July 15, 2019 / By Steven Thomas
Due to fewer pending sales, the overall housing market is not as hot as it used to be.
Pending Activity: Housing has officially been sluggish in Orange County since April 2018 and it is not changing anytime soon.
There are some mountain roads that are extremely steep. In trying to ascend it behind the wheel of a car, often the pedal is all the way to the floorboard. The engine revs loudly and the car sluggishly makes its way to the top. You want your car to zoom up the mountain, but it’s out of your control. It takes time.
Similarly, the housing market has been moving along sluggishly since the spring of last year. In April 2018, demand (the last 30-days of pending sales) was off 11% compared to April 2017. By July 2018, it was off by 13%. As the year continued to unfold, muted demand became the new normal. After hearing how slow the market had become in 2018, many homeowners eagerly waited for 2019’s Spring Market. Yet, muted demand was not just a blip on the housing radar screen in 2018. Instead, sluggish demand had been a trend that continued to this day.
There are many experts and plenty of media reports that are beginning to talk about a robust second half to 2019. They point to the tremendous drop in interest rates as a catalyst to a sharp increase in buyer demand. Their thinking is that rates have dropped more than a full percentage point since last November, which has improved affordability dramatically. They are correct; affordability has improved considerably. The payment for a $650,000 mortgage has dropped from $3,489 per month at 5% back in November, to $3,103 per month at 4% today. That’s a savings of $386 per month or $4,632 per year.
The underlying issue is that mortgage rates have been much lower than last year, after dropping considerably in March, but they have not changed the number of pending deals at all.
There have been more homes for sale compared to the prior year since May 2018, yet demand has remained muted the entire time, 14 straight months.
For the second half of this year, the issue is going to be that there will be plenty of news stories regarding the numbers being better compared to last year. These stories need to be taken with a grain of salt. They will be comparing this year’s numbers to the second half of 2018, which were considerably muted, and interest rates climbed all the way to 5% by November. In November, year over year demand was down by 23%.
Instead, it is better to compare this year’s active listing inventory, demand, and closed sales numbers to two years ago, when the market was much hotter. It is the market that today’s sellers long for. Current demand is off by 15% compared to July 2017, and nearly identical to last year.
The moral to the real estate trend story is that despite the incredible improvement in affordability due to low mortgage rates, buyer demand remains muted. With sluggish demand, for the remainder of 2019, sellers should expect fewer closed sales and a market where pricing is absolutely crucial in order to find success.
Active Inventory: The current active inventory decreased by 39 homes in the past two weeks.
Demand: In the past four weeks, demand dropped significantly by 8% and housing transitioned into a Balanced Market.
Luxury End: The luxury market slowed slightly in the past couple of weeks.