Orange County Housing Report:
The housing market just dramatically improved as the
inventory plunged and demand increased.
Sudden Improvement: The Expected Market Time just dropped by 8%.
Was it the nanny? How about the next-door neighbor? The uncle or family friend? Classic “whodunit” movies are intentionally designed to keep the audience on the edge of their seats attempting to figure out the identity of which character is behind the mystery. The writers keep you guessing as you anxiously shovel handfuls of movie popcorn and wash it down with a Classic Coke. Finally, the plot twist is revealed. You may be surprised because you missed all the signs.
In the same way, housing has been slowly evolving, flashing signs of change regardless of all the chatter that housing is about to collapse. The twist? In the past two weeks, the market improved significantly, and the Expected Market Time dropped to levels not seen since April, the height of the Spring Market.
This did not come out of left field. 2019 has been characterized by the gradual evolution away from the housing slowdown at the end of 2018 back to a much stronger Southern California housing market. Everyone stopped talking about the lack of homes on the market as demand came to a crawl. It’s basic supply and demand. When the supply of homes increases and demand falls, housing tilts towards the buyer’s favor. That is precisely what occurred from November 2018 through January of this year. When the supply of homes consistently drops as demand remains reliably strong, housing tilts in the seller’s direction. That is storyline since July.
Fueled by a return to historically low mortgage rates, demand has not budged much since peaking back in April. From July to today, it has only dropped by 9%, an uncharacteristically small decline given the shift from the Summer to Autumn Market. Last year, it dropped by 22%. The active listing inventory plunged from 7,601 homes at the end of July to 5,921 today, shedding 1,680 homes or 22%. Last year in increased by 7%. As a result, the Expected Market Time (the time from the initial FOR SALE sign to opening escrow) dropped by 14% since July of this year, the largest since 2012.
The plot thickened in the past two-weeks. The active listing inventory shed 491 homes, its largest drop of the year, and dipped below 6,000 homes for the first time since January. At the same time, demand (last 30-days of pending sales) increased by 24 pending sales, up 1%. With stronger demand and a lot less supply, the Expected Market Time dropped
from 85 to 78 days, an 8% drop. That is the largest drop for this time of year since 2012. At 78 days, it is a slight Seller’s Market (between 60 to 90 days). As the market dips closer to a hot Seller’s Market (below 60-days), homes appreciate slightly, and sellers get to call more of the shots.
In the real estate trenches, buyers are noticing that there are not a lot of choices. In fact, their options are diminishing with the drop in inventory. Exasperated sellers with slow market times and way too many competing FOR SALE signs at the beginning of the year slowly evolved to frustrated buyers bumping into each other as very few homes entered the fray. From 2012 through the first half of 2018, everybody was acutely aware that there were not enough homes on the market. There was a severe supply problem. With mortgage rates climbing all the way up to 5% last November, the market shifted to a demand problem. Payments rapidly drifted skyward and many buyers moved to the sidelines as affordability took a plunge.
Yet, starting in December 2018, mortgage rates drifted downward and crossed below 4% and into the 3’s in June of this year. They have remained in the 3’s ever since. This level has improved affordability tremendously. Even with the unfounded and misguided negative talk about a potential housing bubble or crash, the market has continued to improve, paving the way to solid demand and a rapidly dropping inventory. Once again, there is a supply problem. Everyone will catch on soon as the media reports on the lack of homes for sale through the end of the year and well into 2020.
MAY I HAVE YOUR ATTENTION PLEASE: the housing market is undoubtedly improving.
What a twist!
Active Inventory: The current active inventory dropped by 8% in the past two-weeks, its largest drop of the year.
In the past two-weeks, the active listing inventory shed 491 homes, down 8%, and now totals 5,921, dropping below the 6,000-home threshold for the first time since January. It was the largest drop of the year by a landslide. Typically, during the Autumn and Holiday Markets the inventory continuously drops, but this plunge was extraordinary. With the inventory rapidly falling, the start to 2020 is going to be significantly less than the start to 2019, paving the way for the supply problem that has plagued housing ever since 2012.
Last year at this time, there were 7,231homes on the market, 1,310 more than today, or a 22% difference. The inventory is MUCH different than last year when it continued to rise through Thanksgiving.
