Orange County Housing Report: The Market is Cooling
Market time is growing due to an increasing inventory and a decline in demand as housing transitions to summer.
Expected Market Time
It’s still a seller’s market, but there is a dramatic cooling trend.REALTORS® on the streets of Orange County are describing a housing market that is obviously in transition. Some homes fly off the market in seconds, while others sit with very few showings. Some buyers are starting to take their time as summer distractions set in, yet others are chomping at the bit and are ready to jump at a moment’s notice. What is going on? This is the time of the year where the market seems a bit like Dr. Jekyll and Mr. Hyde.An ominous sign of a market in flux are the growing number of open house directional arrows sprouting up at busy intersections. Typically, more open house signs mean that homes are not flying off the market as quickly as they once did.This is due to a combination of reasons.The number one reason that homes are sitting a bit longer right now (and they will sit even longer as the Summer Market evolves) is that sellers are not getting away with overpricing and stretching the asking price. Demand falls at the end of the Spring Market during the graduation season, and it falls further as all of summer’s distractions set in. With demand falling, buyers start to bump into each other less and their mindset changes as well. They are no longer willing to overpay for their home; instead, they pursue the Fair Market Value for a home.Many ask how the Fair Market Value is determined for a home. Quite simply, it can be determined by carefully analyzing all of the comparable pending and most recent closed sales. Many sellers fall into the trap that their home is better than all the comps, which is why it is important to lien on a professional REALTOR®. As humans, it is very difficult to separate the emotions of a home from the real factors that determine the true value.In the past month, the expected market time has increased from 60 days to 69 days and that trend does not look like it will slow anytime soon. It is a seller’s market, but it is weakening and evolving into a slight seller’s market where appreciation slows. The number of showings drops as does the potential for multiple offers. This is precisely why pricing is so crucial at this stage of the market. Overprice and a seller can sit on the sidelines all summer. And, the Autumn Market is even slower. The expected market time is going to push its way to a “Balanced Market,” one that does not favor a buyer or seller, in August. That occurs when the expected market time is between three and four months. For those buyers holding out for a buyer’s market, it does not look like that is going to occur in 2016. The expected market time needs to push past four months to tilt in the buyer’s favor. That would require an enormous increase in the inventory, which will not occur this year. In the past month, the active listing inventory, “supply,” has risen from 6,267 homes to 6,868, a 10% increase. “Demand,”the number of new pending sales over the prior month, decreased from 3,144 to 2,989 in the past month, a 5% drop.Basic Econ 101 tells us that when supply increases by 10% and demand drops by 5%, the pace at which homes sell cools. As a result, homes are not selling like hot cakes like they were a month ago.
The luxury ranges are slowing right now as well.For homes priced between $1 million to $1.5 million, demand dropped by 10% in the past two weeks and the inventory increased by 5%. As a result, the expected market time grew from 102 days to 119. Many sellers are wondering why they are not getting as many showings right now; it’s because their market is cooling.For homes priced between $1.5 million to $2 million, demand dropped by 6% in two weeks and the inventory increased by 6%. As a result, the expected market time swelled from 137 days to 152 days. For homes priced above $2 million, demand fell by 8% and the inventory increased by 1%, so the expected market time moved from 231 days to 249 days. For proper perspective, 249 days from now is the end of February 2017.
The inventory increased by 4% in the past two weeks.The active inventory increased by 265 homes in the past two weeks and now total 6,868, its highest level since September of last year. The inventory will continue to climb during the Summer Market and will peak in mid-August, much higher than last year’s peak of 7,167. The inventory could stretch all the way to 8,000 homes if the current accelerated trend of new homes hitting the market continues.Last year there were 334 fewer homes on the market, 5% less.
In the past two-weeks dipped below 3,000 for the first time since the start of April.Demand peaked at the beginning of May and has dropped by 6% since. In the past two weeks, demand, the number of new pending sales over the prior month, decreased by 33 homes and now totals 2,989, dropping to below the 3,000 pending sale mark for the first time since the beginning of April. The last time demand dropped during this time of the year was in 2011.This is a trend that has lasted a month now and is part of the reason the market has been rapidly shifting away from a deep seller’s market.Last year at this time demand was at 3,094 pending sales, 105 more than today
Orange County Housing Market Summary
The active inventory added an additional 265 homes in the past two weeks and now totals 6,868 homes, a level not seen since September of last year. There are 334 more homes compared to last year at this time.There are 12% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 16% as well. Due to increasing values, this range is slowly disappearing.Demand, the number of pending sales over the prior month, decreased from 3,022 to 2,989 in the past two weeks, a 1% drop. Demand was at 3,094 last year, 4% more than today. The average pending price is $801,837.The average list price for all of Orange County is $1.5 million.For homes priced below $750,000, the market is HOT with an expected market time of just 45 days. This range represents 44% of the active inventory and 67% of demand.For homes priced between $750,000 and $1 million, the expected market time is 74 days, a slight seller’s market.This range represents 18% of the active inventory and 17% of demand.For luxury homes priced between $1 million to $2 million, the expected market time is at 128 days. For luxury homes priced above $2 million, the expected market time increased from 231 days to 249 days. The luxury end, all homes above $1 million, accounts for 38% of the inventory and only 17% of demand.The expected market time for all homes in OC increased from 66 to 69 days in the past couple of weeks, a seller’s market that continues to cool at a very rapid pace compared to recent years.Distressed homes, both short sales and foreclosures combined, make up only 2% of all listings and 3.1% of demand.There are 57 foreclosures and 81 short sales available to purchase today, that’s 138 total distressed homes on the active market, a drop of 10 in the past two-weeks.There were 3,025 closed sales in May, a 9% increase over March and 3% more than last year’s 2,930 closings. The sales to list price ratio was 98.3%. Foreclosures accounted for 1% of all closed sales and short sales accounted for 2%. That means that 97% of all sales were equity sellers.Have a great week.Sincerely,Steven Thomas Quantitative Economics and Decision Sciences Copyright 2016 – Steven Thomas, www.ReportsOnHousing.com – All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.
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