Orange County Housing Report: For Pete’s Sake… Where are the Sellers?!?
In spite of the return of home values to much higher levels, sellers are not coming on the market as often as they used to.
Not as Many Sellers: 32% fewer homes are coming on the market compared to the average prior to the Great Recession.
The Orange County housing market is hot because the housing supply has been constrained for the past five years. Home values skyrocketed in 2012 and 2013, appreciating at an incomprehensible rate. It really wasn’t because an enormous wave of buyers suddenly flooded the housing scene. There were more buyers, but that wasn’t what fueled the surge. Instead, most homeowners with equity in their homes decided not to participate, leaving mostly sellers who had to sell because of life circumstances, foreclosures, and short sales. Homeowners di not participate because they watched their home values plummet from the record levels set prior to the Great Recession.
Homeowners tactfully recalled the age-old axiom of “buy low, sell high.” They were not willing to sell at the bottom. That would be foolish. Many homeowners without a hardship were upside down in their homes, meaning they owed more than their homes were worth, and they were unable to sell without coming out of pocket to close a sale. They too desired to wait until their equity positions were restored.
It makes sense that in 2012 and 2013 investors wanted to buy; first time homebuyers wanted to buy; renters wanted to buy; it was once again time to buy a home. They were willing to pay any price and often paid thousands upon thousands of dollars above the most recent sale. They were all attempting to take advantage of the market and “buy low.” They were met with an anemic housing supply though simply because homeowners were avoiding “selling low.” Homeowners were not coming on the market; they wanted to wait until values rose to a much more comfortable level.
Even though values had risen substantially, the number of sellers that entered the market in 2014 did not increase. What were they waiting for? The word in the real estate trenches is that many homeowners then and today are still waiting for values to rise further. Unfortunately, waiting too long may turn out to be the wrong choice. If homeowners are waiting for the ideal moment to “sell high,” that moment is looking like right now. It makes sense to sell now for nearly all situations: move up, move down, cash out, move out of the area. The current market is being fueled by historically low interest rates, presently at 3.75%. These rates have been orchestrated by the Federal Reserve to reignite not only housing, but the broader U.S. economic engine. But these rates cannot last forever. Eventually the Fed will raise the short term rate, something they have warned will most likely begin this year
With record low rates, it makes sense to buy. If that means that you need to sell first, do that. The smart move is to lock in these rates by making a move now and financing before this once in a lifetime opportunity is gone.
Unfortunately, the Southern California housing market, especially in Orange County, is often overcome by the herd mentality. As of right now, there isn’t a herd of sellers flooding the market, which is why it is a shrewd move to take advantage of the current trends and sell today. The herd will take over when the market shifts and suddenly many homeowners want to cash in at the same time. With the Fed poised to raise the short term rate, that could be the spark that ignites the herd.
At the 2014 pace of real estate sales, only 4.1% of homeowners sold their homes. That’s a once in every 24 year pace, an incredibly slow rate compared to the hot real estate markets of the past. This illustrates that there are plenty of pent up sellers waiting for the right moment to pull the trigger and sell. Will they seize the day or wait for the herd?
Active Inventory: The inventory decreased by 2% in the past two weeks.
The active inventory decreased by 131 homes in the past two weeks and now totals 5,429. This decrease comes at a time where cyclically more homes come on the market. But, not enough homes are coming on the market to match demand. Even though we have officially begun the Spring Market, the typical spike in new sellers has been delayed. That should change as we progress further into April.
Last year at this time there were 5,852 homes on the active inventory, 423 more than today, or 7%.
Demand: Demand increased by 6% in the past two weeks.
Demand, the number of new pending sales over the prior month, increased by 162 homes in the past two weeks and now totals 2,975 homes, knocking on the door of 3,000 for the first time since June of 2013. From here we can expect demand to peak over the course of the next month and remain at an elevated level throughout the Spring Market. From there it will drop slightly as we enter the Summer Market.
Last year at this time there were 453 fewer pending sales and the expected market time was at 70 days compared to 55 today.
Distressed Breakdown: The distressed inventory increased by 6 homes in the past two weeks.
The distressed inventory, foreclosures and short sales combined, increased by 6 homes in two weeks and now totals 236, a 3% increase. Year over year, there are 43 fewer homes today, 15% less. Only 4% of the active listing inventory and 6% of demand are distressed. Distressed properties have almost no impact on today’s market and their numbers are continuing to drop.
In the past two weeks, the foreclosure inventory decreased by three home and now totals 56. Only 1% of the inventory is a foreclosure. The expected market time for foreclosures is 39 days, by far one of the hottest segments of the Orange County housing market. The short sale inventory increased by 9 homes in the past two weeks and now totals 180. The expected market time is 43 days, also a hot segment of the housing market. Short sales represent just 3% of the total active inventory.