Demand: In the past two-weeks, demand increased by 1%.
Demand, the number of new pending sales over the prior month, increased by 24 pending sales in the past two-weeks, a 1% rise, and now sits at 2,275. This occasionally occurs in the month of October, forecasting a solid December closing month. Even though summer is behind us, December is an okay time for families to make a move as it is in-between semesters, the halfway point of the school year. Moving families and changing schools is not as disruptive during the holidays.
Last year, there were 418 fewer pending sales than today, 18% less.
In the past two-weeks the Expected Market Time dropped from 85 days to 78, a slight Seller’s Market (60 to 90 days), where home values are only appreciating slightly, and sellers get to call more of the shots during the negotiating process. 78 days is the second best level of the year behind mid-April, during the Spring Market. Last year, the Expected Market Time was at 117 days and climbing, much slower than today.
Luxury End: The luxury market improved in the past two-weeks.
In the past two-weeks, demand for homes above $1.25 million increased by 18 pending sales, a 6% drop, and now totals 307. The luxury home inventory decreased by 128 homes and now totals 2,090, down 6%. With increasing demand and a dropping luxury inventory, the overall Expected Market Time for homes priced above $1.25 million decreased from 230 days to 204 over the past two-weeks, a considerable improvement in just two-weeks.
Year over year, luxury demand is up by 47 pending sales, or 18%, and the active luxury listing inventory is down by 57 homes, or 3%. The Expected Market Time last year was at 248 days, much slower than today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time decreased from 118 to 93 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 200 to 159 days. For homes priced between $2 million and $4 million, the Expected Market Time increased from 316 to 317 days. For homes priced above $4 million, the Expected Market Time increased from 619 to 825 days. At 825 days, a seller would be looking at placing their home into escrow around February 2022.
Orange County Housing Market Summary:
· The active listing inventory decreased by 491 homes in the past two-weeks, down 8%, and now totals 5,921, its lowest level since January and the largest drop of the year. Last year, there were 7,231 homes on the market, 1,310 more than today.
· Demand, the number of pending sales over the prior month, increased by 24 pending sales in the past two-weeks, up 1%, and now totals 2,275. Last year, there were 1,857 pending sales, 18% fewer than today.
· The Expected Market Time for all of Orange County dropped from 85 days to 78, a slight Seller’s Market (between 60 to 90 days). It was at 117 days last year and climbing, a much slower market.
· For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 53 days. This range represents 38% of the active inventory and 56% of demand.
· For homes priced between $750,000 and $1 million, the expected market time is 60 days, also a hot Seller’s Market. This range represents 18% of the active inventory and 24% of demand.
· For homes priced between $1 million to $1.25 million, the expected market time is 100 days, a Balanced Market.
· For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 118 to 93 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 200 to 159 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time increased from 316 to 317 days. For luxury homes priced above $4 million, the Expected Market Time increased from 619 to 825 days.
· The luxury end, all homes above $1.25 million, accounts for 35% of the inventory and only 12% of demand.
· Distressed homes, both short sales and foreclosures combined, made up only 0.9% of all listings and 1.1% of demand. There are only 24 foreclosures and 30 short sales available to purchase today in all of Orange County, 54 total distressed homes on the active market, down one in the past two-weeks. Last year there were 66 total distressed homes on the market, slightly more than today.
There were 2,564 closed residential resales in September, 22% more than September 2018’s 2,090 closed sales. September marked a 10% drop compared to August 2019. The sales to list price ratio was 97.2% for all of Orange County. Foreclosures accounted for just 0.2% of all closed sales, and short sales accounted for 0.3%. That means that 99.5% of all sales were good ol’ fashioned sellers with equity.
Copyright 2019 - Steven Thomas, Reports On Housing - All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.
If you are interested in receiving the full report fortnightly please reach out to us.
If you are interested in a FREE and CONFIDENTIAL home valuation please reach out to us
Jon Ettelson & Monica Laws servicing South Orange County Coastal, Laguna Niguel, Laguna Beach, Dana Point, San Clemente, San Juan Capistrano, Newport, Newport Coast, Corona Del Mar, Balboa Island, Balboa Peninsula.