October 19, 2020 / By Steven Thomas
The Orange County housing market will remain a Hot Seller’s Market for the remainder of 2020 and into the New Year, paving the way for persistent appreciation.
Appreciation: With strong demand and an incredibly low inventory, the market will continue to lean heavily in favor of sellers, resulting in home values rising.
One of the most popular toy fads of the 1980’s was the Cabbage Patch Doll. The dolls were a “must have” for Christmas. Eager parents flocked to stores only to be met with empty shelves. Tactical shoppers knew when shipments would arrive and would be the first in line to purchase as soon as the dolls were unloaded from the truck. It was common for people to offer $100 or more in the parking lot for a Cabbage Patch Doll that was still in the shopping cart in route to the family car. They retailed for $30. Why would someone pay over three times the original price for a doll? It was simple supply and demand. Coleco could not manufacture and ship enough dolls to match the unquenchable demand. As a result, retailers charged more for the dolls suggested MSRP and prices went up.
When there is a scarcity of something popular for sale, the price goes up. That is precisely what is occurring in the housing market today.
There is a scarcity of homes for sale. Multiple offers are the norm. It is not uncommon to hear that 15 offers are generated on a home that just hit the market. When this occurs, a bidding war ensues. As a result, home values have been on the rise since June.
The Expected Market Time is the speed of the market. The lower the Expected Market Time, the faster the market.Today, it sits at 40 days, far below the 60-day threshold that indicates a Hot Seller’s Market, a market where sellers get to call the shots and values are on the rise.
In order to arrive at 40-days, it takes a low supply and strong demand. Today’s active listing inventory is at 4,173 homes, its lowest level for this time of the year since 2012.
In order for the market to remain hot for the remainder of the year, the supply must continue to by limited and demand must remain elevated. The active inventory will not change much from now through Thanksgiving. Typically, it is dropping at this time of the year, but there are currently more homes coming on the market than what is normal, resulting in a steady number of homes available. In September, there were 24% additional homes placed on the market compared to last year. It appears as if that trend will continue until the week prior to Thanksgiving. Thanksgiving marks the beginning of the Holiday Market. That is when fewer homeowners enter the fray and many unsuccessful, often overpriced, sellers pull their homes off of the market for the holidays and winter season, cyclically the slowest time of the year for real estate. By the end of 2020, there will be around 3,000 homes on the market, very similar to the end to 2012. That will result in a very low level to start 2021 and may break the 2013 record low of 3,161 homes.
Current demand will remain elevated and strong from now through Thanksgiving. That is typical for this time of the year, but is quite remarkable given that its current level far surpasses recent years. Buyer activity will continue to slow and reach its lowest level of the year upon ushering in 2021. By the end of 2020, demand will drop to around 2,250 pending sales, its strongest reading since 2012.
Intuitively, many will think that the drop in demand will mean that the market will slow considerably, but that is not the case. Remember, the supply, the number of available homes, will be dropping at a considerable rate as well. Based upon the projections of 3,000 active listings available at the end of the year and demand at 2,250 pending sales, the Expected Market Time would be 40 days, identical to today.
More people are desirous of a good than the number of goods available. That adequately describes the housing market for the remainder of the year and into 2021. Buyers will be willing to stretch the price a bit in order to find success, resulting in steady appreciation for the foreseeable future.
Active Listings: The current active inventory increased by 20 homes in the past two weeks, almost unchanged.
Demand: Demand decreased by 3% in the past two weeks.
Luxury End: The luxury market cooled slightly.