Orange County Housing Report September 19th, 2018
Sellers are learning a lesson about patience: just because your pole is in the water,
does not mean you will immediately reel in a fish.
A Much Slower Market: With an Expected Market Time of 98 days for all of Orange County, sellers really need to pack their patience.
Sitting on the edge of a lake fishing, time stops. Sometimes the fishing is great and the bucket is filled with fish. There are days when after fishing for hours, only one is reeled onto the dock. But, there are days, after trying every kind of bait, fishing produces absolutely nothing. A big part of fishing is all about using the bait that is working and being extremely patient.
Today’s sellers remind me of a kid that goes fishing for the very first time. After five minutes with their pole in the water, they inquire, “How long before I catch a fish?” They quickly realize that fishing is not instantaneous and that it requires quite a bit of time and persistence. Current sellers have heard about how great the fishing had been and how the housing market was generating instantaneous, multiple offers. For years, up until May of this year, sellers had been selling their homes at or near their list prices, and sometimes fetched even more. Yet, the housing market has evolved. The hot Seller’s Market is in the past and is not coming back anytime soon.
In looking at the Expected Market Time, the amount of time it would take to place a home on the market today and open up escrow down the road, it has grown from a low of 51 days at the end of February, to 98 days today. Anything above 90 days is a Balanced Market, one that does not favor sellers or buyers. Basically, the Expected Market Time is the current velocity of the housing market. The overall speed of housing has slowed considerably over time. It is a function of supply and demand. The market slows when supply increases. It also slows when demand decreases. When supply increases and demand drops at the same time, the market rapidly slows; and, that is precisely what occurred from May through today. The supply has climbed from 5,730 homes in May to 7,070 today, a 23% increase and its highest level since August 2016. In the meantime, demand dropped from 2,726 pending sales to 2,162, a 21% drop and its lowest level for this time of the year since 2007.
Sellers need to recalibrate their expectations. First, the best “bait” that is working today is price. Pricing at or extremely close to a home’s Fair Market Value is critical. Next, sellers must pack their patience. Often, sellers are required to keep their poles in the water and wait for the right buyer to come along. The market, for the most part, is not delivering instant success regardless of how well a home is priced. Another issue is that many sellers are still stretching their asking prices, either wishing they could achieve more than the most recent comparable sale, or they are leaving a little room for negotiations. Both strategies result in not accomplishing the goal in selling. As a result, price reductions are rampant. 44% of the entire active listing inventory has reduced their asking price at least once.
A stiff warning to buyers: it is still not a buyer’s market, so paying at or very close to a home’s Fair Market Value is vital in securing a home. Buyers who are busy writing offers below recent comparable sales are wasting everybody’s time, including their own. The market is balanced. Yes, there are a few more choices, but there is not a glut of inventory. A surplus of inventory is needed to push the market in the buyer’s favor. Today’s market is not even close to generating a surplus of homes. In fact, the inventory has not even reached the long-term average of 8,000 homes and is about to peak for the year. Sellers are not desperate and are not going to cave to a buyer looking for a deal.
The bottom line, the market has shifted. Sellers need to adjust their expectations and buyers should not get ahead of themselves.
Active Inventory: The active inventory grew by 1% in the past two weeks.
The active listing inventory continued its climb in the past two weeks, adding 69 homes, or 1%, and now totals 7,070, the highest level since August 2016. The 1% increase is the smallest increase this year, indicating that the inventory is reaching a peak for 2018. Housing is now transitioning into the Autumn Market with fewer homes entering the fray and many sellers throwing in the towel and pulling their homes off the market after not finding success in both the spring and summer.
Last year at this time, there were 5,639 homes on the market, 1,431 fewer. That means that there are 25% 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 by an astonishing 8% in the past couple of weeks.
In the past two-weeks, demand, the number of pending sales over the prior 30-days, decreased by 188 pending sale, 8%, its largest drop of the year. Demand now totals 2,162, the lowest demand reading for this time of the year since 2007. The supply problem that everybody had talked about has evolved into a demand problem with very low readings starting in May of this year. With higher mortgage rates and property values, buyers are not as motivated to purchase as they have been.
Last year at this time, demand was at 2,624 pending sales, 21% more than today, or 462 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 placed into escrow down the road, increased from 89 to 98 days in the past two weeks, its highest level for this time of the year since 2011 and is a Balanced Market (between 90 and 120 days). Last year, the expected market time was at 64 days, considerably hotter than today.
Luxury End: Luxury demand dropped significantly over the past two weeks.
In the past two weeks, demand for homes above $1.25 million decreased by 26 pending sales, down 8%, and now totals 319. It has dropped 27% since reaching a height for 2018 in mid-May. The luxury home inventory increased by 11 homes and now totals 2,144. The overall expected market time for homes priced above $1.25 million increased from 185 to 202 days over the past two weeks.
Year over year, luxury demand is down by 39 pending sales or 11%, and the active luxury listing inventory is up by an additional 165 homes or 8%. The expected market time last year was at 166 days, much better than today. For homes priced between $1.25 million and $1.5 million, the expected market time increased from 110 to 124 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 135 to 174 days. For homes priced between $2 million and $4 million, the expected market time decreased from 274 to 257 days. For homes priced above $4 million, the expected market time decreased from 470 to 449 days. At 449 days, a seller would be looking at placing their home into escrow around December 2019.
Orange County Housing Market Summary:
- The active listing inventory increased by 69 homes in the past two weeks, up 1%, and now totals 7,070. Expect the inventory to peak right around now, the start of the Autumn Market. Last year, there were 5,639 homes on the market, 1,431 fewer than today.
- So far this year, 16% fewer homes have come on the market below $500,000 compared to last year, and there have been 25% fewer closed sales. 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, decreased in the past two-weeks by 188 pending sales, 8%, its largest drop of the year, and now totals 2,162. Demand peaked in mid-May at 2,726 pending sales. Last year, there were 2,624 pending sales, 21% more than today.
- The average list price for all of Orange County dropped to $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 slight Seller’s Market (less than 90 days) with an expected market time of 72 days. This range represents 41% of the active inventory and 56% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 90 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 113 days, a Balanced Market.
- For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 110 to 124 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 135 to 174 days. For luxury homes priced between $2 million and $4 million, the expected market time decreased from 274 to 257 days. For luxury homes priced above $4 million, the expected market time decreased from 470 to 449 days.
- The luxury end, all homes above $1.25 million, accounts for 31% of the inventory and only 14% of demand.
- The expected market time for all homes in Orange County increased from 89 to 98 days, a Balanced Market (between 90 to 120 days).
- Distressed homes, both short sales, and foreclosures combined, made up only 0.8% of all listings and 1.4% of demand. There are only 22 foreclosures and 34 short sales available to purchase today in all of Orange County, 56 total distressed homes on the active market, down by two from two-weeks ago. Last year there were 87 total distressed homes on the market, 55% more than today.
- There were 2,784 closed residential resales in August, 11% fewer than August 2017’s 3,116. August marked a 1% increase over July 2018. The sales to list price ratio was 97.8% for all of Orange County. Foreclosures accounted for just 0.4% of all closed sales, and short sales accounted for 0.6%. That means that 99% of all sales were good ol’ fashioned sellers with equity.