Orange County Housing Report: Green Shoots
September 9, 2019 / By Steven Thomas
Even though the housing market is not as hot as prior years, trends have emerged that confirm that it is starting to heat up.
Green Shoots: Trends are developing which demonstrate that the housing cool down is beginning to heat up.
Headlines are the same across the country: there are more homes on the market and it is taking a lot longer to sell a home. Multiple offers and instantaneous success are characteristics of housing a couple of years ago. After many years of rapid appreciation, demand for homes slowed considerably as mortgage rates climbed to 4.5% in March 2018. Demand deteriorated further when rates unexpectedly squeezed past 5% last November.
Ever since the housing market slowed last year, demand has remained sluggish, a bit subdued in comparison to the hot years from 2012 through 2017. Those markets were characterized by a very limited inventory and sizzling demand. Yet, behind the scenes, the 2019 housing market has been boosted by falling mortgage rates. After starting the year at 4.5%, rates have dropped ever since, dipping below 4% in June for the first time since the end of 2017. Today, they sit at 3.5%, the lowest level since October 2016, nearly three years ago.
As a result of the return to historically low mortgage rates, trends have surfaced that highlight a marketplace that is heating up.
GREEN SHOOT – The current active inventory has dropped by 8% since the end of July. The inventory shed 604 homes in that time, the largest drop since 2008. Today, there are 6,997 homes on the market. It is the first time that there are fewer homes compared to the prior year since April 2018. The current trend is for a rapidly falling active inventory and fewer homes on the market than the prior year.
GREEN SHOOT – Demand has only dropped by 7% since peaking back in April. That is the smallest drop since 2009. On average, demand (the number of new pending sales over the prior month) has dropped by 19% after peaking in the spring. And, since mid-July, it has surprisingly increased by 3%.
GREEN SHOOT- The Expected Market Time dropped from 92 days back in mid-July to 83 days today. Typically, from July to September the Expected Market Time (the amount of time from coming on the market to opening escrow) increases or remains flat. This year it dropped from 92 days to 83 days, a 10% dip.
GREEN SHOOT – Affordability has dramatically improved since November of last year. So many buyers are hoping for housing to tilt in their favor and for home values to fall like they did during the Great Recession. Quite simply, that is not going to happen anytime soon. Instead, buyers really need to focus on how affordability has substantially improved since last November when rates eclipsed 5%. With mortgage rates falling back down to historically low levels, affordability is absolutely tilting in their favor.
Active Inventory: The current active inventory shed 310 homes in the past two-weeks.
Demand: In the past two-weeks, demand decreased by 1%.
Luxury End: Since July, the luxury market has continuously improved.