Luxury Market Exposed: There simply are not enough buyers compared to the number of sellers in the higher end.
Bloomberg exclaims how homebuyers face bidding wars on “scarcer-than-ever” U.S. listings. CNBC describes spring housing as the “strongest seller’s market ever.” The Wall Street Journal reports that U.S. home resales spiked to hit a 10-year high. It’s no wonder that luxury homeowners list their homes with high expectation. The issue is that none of these headlines applies to luxury real estate.
Bloomberg, CNBC, and The Wall Street Journal are all reporting on the national market. They are illustrating how there is no inventory, that homes are generating multiple offers, that homes prices are rising through the roof. They are NOT reporting on the luxury market; instead, they are reporting the overall market. The national median sales price for a home was $273,000 in March. In Orange County, it was $665,000. These medians don’t even come close to local luxury.
A seller’s market occurs when the expected market time is below 90 days. A sizzling hot seller’s market is when the expected market time falls below 60 days. The overall market in Orange County is currently at 54 days, red-hot.
In Orange County, luxury housing (defined as the top 10% of recent closed sales) starts at $1.25 million. With the exception of homes priced between $1.25 million and $1.5 million, the upper ranges are actually within “Buyer’s Market” territory. When the expected market time, the amount of time it would take to place a home into escrow if it were listed FOR SALE today, exceeds 120 days, it is considered a buyer’s market.
Homes that are more expensive take a lot longer to sell. This is simply because there are fewer and fewer potential buyers that can afford a home as prices rise. Homes in the upper ranges sit and often do not find success. Many luxury homes remain on the market for months, and, in some cases, years.
It all boils down to supply and demand. The lower ranges do not have enough supply, and demand is through the roof. Buyers need to sharpen their pencils and write strong offers to purchase. Buyers have to fight in order to win. They fight by offering the best price and terms.
The opposite is true for the luxury market. There are not enough buyers coupled with plenty of seller competition. Sellers have to fight for the limited number of buyers in the marketplace. They fight by offering the best price and terms. They may need to work with potential buyers who need to sell their home first as a contingency of buying a luxury home. For luxury sellers, if the price of a home is not compelling they will not find success. When a home is priced well, it attracts attention.
In most cases, success is determined by motivation. Many luxury sellers claim that they “don’t have to sell” to help rationalize their price. They stretch their asking price and sit on the market, generating little activity and no offers. Yet, sellers who sharpen their pencil when it comes to price are much more likely to achieve their objective in selling.
Luxury sellers should ignore real estate headlines; instead, they should focus on the data and statistics that are specific to the upper end and rely on the expertise of a professional REALTOR® to help them navigate the challenging luxury home market.
Active Inventory: The active inventory increased by 2% in the past couple of weeks.
The active inventory has not been growing as fast as it had a month ago, but it is still on the rise. The inventory added an additional 124 homes in the past two-weeks, a 2% increase, and now sits at 5,387, levels not reached since last November. For this time of year, the inventory is at its lowest level since 2013. From here, we can expect the active inventory to continue to increase through mid-August where it will peak.
Demand: Demand is still off by 6% compared to last year at this time.
Demand, the number of homes placed into escrow within the prior month, only grew by 55 pending sales in the past month, or 2%, and now totals 3,012. Demand is above the 3,000 mark for the first time since June of last year. This should have occurred a month ago, but there simply have not been enough homes coming on the market below $500,000. Currently, there are 37% fewer homes on the market below $500,000 compared to last year.
Last year at this time, there were 184 more pending sales totaling 3,196. Current demand is off by 6% compared to last year. The expected market time increased from 53 to 54 days in the past couple of weeks. Last year it was at 56 days, very similar to today.
Luxury End: Luxury demand dropped by 4% in the past couple of weeks while the inventory grew by 2%.
In the past two weeks, demand for homes above $1.25 million decreased from 413 to 398 pending sales, a 4% drop. The luxury home inventory increased from 1,846 homes to 1,887, up 2%.