Why Buyers Need to Buy Now

Active inventory has been low for the past five years, and the trend has continued this year, with 7% fewer FOR SALE signs compared to last year. Buyers have been tripping over each other in search of their piece of the “American Dream.” The lower the price range, the more competition and the harder it has been to secure a home.

It has been difficult and frustrating to be a buyer; that has not changed in years, and it is not projected to change in 2018. It is easy to empathize with buyers. Buyers cannot help but fall in love with a home, write an offer, and then find out that they are one of multiple buyers bidding on the same home. They are instructed not to fall in love with a home until they are the winning bid and escrow is opened. That is easier said than done. Buyers are human beings, and a major part of buying a home is the emotional tie to the home. They write offers to purchase a home because it is a good fit for their family. They visualize how their furniture will be situated in their potential new home. They visualize where they will entertain the extended family during holidays. They visualize life. How are they supposed to strip the process of finding a home from all of their emotions?

Most buyers have been busy writing offer after offer, falling in love and then out of love with home after home. The process can be grueling and exhausting. It does not mean that it cannot be done; it is just not going to be easy by any stretch of the imagination. Tapping out is not the answer. As frustrating as the process has been, it is not going to improve soon. Taking a short break is understandable, but buyers really need to talk themselves out of stating, “I’m going to wait to buy.”

What exactly are they waiting for? The inventory of homes is not forecasted to significantly rise for a very long time. Buyers will be facing limited choices for the long haul unless they are looking for homes in the luxury end. There are plenty of choices above $1.5 million, but that is simply not the typical buyer. The only reason there are more choices for luxury housing is because there are fewer buyers that can afford the high sticker prices. For the rest of the market, there are not enough options to purchase and demand is red hot.

So, what happens to buyers that do wait? The biggest risk is the eventual rise in interest rates. It seems that the experts and prognosticators have been calling for a rise in interest rates for a few years running; yet, the increases have yet to materialize. Everybody needs to understand that it took quite a bit of manipulation by central banks around the world to get rates down to these unbelievable levels. Rates will not drop further. Instead, as the central banks, starting with the U.S. Federal Reserve, reverse course on their monetary policies, rates will become more volatile and will begin to rise.

Will rates remain low for the coming year? It is quite likely; however, “don’t look a gift horse in the mouth.” This interest rate environment is a total gift from international central banks and our Federal Reserve. It will not be around forever. Down the road, many will look back at these interest rates and wish they had pulled the trigger and locked in for the long haul. When interest rates rise just 1% from where they are today, a $500,000 mortgage will cost an additional $297 per month, or $3,564 per year. For a $750,000 mortgage, a buyer is looking at paying an additional $445 per month or $5,340 per year. Over a five-year period the increase accumulates to $26,700; and, over the 30-year life of the loan, the homeowner will have paid an additional $160,020.


It seems that everybody has become quite accustom to today’s low rates. For context, the 30-year fixed rate peaked at over 18% back in 1981 and it has been trending down ever since. In 1990, rates were at 10%. In 1980, it was 8%. Just prior to the Great Recession, mortgage rates had fallen to 6.35%. After tremendous manipulation by the Federal Reserve, rates dropped all the way down to 3.35% by the end of 2012, fueling the bonanza in housing that everybody is feeling today. Rates have hit a bottom and are only expected to rise from here. It’s not a matter of IF they rise; it’s more a matter of WHEN.

For buyers, it is not wise to gamble on rates. They are low today and the Orange County housing market is expected to continue to appreciate through 2018. The longer a buyer waits, the higher the mortgage payment will be down the road.

The active listing inventory shed 111 homes in the past two weeks and now sits at 5,382. There really are not that many homes on the market compared to the last few years. Only in 2012 were there fewer homes on the market to start October. The active inventory will continue to fall through the remainder of the year, picking up steam after Thanksgiving, the start of the Holiday/Winter Market.


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.


Last year at this time, there were 6,472 homes on the market, 1,090 additional homes, or 20% more than today.

Demand, the number of homes placed into escrow within the prior month, decreased by 94 pending sales, or 4%, in the past two-weeks, and now totals 2,426. Part of this drop is seasonal. Demand tends to drop a bit during the Autumn Market with both the Spring and Summer Markets in the rear-view mirror. Additionally, fewer homes are coming on the market compared to the last few years for this time of year as well. Within the last month, 7% fewer FOR SALE signs have been placed in homeowners’ yards compared to 2016. With fewer choices, the number of pending sales has taken a hit.

In the past two weeks, demand for homes above $1.25 million decreased from 318 to 303 pending sales, a 5% drop. Since reaching 385 at the end of August, demand has dropped by 21%, representing a major shift in the Autumn Luxury Market. The luxury home inventory decreased from 1,959 homes to 1,887, a 4% drop, in the past two-weeks. As a result, the expected market time for all homes priced above $1.25 million slowed slightly from 185 days to 187. Luxury inventory and luxury demand will continue to drop through the end of the year.

For homes priced between $1.25 million and $1.5 million, the expected market time increased from 99 to 101 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 169 to 178 days. For homes priced between $2 million and $4 million, the expected market time increased from 264 days to 280 days. In addition, for homes priced above $4 million, the expected market time decreased from 424 to 316 days. At 316 days, a seller would be looking at placing their home into escrow around the end of August of 2018.
Contact us and find out how you can take advantage of the market today!

The Steven Thomas Report


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