January 14, 2018
After starting the year with nearly nothing on the market, the activeinventory is on the rise.
Not 2013: The active listing inventory increased by 9% since New Year’s Day.
The housing market has been on a tear for six years now and is showing no signs of letting up. Two long-term trends emerged during the run that are also showing no signs of diminishing anytime soon: unrelenting, hot demand and a chronic lack of homes on the market.
Demand has been juiced by historically low interest rates for the entire six-year run. In spite of experts and prognosticators forecasting a rise in the long-term rate for years now, mortgage rates have remained steady, never exceeding 4.5% (reached in September 2013). In fact, today’s rates are still bouncing around 4% and are not expected to rise much in 2018. These persistent, historically low rates dramatically improve home affordability, and, ultimately, prop up demand.
The chronic lack of homeowners placing FOR SALE signs in their front yards has been the Achilles heel to this housing run. Years of juiced demand and a low supply of homes on the market has resulted in rapid appreciation, fewer total yearly home sales, and frustrated buyers, especially entry level, first-time buyers. Multiple offers and sales prices at or above their list prices is the norm for homes priced below $1 million (81% of all closed sales in 2017). It has been a deep seller’s market for years now with nothing indicating a change on the horizon. Buyers will have to continue to navigate the harsh reality of plenty of competition with very few choices.
Fewer choices is exactly how 2018 started. On New Year’s Day, the active listing inventory was at 3,397 homes, the second lowest start in the past 13 years. Only 2013 was lower, with 3,161 homes on the market. With such an anemic inventory, the biggest worry to start the year was that 2018 would shape up to be just like 2013. In 2013, the inventory did not increase much at all for the first three months and the market heavily favored sellers (typically, the inventory rises from January through mid-August). The expected market time dropped to 33 days for all of Orange County by March 2013. Sellers were able to stretch their asking prices quite a bit over the most recent sale and they often got their price. It felt impossible for buyers to secure a home, especially if they had a small down payment. They just would not be able to compete. The 2013 housing market proved to be extremely challenging.
Yet, 2018 is shaping up to be completely different than 2013. Since starting the year at 3,397 homes, the active inventory has increased by 9%, adding an additional 310 homes, and now totals 3,707. The expected market time is currently at 77 days, quite a bit slower than the 45 day expected market time at the beginning of 2013. It is not as deep of a seller’s market; so, homes will not appreciate as fast as they did in 2013. Remember, home prices are a lot higher today compared to 5 years ago. Buyers are not willing to dramatically overpay for a home compared to the most recent closed sale. If a home is placed on the market and is not priced according to its Fair Market Value, opting to significantly pad the price and take a stab at getting more, it will sit on the market and will not sell.
Carefully pricing is a fundamental ingredient in achieving the objective in selling a home. In December, 59% of all closed sales had to reduce the asking price at least once. It was not the time of the year; it was the inability for many sellers to price their homes accurately right out of the gate.
From here, we can expect the inventory to continuously rise from now through mid-Summer. It will fall short of the long-term average of 8,000 homes, which is where the inventory needs to be for an extended period of time for the market to transition into a balanced market, one that does not favor a buyer or seller.
Demand: Demand decreased by 10% in the past couple of weeks.
In the past two weeks, demand, the number of new escrows over the prior month, decreased by 158 pending sales, or 10%, and now totals 1,447. This is a true reflection of cyclically the slowest time of the year, the last 30-days. This period encompasses all of the holidays and all of its distractions. Also, with so few homes coming on the market, coupled with very limited choices of active listings, it’s no wonder demand has dropped to such a low level. As more homes enter the fray, expect demand to start to rocket upward by the end of this month.
Luxury End: Luxury demand continued its holiday/winter plunge.
In the past two weeks, demand for homes above $1.25 million decreased from 187 to 170 pending sales, down 9%. The luxury home inventory decreased from 1,391 homes to 1,376, a 1% drop in the past two-weeks. Since the start of November 2017, luxury demand dropped by 52%, while the luxury inventory dropped by only 20%. Expect both demand and the inventory to rise from now through the Spring Market. The current expected market time for all homes priced above $1.25 million increased from 223 days to 243.