A Mid Year Orange County Market Check UP!!

July 28th 2016

Since half of 2016 is behind us, it is helpful to take a look at where we have been, where we are now, and where we are Housing Checkup: Occasionally, it is wise to take a step back and evaluate the overall health of the current housing market and the latest trends. Everybody is extremely aware that the Orange County housing market has been hot for years now and has appreciated tremendously, almost complete recovering from the Great Recession. There have not been enough homes on the market, buyers have been tripping over each other in order to purchase their piece of the American Dream, and multiple offers are the norm. While that may describe the first half of the year, where are we headed for the second half? Will it be more of the same or will the market evolve? Let’s take a step back from the crazy real estate market for a moment. With a stethoscope, thermometer, and blood pressure cuff in hand, here are the latest trends and current heartbeat of the Orange County housing market:

  • The active inventory already surpassed last year’s peak and is still growing, but it will fall short of the long term average. The year started with very few homes on the market, 4,396, the second lowest start in the past decade. Since then, the active inventory has climbed without pause and is currently at 7,329 homes, a 67% increase so far this year. It will peak at the end of August, close to 7,800 homes, much higher than last year’s peak of 7,167. That will still be far off the average peak since 2005 of 10,375 homes. Yet, today’s inventory is 6% higher than last year. After peaking at the end of summer, the inventory will start to fall during the Autumn Market as unsuccessful homeowners throw in the towel, realizing that both the Spring and Summer Markets will be in the past.
  • Demand has been hot this year, but is starting to fade with the Spring Market in the rearview mirror. Demand took a hit at the beginning of the year due to worldwide financial uncertainty and stock market volatility. That resolved itself in February and demand was back. It even exceeded 2015 levels from the end of April through the end of May. In June and July, demand has been a little bit less than last year, but not by much. It is currently off by 1%, and was off by 3% during the month of June. From here, demand will slowly drop as summer progresses. It will then drop considerably during the Autumn Market and presidential election season, and will reach the lowest levels of the year during the Holiday Market, Thanksgiving through the first few weeks of the New Year. With demand slowing a bit due to summer distractions, from now through the end of the year, carefully pricing will be crucial in order to find success.
  • The expected market time is on the rise and it’s taking longer to sell a home this year compared to 2015. Supply (the inventory) and demand (recent pending sales) determines the expected market time. That is the amount of time it will take for a newly listed home to be placed into escrow. When it drops below 2 months, it is a HOT seller’s market. From the end of March through the end of May, the market was HOT. Sellers were getting away with stretching the asking price and home values were appreciating. Since then, with all of the cyclical distractions, graduation and summer, the expected market time has been rising at a rapid pace. For all of Orange County, it has risen from 56 days to 79 days, adding an additional 23 days. The market is still really hot for homes below $750,000 and condominiums below $500,000, but every price range has been slowing. The market will continue to slow throughout the summer. As the market downshifts, buyers move away from a willingness to pay any price to obtain a home, to a strong desire to pay the Fair Market Value for a home, a value determined by the most recent pending and closed sales. And, the market will slow considerably more during the Autumn Market and will most likely surpass the 90-day mark, a balanced market that does not favor buyers or sellers.
  • Closed sales are nearly identical year over year and it looks as if 2016 will finish out the year a mirror image of 2015. Through the first half of the year, there have been 15,187 closed sales compared to 15,158 last year, a difference of only 29 sales. With similar demand to last year, closed sales will remain on par for last year.
  • There have been a record number of luxury home sales this year, but that does not mean they are selling like hotcakes. The luxury market is best defined as the top 10% of closed sales, or $1,250,000 and higher. For the first six months, there have been 1,523 closed luxury sales compared to 1,445 last year. That is a record number of luxury sales in Orange County. However, as of today there are 2,138 active listings above $1,250,000, far more than have sold in the first half of this year. Today, the expected market time for luxury homes is 216 days. For proper perspective, that would mean that escrow would open up at the end of February of next year and most likely close in April. Keep in mind, the expected market time is even longer in the higher price ranges. For homes priced above $2 million, the expected market time is 345 days, nearly a year from now.

