June 18, 2017
For years now the Orange County housing inventory has been low, but this year it is more pronounced.
Low Supply: The active listing inventory has been down all year and it is currently off by 14% compared to 2016.
Whew! It is tough to be a buyer looking for a home in today’s market. The biggest complaint has to be that there are simply not enough choices. In fact, nearly 1,200 fewer homes have come on the market so far this year compared to last year. The active inventory currently sits at 5,905 homes; that is 14% fewer than the 6,868 that were available last year.
The trend of fewer homes hitting the market dates back to the beginning of the Great Recession, 2008. Ever since then, fewer and fewer homeowners have placed a FOR SALE sign in their yard. This trend is nothing close to a blip on the radar screen. Something happened to everybody’s collective psyche during the drawn out and bruising recession. Homeowners are staying put.
This year has been off from last year, averaging 222 fewer homes placed on the market each month. As the half way point for the 2017 housing market rapidly approaches, the slower pace has added up. Buyers who have been working hard to secure a home without any luck can attest to the need for additional choices. Yet, the 222 year over year difference is nothing compared to the number of homes on the market during the first decade of the 2000’s. In 2006, there were 2,239 additional homes FOR SALE coming on each and every month. That added up to an additional FOR SALE sign in just about every neighborhood on a monthly basis.
Price is determined by supply and demand. Just for kicks, imagine that demand remained the same. When the same number of buyers are interested in purchasing a home, yet the supply drops considerably, the highest bidder wins. As a result, prices rise. Essentially, that is what has happened over the past five years. In 2012, demand spiked; however, there were not enough homes on the market to satiate the voracious appetite for buyers to buy. Home values have been on the rise ever since.
In past housing run-ups, homeowners have been encouraged and enticed to join the fray, eager to cash in on the market and make a move. That has not been the case during the current five year run. Homeowners have not been tempted to sell like they did from 2000 through 2007.
ADVICE FOR BUYERS: be realistic out of the gate. Don’t delay in pulling the trigger to write an offer to purchase a home. You do not have to overpay, especially now that the housing has transitioned into the Summer Market. Offer the FAIR MARKET VALUE for a home. Most of all, pack your patience.
ADVICE FOR SELLERS: be realistic out of the gate. Far too many seller hit the market overpriced. The market has been on the rise, but it does a majority of its annual appreciation during the Spring Market. Homes appreciate at a much slower rate for the rest of the year. Orange County detached housing values have been increasing at a pace of about 5% per YEAR. That is 365 days, not 30 days. So, price accordingly. A wise strategy is to price a home at its FAIR MARKET VALUE. The better the price, the more activity that is generated. Multiple offers drive the sales price up.
Active Inventory: The active inventory increased by 3% in the past couple of weeks.
The active listing inventory added an additional 148 homes in the past two-weeks, a 3% increase, and now sits at 5,905. Within the next couple of weeks, the inventory will eclipse the 6,000 home mark. Last year that occurred at the start of May.
We can expect the inventory to continue to rise throughout the Summer Market until it reaches a peak somewhere around mid-August. From there, the market will transition into the Autumn Market, from mid-August through Thanksgiving, with fewer homes coming on the market with both the spring and summer in the rearview mirror.
Demand: Demand increased by 1% in the past couple of weeks.
Demand, the number of homes placed into escrow within the prior month, increased by 33 pending sales in the past two-weeks and now totals 2,937, a 1% increase. Demand is off the most in the entry-level market, homes priced below $500,000. With 23% fewer homes that have been placed on the market so far this year below $500,000, demand is now off by 21%. This market has been underperforming all year due to a real lack of inventory.
We can expect demand to drop slightly from now through the end of the Summer Market.
Luxury End: Luxury demand increased by 6% in the past couple of weeks while the inventory grew by 2%.
In the past two weeks, demand for homes above $1.25 million increased from 351 to 371 pending sales, a 6% increase and nearly the same level as a month ago. The luxury home inventory increased from 1,981 homes to 2,011, up 2%. Even with the increase in demand, the luxury market is NOT a robust seller’s market, taking months in order to find success.