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Summer's Anemic Market

Active inventory has been low for years, but this year it has been exceptionally low. The Orange County housing market has been frustrating buyers for years, and 2017 has proven to be especially frustrating. With 7% fewer FOR SALE signs this year compared to last year, there just have not been enough homes to satiate the voracious appetite of buyers.

As a result of low inventory and off-the-chart demand, Orange County homes have appreciated non-stop since 2012. In the past year alone (July '17 over July '16), the median sales price rose by 5.5%, and since 2012 has risen by 80%. Even with a rising median sales price, the historically low interest rate environment is keeping homes affordable. Interest rates are projected to remain low for the rest of the year and into 2018.

An anemic inventory is only going to fuel future appreciation. Buyers will continue to compete with limited choices and multiple offers will persist, especially for homes priced below $750,000. The inventory will remain low for quite some time because the active listing inventory peaked about a month ago, not quite reaching the 6,000 home mark. For perspective, the active inventory needs to remain above 8,000 homes for quite some time in order for the housing market to move from a seller’s market to a balanced market.

temp-post-imageIn the past couple of weeks, the active inventory shed 90 homes and now totals 5,877. Last year’s peak was at 7,329 homes, 22% higher, or 1,346 more FOR SALE signs than this year. There are significantly fewer homes on the market throughout Orange County. The active inventory level differences are substantial in certain areas of the county.
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Keeping record low inventory in mind, where will the Orange County housing market go from here? By September the housing market will move onto the Autumn Market. Typically, autumn is a time when fewer homeowners opt to place their homes on the market. However, with the anemic market sellers will find success listing during the Autumn Market as many unsuccessful summer buyers roll into autumn looking for their home. Buyers who were ready to buy in summer found multiple offers, counter offers and few homes available to them. Many of these buyers are still looking for a home, they are financially qualified, and ready to write strong offers.

With such a low peak, the expected seasonal drop in the inventory from now until New Year’s will result in a very anemic start to 2018. It may dip to the record lows of 2013, when there were only 3,161 homes to start the year. Quite simply, there were not enough homes to keep up with the strong demand and bidding wars escalated during the spring. That could be the case this coming year in spite of high prices. Additionally, the low interest rate environment will help fuel another crazy start to the Orange County housing market.

temp-post-imageDemand, the number of homes placed into escrow within the prior month, increased by 55 pending sales, or 2%, in the past two-weeks and now totals 2,890. Demand is either near the same or considerably higher in every price range except for properties priced below $500,000. With 41% fewer homes available below $500,000 compared to this time last year, it is no wonder that demand is off by 20% year over year in this range.

Last year at this time, demand was at 2,935 pending sales, 45 more than today. The expected market time was at 75 days. The current expected market time dropped from 63 days two weeks ago to 61 today. At 61 days, the market is not quite a HOT seller’s market, but a tepid seller’s market with muted appreciation (60 to 90 days).

In the past two weeks, demand for homes above $1.25 million decreased from 373 to 369 pending sales, a 1% drop, the. The luxury home inventory increased from 2,065 homes to 2,072, nearly the same. The luxury end is not evolving that much right now.

For homes priced between $1.25 million and $1.5 million, the expected market time increased from 101 to 110 days. For homes priced between $1.5 million to $2 million, the expected market time dropped from 135 to 130 days. In addition, for homes priced above $2 million, the expected market time decreased from 280 days to 278 days. At 278 days, a seller would be looking at placing their home into escrow around mid-May of next year.

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The Steven Thomas Report

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