September 24, 2017
Even though the housing market is hot, there are plenty of homes that are sitting with no success.
Sitting on the Market: 43% of the active listing inventory has been on the market for over two months.
The excitement is in the air. A homeowner sits across from a REALTOR® and signs all of the contracts. Their home is officially on the market. With eager anticipation, they clean their home from top to bottom and turn on all of the lights; the first potential buyer is coming to look. After the buyer tours the home, the sellers return and wonder whether the buyers liked it enough to bring an offer. After all, the market is incredibly hot, right? Yet, there is no offer. Showing after showing, day after day, week after week, there are no offers. Moreover, the number of showings has trickled down to only a couple per week after three months of market exposure. What is going on?
Everybody has been talking about how Orange County housing has been red-hot; however, many sellers are not finding success. An incredible 43% of all homes that are on the active listing inventory have been exposed to the market for more than two months. Of course, this is standard for luxury real estate, but there are plenty of homes in the lower ranges having trouble as well. Nearly a third of all homes priced below $750,000 have been FOR SALE for more than two months and are still waiting for the right buyer to bring a mutually acceptable offer to purchase. For homes priced between $750,000 and $1 million, it grows to 36%; the higher the price, the harder it is to sell.
What gives? If housing is so unbelievably hot, why are many sellers struggling to hit pay dirt? Of course, most everybody immediately thinks it is the price. In most cases, that is only part of the issue.
Buyers are human. They like to purchase new. They prefer a home that is truly “turnkey” where all they have to do is move in. The reality is there is not enough brand new product in Orange County. Yet, even brand new is not turnkey. They have to decide on upgrades through the builder, and, after the closing, they have to purchase and install window coverings and design and complete all of the landscaping. There is a lot of effort that goes into a new home purchase.
All of the HGTV programs, from Flip or Flop to Property Brothers, have helped create an expectation and desire for buyers to purchase homes that look like a model. As long as the price is right, the closer a home looks to model perfect with all of the bells and whistles, the faster the home will fly off the market. Unfortunately, not every home shows like a model.
Many homes are dated. If a home has a kitchen that is more than 10 years old, it is starting to look worn and dated. If the grass has brown patches and the planters are sprouting weeds, the yard is looking worn and dated. Vinyl flooring, popcorn ceilings, stained carpet, single paned windows, scuffed walls, aluminum blinds, ceramic tile in the kitchen, original bathroom hardware, water stained cabinets, etcetera, all contribute to a home feeling used and worn. Throw in a pet with all of the odors, hair, and damage, and it is no wonder that sellers are having a hard time selling.
Many investors have flipped homes for a profit. How do they do this? They do this by purchasing a home for a low price that needs quite a bit of work, and then fixing it up and selling it for much more, making a handsome profit. They install new granite counters, flooring, paint, light fixtures, cabinets, scrape popcorn ceilings, and install new sod, plants, flowers, and mulch. Basically, they make a residential resale look and feel like a model. A little professional staging and the investor is able to make a healthy profit.
In order to compete and fetch top dollar, a good ol’ fashioned homeowner who has lived in their home for years must invest in their home by approaching selling like a flipper. They too can make their home look like a model. Taking care of deferred maintenance will afford buyers the ability to visualize moving in right away. They will not have to address cosmetic issues after closing. Buyers are willing to pay a premium for homes that are turnkey and look like a model. The sellers will net more money by addressing the deferred maintenance and their home will fly off the market.
If a seller does not address the deferred maintenance, then the price must be adjusted accordingly. Buyers subtract a lot more than it costs to take care of any deferred maintenance, which ultimately nets the seller less money in the sale of their home.
WARNING TO SELLERS: price is the most important factor in successfully selling. Overprice in a hot seller’s market, and you still won’t sell. Instead, you will waste valuable market time. Success takes into consideration price, condition, and location. Sellers are able to control both the price and condition in order to achieve their goal in selling.
Active Inventory: The active inventory dropped by 3% over the past couple of weeks.
The active listing inventory shed 146 homes in the past two weeks and now sits at 5,493. The inventory has not been this low since the start of May; and, for this time of the year, the start of autumn, it has not been this low since 2012. The active inventory will continue to trend down through the remainder of the year, picking up steam after Thanksgiving, the start of the Holiday/Winter Market.
Demand: Demand decreased by 4% in the past couple of weeks.
Demand, the number of homes placed into escrow within the prior month, decreased by 104 pending sales, or 4%, in the past two-weeks and now totals 2,520. The Orange County housing market is experiencing a higher than normal drop for this time of the year because of a serious lack of homes coming on the market right now. Within the last month, 10% fewer homes have come on the market this year compared to 2016. Fewer available homes is cutting into the number of potential pending sales, which is affecting demand.
Luxury End: Luxury demand tumbled by 11% in the past couple of weeks, while the inventory dropped by only 1%.
In the past two weeks, demand for homes above $1.25 million decreased from 358 to 318 pending sales, an 11% drop, representing a major shift in the luxury market. The luxury home inventory decreased from 1,979 homes to 1,959, a 1% drop. As a result, the expected market time for all homes priced above $1.25 million increased from 166 days to 185 days. The luxury inventory and demand will continue to drop through the end of the year.