Orange County Housing Report: Starting to Pull Back

 

There is a noticeable shift in housing as buyers are starting to approach the market with caution.

 

The housing market is like a big game of tug-of-war between buyers and sellers. Sellers have been dominating since 2012 with multiple offers and buyers tripping over themselves to be the winning bidder. As a result, prices have escalated and reached record levels. During the Great Recession, buyers dominated and called the shots. Prices dropped dramatically from 2007 through 2011.

 

There is a change in the air, and now buyers are beginning to pull back. In the tug-of-war, sellers are still “winning,” but not if they are overpriced. Sellers are no longer getting away with arbitrarily stretching their asking prices. Buyers are approaching housing a bit differently than they did from 2012 through 2017. They are much more cautious.

 

Why the caution? The biggest culprits are interest rates and values. Values have increased significantly. The median sales price was up nearly 6% from April 2017 to April 2018. Remember, it has been a hot seller’s market dating back to 2012, six solid years of home price appreciation. From 2012 to 2018, the median has risen by an astounding 73%. At the end of May 2017, interest rates were at 3.95%. They are at 4.66% today, an 18% increase in a year. With higher values and higher mortgage rates, buyers still want to buy; but, they are getting to the point that they just do not want to pay much more than the most recent comparable sale.

 

 

For homes priced between $1.25 million and $1.5 million, the expected market time increased from 90 to 95 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 108 to 123 days. For homes priced between $2 million and $4 million, the expected market time decreased from 197 to 189 days. For homes priced above $4 million, the expected market time decreased from 426 to 395 days. At 395 days, a seller would be looking at placing their home into escrow around the start of July 2019.

 

• The active listing inventory increased by 144 homes in the past two weeks, up 3%, and now totals 5,874. Expect the inventory to increase from now through mid-Summer. Last year, there were 5,757 homes on the market, 117 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, decreased in the past two weeks by 61 pending sales, down 2%, and now totals 2,665. It appears that demand peaked two weeks ago. Last year, there were 2,904 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 35% of the active inventory and 54% of demand.
• For homes priced between $750,000 and $1 million, the expected market time is 55 days, a hot seller’s market (fewer than 60 days). This range represents 19% of the active inventory and 23% of demand.
• For homes priced between $1 million to $1.25 million, the expected market time is 92 days, a balanced market (between 90 and 120 days) where it does not favor buyers or sellers.
• For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 90 to 95 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 108 to 123 days. For luxury homes priced between $2 million and $4 million, the expected market time decreased from 197 to 189 days. For luxury homes priced above $4 million, the expected market time decreased from 426 to 395 days.
• On the luxury end, all homes above $1.25 million, account for 36% of the inventory and only 16% of demand.
• The expected market time for all homes in Orange County increased from 63 to 66 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 0.7% of all listings and 1.3% of demand. There are only 22 foreclosures and 22 short sales available to purchase today in all of Orange County, with 44 total distressed homes on the active market, up two in the past two weeks. Last year there were 76 total distressed homes on the market, 73% more than today.
• There were 2,614 closed residential resales in April, down by 2% from April 2017’s 2,677 closed sales. April was nearly identical to March 2018’s closings. The sales-to-list price ratio was 98.7% for all of Orange County. Foreclosures accounted for just 0.5% of all closed sales, and short sales accounted for 0.6%. That means that 98.9% of all sales were good ol’ fashioned sellers with equity.

Have a great week.

 

Sincerely,
Steven Thomas
Quantitative Economics and Decision Sciences