Orange County Housing Report: A Holiday Lull

lindseym December 4, 2017

December 3, 2017

The Holiday Market is in full swing, bringing a lot less inventory and the lowest level of new deals for the year.

The Holiday Slowdown: Year in and year out December is notoriously the slowest month of the year in terms of demand and new sellers placing their homes on the market.

In a blink, the housing market transitioned from the Autumn Market to the Holiday/Winter Market. As everybody carved the turkey and filled their bellies with a smorgasbord of food, we ushered in a dramatic shift in housing. This is the time of the year when housing takes a back seat to all of the distractions of the holidays.

Christmas lights now trim neighborhood rooflines. The local mall parking lots are filled to capacity. The US postal service now delivers twice a day. Amazon boxes are dropped off at nearly every door. From holiday parties to gift lists for loved ones, it is a busy time of year as we exchange presents and get ready to usher in 2018. Yet, it is the slowest month of the year for housing.

The active inventory dropped by 8%, 391 homes, in just the past two weeks, the largest drop of the year. From Thanksgiving to New Year’s Day, the average drop since 2013 has been 23%, 1,373 homes. Why does the active inventory drop so dramatically in December? Homeowners instinctively avoid placing their homes on the market this month. Most homeowners want to cash in on “the best time of the year” to sell a home, the Spring Market. As a result, they wait to sell their home. They are only partially right. The Spring Market is the most active time of the year where demand (new pending transactions) reaches a peak for the year, but there is also a surge in new FOR SALE signs, competition. In reality, housing is still hot today for all homes priced below $1 million.

Not only are there fewer homeowners entering the fray in December, many sellers who have been unsuccessful in 2017 opt to throw in the towel and pull their homes off the market. These two combined forces result in an enormous drop in the active inventory.

Similarly, demand, the number of pending sales over the prior month, also drops dramatically in December. It dropped by 10%, 232 pending sales, in the past couple of weeks, the largest drop off the year as well. Since 2013, the average drop from Thanksgiving to New Year’s Day has been 34%. There are two forces contributing to this massive drop in December demand. First, there are simply not enough homes on the market and there are fewer and fewer choices every day. Second, many buyers are ready for a holiday break. They are a bit worn out from the scorching hot real estate market and the constant search for their piece of the American Dream. They step aside and enjoy the season.

Active Inventory: The active inventory dropped by 8% over the past couple of weeks.

The active listing inventory shed 391 homes in the past two weeks and now sits at 4,323, the largest drop of the year. Since peaking in mid-July, the inventory has plunged by 1,660 homes, a tremendous 28% drop. The Holiday Market is officially here. Expect the inventory to continue to descend dramatically for the remainder of the year. As a result, the New Year will start with fewer than 4,000 homes, the second lowest inventory behind 2013.

Demand:  Demand decreased by 10% in the past couple of weeks.

Yes, the Holiday Market has arrived. In the past two weeks, demand, the number of new escrows over the prior month, decreased by 232 pending sales, or 10%, and now totals 2,082. Like the active inventory, demand just experienced its biggest drop of the year. The decline will continue through the end of the month. By the start of 2018, demand will be at its lowest point in a year.

Luxury End:  Luxury demand plunged in the last couple of weeks.

In the past two weeks, demand for homes above $1.25 million decreased from 299 to 236 pending sales, down 21%. The beginning of the Holiday Market walloped luxury demand. The luxury home inventory decreased from 1,672 homes to 1,585, a 5% drop in the past two-weeks. Expect both the inventory and demand to continue to drop through the end of the year. The expected market time for all homes priced above $1.25 million increased from 168 days to 201.

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