Orange County Housing Report: A Balanced Market
July 29, 2018
Orange County housing is moving away from a Seller’s Market to a Balanced Market.
A Balanced Market: With demand continuing to drop to levels not seen in over a decade, housing is rapidly evolving into a Balanced Market.
The housing market has favored sellers for years now. That good old-fashioned metal balance scale has been leaning heavily in favor of the sellers with very few homes on the market and tremendous demand. Yet, with more homes coming on the market and falling demand, that metal balance scale has slowly but surely been moving away from that hot seller’s market to a balanced market, one that does not favor sellers or buyers.
Everybody has been talking about not enough homes on the market, dating back to 2012. That lack of supply has fueled the frenzied real estate market; that is, until 2018. The supply problem has evolved into a demand problem. While the supply of homes has increased quite a bit this year, it still remains below the long term average of 8,000 homes. The real issue is not that there are way too many homes on the market, as in prior slowdowns; instead, it is the fact that housing demand has dropped precipitously.
The last time demand was this low dates all the way back to 2007 when the housing market completely fell apart. It is interesting to take a look at the differences in context to the mortgage interest rate at the time. Today’s national average interest rate is 4.6%, the highest rate since 2011.
The housing run from 2012 through the first four months of 2018 has been fueled by not only an extremely low supply of homes on the market; it has also been fueled by ultra-low interest rates. Mortgage rates have been juicing the run-up in values. The only other time that housing slowed a bit during the run was at the end of 2013 through 2014, the culprit, higher interest rates. In December 2013, interest rates climbed to 4.5% and they remained elevated through the Spring Market of 2014.
As home values have appreciated unabated, the June median sales price reached yet another record level at $739,000. Combining record high values with interest rates that have climbed to heights not seen since 2011, prior to the 6-year housing run, it is no wonder that buyers are not jumping as quickly to purchase.
None of this means that the current market favors buyers. It is still an extremely slight Seller’s Market. The current Expected Market Time (the amount of time it would take to place a home onto the market today and enter escrow down the road) is at 85-days, knocking on the door of a Balanced Market. A Seller’s Market is hot when it is below 60-days. It is a slight Seller’s Market from 60 to 90 days. It is a Balanced Market from 90 to 120 days. Above 120-days is a Buyer’s Market.
Many mistakenly think that it is either a Seller’s Market or Buyer’s Market. That it has to be one or the other. That is not true. A Balanced Market is one that does not favor a buyer or seller. It is like that metal balance scale when it is perfectly balanced. There has been more supply this year, 13% higher year-over-year, and demand is down by 16% year-over-year. More supply and less demand is balancing the scale.
A warning for buyers: buyers are NOT in the driver’s seat, not even close. It is not a Buyer’s Market. The difference is that there are more choices now. The typical home is no longer flying off the market.
A warning for sellers: accurate pricing is fundamental in order to find success. Ignore the recent headlines of a record median sales price. That does not mean that homes are continuing to appreciate TODAY. The June median is a reflection of homes that were placed into escrow in April and May. That was in the past when the market was much hotter than today. Right now there are a lot more homes on the market, meaning a lot more competition. Pricing at or close to the Fair Market Value is the wisest formula for success.
Active Inventory: The active inventory grew by 3% in the past two-weeks.
The active listing inventory continued its climb in the past two-weeks, adding 180 homes, or 3%, and now totals 6,759, its highest level since September 2016. Expect the active inventory to continue to grow until it peaks, most likely next month.
Demand: Demand dropped by 2% in the past two-weeks.
In the past two-weeks, demand, the number of pending sales over the prior 30-days, decreased by 61 pending sales, or 2%, and now totals 2,393, the lowest demand reading for this time of the year since 2007. Expect demand to drop further from August through the end of the year.
Luxury End: Demand for luxury homes dropped by 5% in the past couple of weeks.
In the past two-weeks, demand for homes above $1.25 million decreased by 17 pending sales, down 5%, and now totals 313, its lowest level since the end of January. The luxury home inventory decreased by two homes and now totals 2,192. The overall expected market time for homes priced above $1.25 million increased from 199 to 210 days over the past two-weeks.