Orange County Housing Report:
“The Buyers Gamble”
Orange County Housing Report March 25th, 2019
Gambling on Rates: Interest rates have fallen to 4.25%, the lowest level in over a year.
No matter what your age, or what kind of music you like, everybody has listened to and knows the lyrics to Kenny Roger’s
“The Gambler.” “You’ve got to know when to hold ‘em. Know when to fold ‘em. Know when to walk away. And know when
to run.” It is a song about a young man who stumbles upon gambling advice from a seasoned, old, veteran gambler “on a
train bound for nowhere.”
So many potential buyers are just like the young gambler, they simply don’t know when they should walk away from the
fence they are sitting on and cash in their chips. They are waiting to make the plunge into home ownership but are trying
to “time the market.” Unfortunately, so many of these buyers, and homeowners waiting to refinance, have been sitting on
the sideline and have already missed prior opportunities to cash in on excellent interest rates. Fortunately, rates are
excellent once again.
Last week was a huge week for interest rates. The last several months have been huge for interest rates. Since
November 2018, interest rates have dropped dramatically from 5% to 4.25%, a substantial difference that helps on the
homebuyer affordability front. Today’s rate of 4.25% is the lowest since February 2018.
What happened? The United States economy is showing signs of slowing, there has been an international economic
slowdown, the price of oil has dropped substantially, the trade war seems as if there is no end in sight, and there has
been tremendous stock market volatility. That is enough for investors around the world to park their money in long term
U.S. government bonds. When this happens, interest rates fall. And, last week, the Federal Reserve stated that they were
done raising the short-term rate and will not make a move on rates at all in 2019.
As a result, interest rates have dropped to new lows not seen in over a year. For buyers looking at a $500,000 mortgage,
the drop has resulted in a savings of $224 per month compared to last November. That is an annual savings of $2,688, or
$13,440 in 5 years. The savings are even more substantial for higher mortgage amounts.
This is where buyers need to understand that right NOW is an excellent time to cash in on today’s low interest rate.
Waiting for interest rates to drop further is a lot like gambling. Reminiscing about the good ‘ol days when interest rates
were in the mid-3% range will not magically make rates drop. Could they go down further? Perhaps. Could they go up again? Absolutely.
The old saying, “a bird in the hand is worth two in the bush” applies. It is better to cash in today than to
risk losing out on this opportunity by hoping rates fall further. There are plenty of stories of buyers who have kicked
themselves for waiting too long.
In taking a closer look at affordability, for buyers looking for a $3,000 mortgage payment, along with a 20% down
payment, the drop in interest rates has allowed them to afford a much larger home. Back in November 2018, they were
looking at a $698,750 home with a 5% mortgage. That has improved spectacularly since. With today’s 4.25% interest rate,
a buyer is now looking at purchasing a $762,500 home. That is an amazing increase of $63,750 in purchasing power.
The combination of improved home affordability and substantially more inventory than the last several spring selling
seasons should lead to an increase in home buyer demand. Buyers, what are you waiting for? It is time to get off of the
home buying fence and cash in your chips.
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 166 homes, up 3%, and now totals 6,532, the highest level
since November last year. The inventory had been slowly rising, most likely due to the torrential rain that Southern
California had experienced. Since much of the heavy rain is over, and now that is officially spring, more homeowners are
opting to place their homes on the market. The increases will gain momentum in the coming weeks, the busiest time of
the year for housing.
Last year at this time there were 4,609 homes on the market. That means that there are 42% 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 3%.
Demand, the number of new pending sales over the prior month, continued to rise, increasing by 78 pending sales in the
past two weeks, up 3%, and now totals 2,350. The rapid increase in demand from the start of the year is starting to slow
and will most likely only increase slightly until peaking sometime in May. From there, demand will slowly diminish through
the rest of the Spring and Summer Markets.
The retreat in interest rates this year has helped demand considerably. Soft demand had been an enormous issue in the
second half of 2018, but with falling rates demand has picked up.
Even with the strong increase in demand, it is important to note that the current demand reading continues to be the
lowest for this time of the year since 2014. There still is buyer apprehension in approaching the housing market. They are
careful not to overpay and are looking to offer only the Fair Market Value for a home. They are not willing to stretch the
asking price, which is why homes are currently not appreciating much at all.
Last year at this time, there were 188 additional pending sales, 7% more than today.
The current Expected Market Time dropped from 84 days to 83 days in the past two weeks, 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 54 days, a HOT
Luxury End: The luxury inventory climbed quite a bit
In the past two-weeks, demand for homes above $1.25 million increased by 6 pending sales, a 2% increase, and now
totals 352, its highest level since the end of June 2018. The luxury home inventory increased by 76 homes and now totals
2,090, a 4% increase. The overall expected market time for homes priced above $1.25 million increased from 175 days to
178 over the past two-weeks, a slight increase.
Year over year, luxury demand is down by 1 pending sale, basically the same as last year, and the active luxury listing
inventory is up by an additional 293 homes, or 16%. There is a lot more seller competition so far this year. The expected
market time last year was at 153 days, better than today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the expected market time increased from
95 to 103 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 140 to
146 days. For homes priced between $2 million and $4 million, the expected market time decreased from 245 to 230
days. For homes priced above $4 million, the expected market time decreased from 650 to 562 days. At 562 days, a seller
would be looking at placing their home into escrow around the start of October 2020.
Orange County Housing Market Summary:
• The active listing inventory increased by 166 homes in the past two weeks, up 3%, and now totals 6,532. Last
year, there were 4,609 homes on the market, 1,923 fewer than today. There are 42% more homes than last year.
• So far this year, 4% fewer homes came on the market below $500,000 compared to 2018, and there were 15%
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, increased by 78 pending sales in the past two weeks, up 3%, and now totals 2,350, its lowest level for this time of the year since 2014. Last year, there were 2,538 pending sales, 8% more than today.
• The Expected Market Time for all of Orange County decreased from 84 days two weeks ago to 83 days today, a
slight Seller’s Market (between 60 to 90 days) and the highest level for this time of the year since 2011. It was at
54 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 64 days. This range represents 42% of the active inventory and 54% of demand.
• For homes priced between $750,000 and $1 million, the expected market time is 66 days, a slight Seller’s Market.
This range represents 18% of the active inventory and 22% of demand.
• For homes priced between $1 million to $1.25 million, the expected market time is 85 days, a slight Seller’s
• For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the expected market time
increased from 95 to 103 days. For homes priced between $1.5 million and $2 million, the expected market time
increased from 140 to 146 days. For luxury homes priced between $2 million and $4 million, the expected market
time decreased from 245 to 230 days. For luxury homes priced above $4 million, the expected market time
decreased from 650 to 562 days.
• The luxury end, all homes above $1.25 million, accounts for 32% of the inventory and only 16% of demand.
• Distressed homes, both short sales and foreclosures combined, made up only 0.8% of all listings and 1.8% of
demand. There are only 19 foreclosures and 30 short sales available to purchase today in all of Orange County,
49 total distressed homes on the active market, down two from two-weeks ago. Last year there were 39 total
distressed homes on the market, slightly less than today.
• There were 1,543 closed residential resales in February, 15% fewer than February 2018’s 1,820 closed sales.
February marked a 6% increase from January 2019. The sales to list price ratio was 97.4% for all of Orange
County. Foreclosures accounted for just 0.3% of all closed sales, and short sales accounted for 0.6%. That
means that 99.1% of all sales were good ol’ fashioned sellers with equity.