Orange County Housing Report October 25th, 2018
The Orange County housing market is continuing to slow, bucking long term trends for housing in the Autumn.
A Slowing Market: The Expected Market Time is continuing to rise rapidly.
There is a distinct chill in the morning air. Pumpkin Spice Lattes are the drink of choice at Starbucks®. Major League baseball playoffs have fans glued to their television sets. And, trees are slowly shedding their browning leaves. It is that time of the year again; it is autumn.
Just as life transitions from summer to autumn, the housing market evolves as well. Traditionally, since the kids are back in school, the Autumn Market is when the inventory drops from its summer peak and demand fades. With the inventory dropping along with demand, the overall Expected Market Time (how long it would take to list a home today and open escrow down the road) typically does not change much at all from August through the end of the year. That is, until this year.
The 2018 real estate market is going to go down as the year that the 6-year, extremely hot run in housing came to an end and downshifted considerably. Taking a closer look at the active listing inventory, every single price range has considerably more homes on the market today compared to last year. Overall, there are 2,077 more homes, up an astonishing 40%. Typically, the inventory peaks sometime between July and August. When the kids go back to school, intuitively, everybody knows that the best time of the year to sell is officially in the past. Fewer homes come on the market and many unsuccessful sellers throw in the towel. But, this year, the active inventory has yet to peak; it is still growing. Over the past 30-days, 11% more homes have come on the market compared to last year at this time. As a result, there is a lot more competition in selling a home.
Demand has diminished like it cyclically does during the Autumn Market, but it is dramatically down compared to last year, off a staggering 18%. Demand is down in every price range and there are 419 fewer pending sales. It sits at 1,974 today compared to 2,393 in 2017.
Since the inventory has been uncharacteristically growing while demand has dropped precipitously, the Expected Market Time has ballooned over the past few months. From July to today, it has grown from 80 days to 110 days, its highest level since January 5, 2012. Last year, the Expected Market Time was at 65 days, 41% lower than today, a HOT Seller’s Market. At today’s 110-days, Orange County housing is a Balanced Market, one that does not favor sellers or buyers.
Word from the real estate trenches details many sellers still approaching the market as if it was the month of March, when housing was hot, and sellers were able to achieve immediate, multiple offers. Housing has evolved since then to a market that has not been experienced in years, a slugish market that is only continuing to slow.
The bottom line is that sellers are not only feeling the added competition, they are feeling the lack of demand as well. Fewer showings, long market times, and a lot of waiting characterize the current market. It requires a totally different approach for sellers. Most importantly, carefully pricing is vital in order to find success. Relying on the expert advice of a professional, experienced REALTOR® in pricing is also critical. They can help navigate through the slower market and pull the emotion out of arriving at a home’s Fair Market Valueand provide sound recommendations on properly preparing a home for sale. Homeowners have so much invested in their homes: hard work, sweat, tears, and a ton of memories. Pulling the emotion out of pricing is very difficult for a homeowner, so leaning on the expertise of a pro is strongly recommended.
After arriving at a home’s true Fair Market Value, a seller needs to pack their patience. The Expected Market Time for all homes in Orange County is 110 days, not one week, two weeks, or three week, nearly four months. There have been sellers who have wanted to reduce the asking price each and every week until they found success. That may work in a Hot Seller’s Market, but it is not an advisable strategy in a Balanced Market. Fewer buyers are touring homes, so after carefully pricing a home, sticking to that price for a bit and patiently waiting is a strong approach. If no offers are generated after a while, carefully evaluating all showing feedback and any new comparable and pending sales data will allow a seller to make any necessary adjustments. The overall velocity of the market today is much slower.
For buyers, it is not time to be overconfident. It is NOT a Buyer’s Market; it is a Balanced Market. The good news: buyers do not have to feel rushed. If a home comes on the market that meets all of the desired criteria and is priced right, then jump on it before somebody else does.
Active Inventory: The active inventory still has not peaked for the year.
