January 15, 2017
Ever since the market took off five years ago, there have not been enough homes on the market.
Active Inventory: The 2017 housing market is starting with very few homes on the market.
Fewer homeowners have opted to place FOR SALE signs in their front yards for years now. That has been the main theme of the Orange County housing market since it started the recovery five years ago; and, if the start to 2017 is an indicator of what is to come, this year is not going to be any different.
The annual average inventory dating back to 2005 is 9,237 homes on the market. Over the past five years straight, it has fallen considerably short. As a result, the annual inventory height has come up significantly short of the 10,820 home average as well.
To keep it simple, the inventory needs to be above the 8,000 threshold for a sustainable amount of time for the market to tilt towards the buyer’s favor. Yet, the last time that occurred was in 2011.
This year, the Orange County housing market started the year with an inventory of 4,071, the second lowest start to a year behind 2013’s anemic 3,161 homes. The 2017 start is down 7% compared to last year.
One of the main reasons that there is not enough inventory is because of a changed mindset in Orange County since the Great Recession. Homeowners are simply not opting to sell their homes at the rate that they did prior to the recession.
Another reason the inventory is extremely low to start the year is that many “would be” sellers are waiting for the Spring Market, notoriously the best time of the year to sell in terms of activity. While that may seem like a logical choice, the facts don’t completely back it up in the lower ranges, below $750,000. The expected market time, from putting a sign in the ground to going into escrow, is at 60-days or less. That is a hot market and the year has only begun. There’s not a lot of competing sellers on the market today in the lower ranges. Later in the spring, there will be more buyers, but there will also be a lot more sellers. This is an advantageous time to place a home on the market with plenty of pent up demand.
A home that is in good condition, nicely appointed, and priced at or close to a home’s Fair Market Value, will fly off the market with multiple offers. This value can be obtained by diligently researching the most recent comparable pending and closed sales, comparing location, upgrades, lot size, etcetera. Listing at or close to the Fair Market Value does not mean tacking on an additional $10,000, $15,000, or $20,000. In this market, a seller does not need to leave extra room for negotiating. When a home is priced right, it tends to capture close to the asking prices
The current market is not as hot as it was in 2012 and 2013 when values were skyrocketing upwards and the expected market time for the lower ranges was at about 30 days. Today’s market is appreciation, but at a much slower rate, about 5% over the course of a year. In order to find success today and net the highest amount possible, the bottom line is this: it is ALL about PRICING right initially. If a home is overpriced, the market will speak loud and clear; it will sit with no success in spite of the sizzling temperature of housing.
Since the first of the year, the active listing inventory has increased by 305 homes and now totals 4,376. The expected market time for all of Orange County is 84 days, a slight seller’s market, meaning that homes are appreciating very little right now.
Demand: Since January 1st, demand has actually dropped slightly.
Most likely due to an extreme shortage of inventory, demand, the number of homes placed into escrow within the prior month, dropped by 66 pending sales since January 1st, or 4%, and now totals 1,562. The robust Orange County housing engine is having trouble starting the year because of an extreme lack of new, fresh inventory.
As everybody collectively moves past the holidays and New Year’s resolutions drop by the wayside, more homes will ultimately come on the market and demand will rise. In the middle of Spring, demand for housing will be nearly double where it is today and a lot more homes will be coming on the market daily as well.
Luxury End: Demand is up, but so is the luxury inventory.
Demand is up for Orange County’s luxury home market, 22 additional pending sales compared to last year at this time; however, there is a lot more competition. The luxury inventory is up by 127 homes. That extra competition translates to more seller who are not successful on a monthly basis.
For homes priced between $1 million to $1.5 million, the inventory is up by 21 homes compared to last year, and demand is up by 8 pending sales. Yet, above $1.5 million, the inventory is up by 106 homes, and demand is up by only 14.
In the past two weeks, demand for homes above $1 million decreased from 261 to 245 pending sales, a 6% drop, and its lowest level since one year ago when it totaled 223. The luxury home inventory is nearly the same after dropping from 1,708 homes to 1,705, its lowest level since the end of January of last year. The expected market time increased in the past couple of weeks from 196 days to 209.
For homes priced between $1 million to $1.5 million, the expected market time in the past couple of weeks increased from 132 days to 147 days. For homes priced between $1.5 million to $2 million, the expected market time remained the same at 169 days. For homes priced above $2 million, the expected market time rose from 345 days to 370 days. At 370 days, a seller is looking at placing their home in escrow around the end of January of next year.