Orange County Housing Report: The Lower End is Shrinking

Low inventory has plagued the Orange County housing market

since 2012, and it’s getting worse in the lower ranges.

A Shrinking Lower Range: There are fewer and fewer lower priced homes on the market in Orange County.

The Great Recession paved the way for affordable housing in Orange County. There were plenty of homes available in the Low Range (homes priced below $500,000) and demand, the number of new pending sales over the prior month, for these homes was through the roof. Back in March of 2011, over half of all homes on the market could be found in the Low Range and it accounted for two-thirds of demand as well. Today, it represents 22% of the active inventory and 33% of demand. Its numbers have dropped by half.

In 2011, the Low Range and the Mid-Range (homes priced between $500,000 to $750,000) made up 75% of the active inventory and 87% of demand. Today, these two ranges represent 45% of the active inventory and 69% of demand. It is safe to say that the bulk of the Orange County housing market takes place below $750,000, but its stronghold is fading.

What’s the culprit? What happened to affordable, entry level housing? The simple answer is appreciation. Homes have been appreciating non-stop since 2012, when the market initially caught fire. As the housing stock appreciated, fewer and fewer homes were available in the Low Range. As a matter of fact, it used to be worth tracking homes and condominiums priced below $250,000. Back in 2011 there were 1,857 active listings below $250,000 and demand was at 695. Today, there are only 225 on the market and demand is at 140. Nearly all of them are attached condominiums.

Year over year, the Low Range has dropped in terms of inventory and demand. Even though the overall active inventory and demand are nearly the same as one year ago, the number of homes on the market in the Low Range is off by 16% and demand is off by 14%. The inventory may be off by 6% in the Mid-Range, but demand is UP by 6%. The Low Range is taking a hit because fewer and fewer homes are coming on the market below $500,000. It is increasingly more difficult to find a detached home priced in the Low Range. Today, there are only 184. Last year, there were 277. Back in 2011, there were 2,176.

There are fewer homes on the market today in the Low Range compared to the Mid-Range, 1% fewer, and there is 8% less demand. Just one year ago, there was 10% more homes in the Low Range and demand was 14% stronger. In winding the clock back further and further, the scales used to tip heavily in favor of the lower end of the market. Prior to all of the massive appreciation, there was plenty of affordable housing. Back in 2011, there were more than double the number of homes in the Low Range compared to the Mid-Range and demand was more than triple.

The bottom line is simple: the Low Range is slowly shrinking as homes continue to appreciate. As a result, the number of homes and condominiums worth at least $500,000 continues to grow. For buyers looking to purchase in the Low Range, the trend is not favorable. In time, the number of opportunities will fade and competition will increase, making it even more challenging to purchase than it already is today. Buyers should not wait for a wave of fresh inventory to hit the market. That is simply not going to happen. The Low Range is extremely competitive and has been a rock solid seller’s market with an expected market time less than 60 days since January of last year. Today, the expected market time is only 39 days. When the expected market time drops to these low levels, homes that are priced close to their Fair Market Value generate multiple offers and sell for more than the most recent comparable or pending sale.

Active Inventory: The inventory increased by only 21 homes in the past two weeks.

The active inventory increased by 21 homes in the past two weeks and now sits at 5,465. More homes are coming on the market, they are just not staying on the market, especially in the lower ranges. The inventory of homes priced below $750,000 actually dropped by 102 homes. There are 73 more homes between $1 million and $1.5 million, a 10% increase.

Up to this point, the active inventory was methodically growing and looked as if it was going to increase along the same path as 2014 when the inventory eclipsed more than 8,000 homes by August. The latest pause is due to a rapid increase in demand and it looks as if the inventory will now follow a similar path to last year when it climbed just shy 7,200 homes by August.

Demand: In the past two-weeks demand increased by 8%.

Demand, the number of new pending sales over the prior month, increased by 225 homes in the past two-weeks, and now totals 2,896 the highest level since July of last year. Similar to the active listing inventory, demand looked like it was going to follow the path of 2014. After an initial slow start to demand, it has recovered nicely and is beginning to follow closer to last year’s path.

Last year at this time demand was at 2,975, 79 additional pending sales, with an expected market time of 55 days.

The expected market time dropped from 61 days to 57 days in the past couple of weeks, its lowest level since May of last year and a seller’s market. Typically, when the market drops below 60 days, prices start to appreciate slightly.