After looking like the active listing inventory had reached a peak a month ago, it added 91 homes in the past two weeks, up 1%, and now totals 7,292, its highest level since August 2016. Typically, the active listing inventory peaks in July or August, but not in 2018. While the inventory may not be growing at a rapid rate, its typically rapidly falling during this time of the year. This delayed peak is highly unusual and will result in a lot more homes on the market to start 2019 compared to recent years. The active listing inventory drops for the remainder of the year after peaking, but a peak this late in the year will not allow enough time to drop much. Last year at this time, there were 5,215 homes on the market, 2,077 fewer. That means that there are 40% more homes available today. The year over year difference continues to grow each week. The trend of more homes on the market year over year is here to stay.
Demand: Demand dropped 4% in the past two-weeks.
In the past two-weeks, demand, the number of pending sales over the prior month, decreased by 76 pending sales, a 4% drop. Demand now totals 1,974, the lowest demand reading for this time of the year since 2007. The headlines are no longer about not enough homes on the market, they are about not enough pending sales, muted demand. Higher rates and higher values have weakened affordability, impacting demand tremendously. Last year at this time, demand was at 2,393 pending sales, 21% more than today, or 419 additional pending sales. The expected market time, the amount of time it would take for a home that comes onto the market today to be placedinto escrow down the road, increased from 105 to 110 days in the past two-weeks, a Balanced Market (between 90 and 120 days). Last year, the expected market time was at 65 days, substantially different than today.
Luxury End: The luxury inventory increased while demand dropped significantly.
In the past two-weeks, demand for homes above $1.25 million decreased by 21 pending sales, an 8% drop, and now totals 258, its lowest level since the end of January. The luxury home inventory increased by 38 homes and now totals 2,163, a 2% rise and its highest level since the end of July. The overall expected market time for homes priced above $1.25 million increased from 228 to 252 daysover the past two-weeks. Year over year, luxury demand is down by 44 pending sales, or 15%,and the active luxury listing inventory is up by an additional 345 homes, or 19%. The expected market time last year was at 181 days, considerably better than today. For homes priced between $1.25 million and $1.5 million, the expected market time increased from 143 to 152 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 170 to 207 days. For homes priced between $2 million and $4 million, the expected market time decreased from 384 to 368days. For homes priced above $4 million, the expected market time increased from 354 to 463 days. At 463 days, a seller would be looking at placing their home into escrow around the end of January 2020.
Orange County Housing Market Summary:
- The active listing inventory increased by 91 homes in the past two weeks and now totals 7,292. The inventory has still not reached a peak for 2018. Normally it peaks between July and August. Last year, there were 5,215 homes on the market, 2,077 fewer than today.
- So far this year, 14% fewer homes have come on the market below $500,000 compared to last year, andthere have been 26% fewer closed sales. Fewer and fewer homes and condominiums are now pricedbelow $500,000. This price range is slowly vanishing.
- Demand, the number of pending sales over the prior month, decreased in the past two-weeks by 76 pending sales, and now totals 1,974. Demand peaked in mid-May at 2,726 pending sales. Last year, there were 2,393 pending sales, 18% more than today.
- The average list price for all of Orange County remained at $1.5 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 still a very slight Seller’s Market (less than 90 days) with an expected market time of 82 days. This range represents 43% of the active inventory and 58% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 99 days, a Balanced Market (between 90 to 120 days). This range represents 20% of the active inventory and 22% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 124 days, just eclipsing the Buyers Market territory (over 120 days).
- For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 143 to 152 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 170 to 207 days. For luxury homes priced between $2 million and $4 million, the expected market time decreased from 384 to 368 days. For luxury homes priced above $4 million, the expected market time increased from 354 to 463 days.
- The luxury end, all homes above $1.25 million, accounts for 29% of the inventory and only 13% of demand.
- The expected market time for all homes in Orange County increased from 105 to 110 days, a Balanced Market (between 90 to 120 days). It was at 65 days last year.
- Distressed homes, both short sales and foreclosures combined, made up only 1% of all listings and 1.5% of demand. There are only 22 foreclosures and 48 short sales available to purchase today in all of Orange County, 70 total distressed homes on the active market, down by 8 from two-weeks ago. Last year there were 67 total distressed homes on the market, nearly identical to today.
- There were 2,090 closed residential resales in September, 24% fewer than September 2017’s 2,746. September marked a 25% drop over August 2018. The sales to list price ratio was 96.9% for all of Orange County. Foreclosures accounted for just 0.4% of all closed sales, andshort sales accounted for 0.3%. That means that 99.3% of all sales were good ol’ fashioned sellers with equity.