34 pending sales, down 8%, and now totals 389. The luxury home inventory increased by 64 homes and now totals 2,165, up 3%. With increased supply and a drop in demand, the overall expected market time for homes priced above $1.25 million increased significantly from 149 to 167 days over the past two-weeks.
Year after year, luxury demand is up by 18 pending sales or 5%, and the active luxury listing inventory is up by an additional 154 homes or 8%. The expected market time last year was at 163 days, a little bit better than today.
For homes priced between $1.25 million and $1.5 million, the expected market time increased from 95 to 111 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 123 to 162 days. For homes priced between $2 million and $4 million, the expected market time decreased from 189 to 183 days. For homes priced above $4 million, the expected market time decreased from 395 to 368 days. At 368 days, a seller would be looking at placing their home into escrow around the end of June 2019.
Orange County Housing Market Summary:
- The active listing inventory increased by 231 homes in the past two weeks, up 4%, and now totals 6,105. Expect the inventory to increase from now through mid-Summer. Last year, there were 5,905 homes on the market, 200 fewer than today.
- This year, 19% fewer homes have come on the market below $500,000 today compared to last year, and there have been 25% 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, increased in the past two-weeks by 34 pending sales, up 1%, and now totals 2,699. It appears that demand peaked a month ago. Last year, there were 2,937 pending sales, 9% more than today.
- The average list price for all of Orange County remained at $1.7 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 43 days. This range represents 36% of the active inventory and 57% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 60 days, a slight seller’s market (between 60 and 90 days). This range represents 19% of the active inventory and 22% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 88 days, a slight seller’s market.
- For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 95 to 111 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 123 to 162 days. For luxury homes priced between $2 million and $4 million, the expected market time decreased from 189 to 183 days. For luxury homes priced above $4 million, the expected market time decreased from 395 to 368 days.
- The luxury end, all homes above $1.25 million, accounts for 35% of the inventory and only 14% of demand.
- The expected market time for all homes in Orange County increased from 66 to 68 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 0.8% of all listings and 1.2% of demand. There are only 23 foreclosures and 27 short sales available to purchase today in all of Orange County, 50 total distressed homes on the active market, up six in the past two weeks. Last year there were 71 total distressed homes on the market, 42% more than today.
- There were 2,871 closed residential resales in May, down by 9% from May 2017’s 3,147 closed sales. May marked a 10% increase from April 2018. The sales to list price ratio was 98.5% for all of Orange County. Foreclosures accounted for just 0.5% of all closed sales, and short sales accounted for 0.7%. That means that 98.8% of all sales were good ol’ fashioned sellers with equity.