Orange County Housing Report: Cracks Appearing

May 6, 2018

Even though the housing market is hot, trends have emerged that confirm that it is starting to cool.

Cracks Appearing: Trends are developing which demonstrate that the six-year housing run is beginning to cool.

Headlines are the same across the country: there are not enough homes on the market and buyers are having an extremely difficult time finding a home It has been a supply and demand issue for more than six years now, dating back to 2012. The story has not changed much for quite some time; that is, until now.

Now that a third of the year is in the rearview mirror, noticeable cracks have appeared that illustrate a cooling market. It is not as if housing has suddenly tilted in favor of buyers. No, there are still multiple offers and plenty of homes flying off the market and into escrow just moments after the FOR SALE sign is pounded into the front yard. Buyers are still frustrated by the lack of available homes on the market below $1 million. Sellers are still in the driver’s seat. Nonetheless, trends have surfaced that highlight a cooling marketplace.

CRACK – The current active inventory has increased by 15% in the past month. After a rather dismal, anemic start to the year, the active inventory in Orange County has been surging, adding 726 homes in just four weeks. That is the largest one-month gain since July 2013. There are currently 5,434 homes on the market, well below the 8,000 home long-term average; yet, the current trend is for a rapidly increasing active inventory.

CRACK – This is the first time there are more homes on the market compared to the prior year since August 2016.  For 20 consecutive months, the year over year active inventory comparison had been less. That just changed. There are 47 more homes today compared to one year ago.

CRACK – Demand is at its lowest level for this time of the year since 2008.  Demand, the number of pending sales over the prior 30-days, has been muted since the start of the year. There are simply far fewer pending sales compared to the past several years. The difference has been substantial over the past six weeks. Year over year, demand is down 11%, that is 2,675 pending sales compared to 3,012.

CRACK – A staggering 11% of all active listings reduced their asking price within the last week. The Multiple Listing Service (MLS) has a helpful red arrow pointing downward adjacent to the asking price if the asking price was reduced. In bringing up a list of homes across Orange County, there are a lot more red arrows pointing down compared to the past several years. This phenomenon is indicative of a market inundated by overpricing. Many sellers are arbitrarily pricing and not relying on the expertise of real estate professionals, so, to be successful, they have to reduce the asking price, and often more than once.

CRACK – Like Orange County, all of Southern California, as a whole, is experiencing more homes on the market compared to last year, and a lot less demand. The active inventory is up for all of Southern California for the first time since May 2015. The bottom line: the trend of a cooler market is not just isolated to Orange County. It is affecting all of Southern California.

The housing market will not change overnight. This year still promises to be a very good year for sellers, only a bit more challenging, which necessitates a more cautious, deliberate strategy and approach to the housing market.

Active Inventory: The active inventory added 6% more homes in the past two weeks.  The active listing inventory continued its swift climb in the past two weeks, adding 290 homes, up 6%, and now totals 5,434, its highest level since September 2017.

Demand:  Demand increased by only 1% in the past two weeks.  In the past two weeks, demand, the number of pending sales over the prior 30 days, increased by a paltry 35 additional pending sales.

Luxury End:  The luxury inventory and luxury demand both increased in the last couple of weeks.