October 23, 2016
Homeowners in Orange County have benefited significantly from a rise in values, pushing affordability considerably lower.
Values and Affordability: there are fewer and fewer choices below $500,000 in Orange County.
It has been nearly five years since the housing market reversed course and started its relentless climb from the depths of the Great Recession. When the Orange County housing market ignited at the beginning of 2012, the median sales price was at $400,000 and foreclosures and short sales accounted for 25% of the entire active inventory and 49% of all pending sales. Homes were flying off the market and housing was on the mend.
Investors were first to the party, snatching up anything and everything they could get their hands on. It didn’t take long for regular buyers to jump into the mix. With low prices and low interest rates, it made sense to purchase. In many cases, it was actually cheaper to own than to rent. As a result, home values appreciated rapidly in 2012 and 2013. The appreciation continued in 2014 and 2015, just not at the same rapid clip as the prior two years. 2016 has been more of the same, slow, methodical appreciation.
This year, the median sales price reached record levels, eclipsing heights reached in 2007. The median in August was at $649,000, that’s up 62% since the start of 2012. The tremendous appreciation translates to fewer properties for sale within the affordable price range of less than $500,000.
In April of 2012, the inventory of homes was nearly identical to today’s inventory. Yet, back then, there were 1,807 condominiums on the market. Today, there are 1,003; that’s 44% fewer. Believe it or not, there were 1,076 detached homes on the active listing market back then. Unbelievably, there are only 194 available today. That is a drop of 82%. Yes, there was a day when a buyer had plenty to choose from below $500,000, but that’s just not the case anymore.
As a matter of fact, there used to be plenty of condominiums priced below $250,000. In April 2012, there were 938, compared to 145 today. That’s a jaw-dropping 85% decline.
With home values slated to continue to slowly appreciate, it won’t be long before there will no longer be a detached home priced below $500,000, or a condominium below $250,000. The astonishing rebound in housing has almost completed its fifth year; as a result, there are fewer affordable choices.
Luxury End: Luxury demand dropped by 12% in the past couple of weeks.
In the past two weeks, demand for homes above $1 million decreased from 456 to 401 pending sales, a 12% drop, and its lowest level since March. The luxury home inventory dropped from 2,402 homes to 2,347, a 2% drop. With a significant drop in demand, the expected market time blossomed from 158 days to 176 days for all homes priced above $1 million.
For homes priced between $1 million to $1.5 million, the expected market time in the past couple of weeks increased from 113 days to 128 days. For homes priced between $1.5 million to $2 million, the expected market time increased from 165 days to 187 days, eclipsing the 6-month mark for the first time since January. For homes priced above $2 million, the expected market time rose from 245 days to 258 days. It was at 306 days just one month ago.
Active Inventory: The active inventory stopped dropping like a rock and declined by only 2% in the past two weeks.
In the past couple of weeks, the active inventory dropped by 135 homes and now totals 6,337. The inventory will continue its descent until it reaches a low at year’s end, and will only reverse course after ringing in a New Year. 2017 will most likely start with fewer than 5,000 homes on the market, consistent with the anemic starts to the past four Januarys.
Demand: The recent surge in demand has subsided with a drop of 8% in the past couple of weeks.
Demand, the number of new pending sales over the prior month, decreased from 2,693 to 2,480, a drop of 213, or 8%. It is still the hottest October since 2012, but the year over year difference is getting smaller. Last year at this time, there were 147 fewer pending sales, totaling 2,333.
With a giant drop in demand and the active inventory slowing its descent, the expected market time increased from 72 days to 77 days, a slight seller’s market.