Orange County Housing Report: Starting to Pull Back

June 3, 2018

Tug-of-War: 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 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 different 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.

The numbers illustrate how buyers are pulling back by simply comparing the current market to last year. They are tugging the rope harder in every single price range except for homes priced between $1.5 million to $2 million.  There may be 43 fewer homes priced below $500,000, but there are also 174 fewer pending sales. There are 103 fewer homes on the market between $500,000 and $750,000, but there are 132 fewer pending sales. It means less competition. Yet, when demand is down significantly, that is not good for sellers. It means fewer successful sellers.

Between $750,000 and $1 million, there are 25 more homes on the market and only 2 additional pending sales. That means there is more competition in selling a home and just about the same number of successful sellers. Like the lower ranges, it is a bit harder to sell.

The biggest year over year change is occurring in the $1 million to $1.25 million price range. There are 104 more sellers to compete against AND demand is down by 16 pending sales. This price point is a lot harder to sell compared to last year.

The word from the real estate trenches is clear: buyers are approaching housing very carefully and sellers are wondering what happened to the HOT SELLER’s market that everybody has been talking about for years. Sellers who are not priced extremely close to their Fair Market Values are not finding success.

The bottom line is clear: it may still be a seller’s market, but sellers must carefully price their homes in order to be successful in this evolving market. In the tug-of-war between buyers and sellers, buyers are starting to pull back.

Active Inventory: The active inventory grew by 3% in the past two weeks.

Demand:  It appears that demand has peaked for 2018, falling by 2% in the past couple of weeks.

Luxury End:  Demand for luxury homes dropped by 3% in the past couple of weeks.