Interest rates are flat and do not look like they will be changing much for the remainder of the year. The Federal Reserve may have talked a big game back in December when they increased the short term rate for the

  • first time in 9 years, calling for four additional hikes in 2016, but they had a quick change of heart due to stock market and international economic instability right after ringing in a New Year. Ever since February, the rhetoric has quickly changed to one of caution and hiking rates at a very slow pace. So far this year they have not made a single move. It appears as if they don’t want to disrupt the market even slightly and, like last year, most likely will resort to a single, small token move at the end of the year. Again, it will be more of a gesture than any significant change. The historically low interest rates are here to stay for the remainder of 2016.

Luxury End: The luxury end may be lethargic, but at least it’s now slowing further right now. Finally, demand stopped dropping in the higher end. After a month slide, it looks as if demand has stabilized a bit. It’s not increasing, but it’s also not decreasing either. Demand stayed the same and the inventory only grew by less than 1%.   For homes priced between $1 million to $1.5 million, the expected market time dropped slightly from 143 days to 141 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time also dropped slightly from 159 days to 158 days. For homes priced above $2 million, the expected market time grew from 322 days to 345 days.   Active Inventory: The inventory increased by 3% in the past two weeks. The active inventory increased by 225 homes in the past two weeks and now total 7,329, its highest level since October 2014, surpassing last year’s peak of 7,167 homes. The inventory looks like it will stretch all the way to 7,800 homes, just shy of the 2014 peak of 8,084.   chart 1 Demand, the number of new pending sales over the prior month, dropped by 4%, or 104 homes, and now totals 2,783 pending sales, its lowest level since March. Since peaking at the start of May, demand has dropped by 13%. Couple that with a 22% increase in the inventory and the expected market time has grown from 56 days to 79 days. Last year at this time demand was at 2,810 pending sales, 27 more than today. chart 2 Orange County Housing Market Summary:  

  • The active inventory added an additional 225 homes in the past two weeks and now totals 7,329 homes, a level not seen since October 2014. There are 394 more homes compared to last year at this time.
  • There are 17% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 13% as well. As home values continue to rise, this range is slowly disappearing.
  • Demand, the number of pending sales over the prior month, decreased from 2,887 to 2,783 in the past two weeks, a 4% drop. Demand was at 2,810 last year, 1% more than today. The average pending price is $779,417.
  • The average list price for all of Orange County dropped from $1.5 million two weeks ago to $1.4 million today.
  • For homes priced below $750,000, the market is HOT with an expected market time of just 51 days. This range represents 44% of the active inventory and 68% of demand
  • For homes priced between $750,000 and $1 million, the expected market time is 91 days, a balanced market that does not favor buyers or sellers. This range represents 19% of the active inventory and 16% of demand.
  • For luxury homes priced between $1 million to $2 million, the expected market time is at 146 days, decreasing by 2 days in the past couple of weeks. For luxury homes priced above $2 million, the expected market time increased from 322 days to 345 days. The luxury end, all homes above $1 million, accounts for 38% of the inventory and only 16% of demand.
  • The expected market time for all homes in Orange County increased from 74 to 79 days in the past month, a slight seller’s market that is pushing its way to a balanced market, 90 to 120 days, that does not favor buyers or sellers.
  • Distressed homes, both short sales and foreclosures combined, make up only 1.7% of all listings and 4.1% of demand. There are 46 foreclosures and 82 short sales available to purchase today, that’s 128 total distressed homes on the active market, a drop of 11 in the past two weeks and the lowest level since early 2007.
  • There were 3,116 closed sales in June, a 3% increase over May and 1% fewer than last year’s 3,141 closings. The sales to list price ratio was 97.7%. Foreclosures accounted for 1.4% of all closed sales and short sales accounted for 1.2%. That means that 97.4% of all sales were good ol’ fashioned equity sellers.

Enjoy the rest of these charts.  Over analyze away.!! chart 3   4     5     6       Report Compliments of Steven Thomas Reports on Housing.  Information deemed reliable but not guaranteed.

https://bit.ly/3AagsEE https://bit.ly/3AdMSOy https://bit.ly/3tFQEif https://bit.ly/3FRJESc https://bit.ly/3Aezt8M