Cheers to the Holiday Lull and a Hopeful 2018

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The Holiday Slowdown: Year in and year out December is notoriously the slowest month of the year in terms of demand and new sellers placing their homes on the market.

It has been nearly a year since my last update so I felt it suitable to make sure to get the end of year update to you before 2018 is here.

In a blink, the housing market transitioned from the Autumn Market to the Holiday/Winter Market. As everybody carved the turkey and filled their bellies food, we ushered in a dramatic shift in housing. This is the time of the year when housing takes a back seat to all of the distractions of the holidays.  Like the rest of us, the market is ready for the break.  It is the slowest month of the year for housing.  One thing to take notice is the dramatic similarity that this market has in comparison to the last 4 years.  Look at the charts.  They speak for themselves.  The pint up demand is still strong especially as the millennial population starts to come off the sidelines.  This has been the strongest fall since the previous peak in 2006.  2018 will start out with another strong first 6 months with inventory being the lowest it has been since 2103.

Some things to take into account for 2018.  What will the new tax code do to home prices considering the mortgage write off is being decreases?  Currently the House Bill Sates 500k and the Senate Bill States 1 MM.  Rumors say they are going to split the difference.   Another area of concern is the capital gains exemption.  Changing from 2 of 5 years now up to 5 of 8 years.  This could cause a slower turnover as people hold off to sell to preserve appreciation gains that would be as much as 1/3 paid to Uncle Sam.

From Thanksgiving to New Year’s Day, the average drop since 2013 has been 23%, 1,373 homes. Why does the active inventory drop so dramatically in December? Homeowners instinctively avoid placing their homes on the market this month. Most homeowners want to cash in on “the best time of the year” to sell a home, the Spring Market. As a result, they wait to sell their home. They are only partially right. The Spring Market is the most active time of the year where demand (new pending transactions) reaches a peak for the year, but there is also a surge in new FOR SALE signs, competition. In reality, housing is still hot today for all homes priced below $1 million.

 

chart 1 Not only are there fewer homeowners entering the fray in December, many sellers who have been unsuccessful in 2017 opt to throw in the towel and pull their homes off the market. These two combined forces result in an enormous drop in the active inventory.

Similarly, demand, the number of pending sales over the prior month, also drops dramatically in December. It dropped by 10%, 232 pending sales, in the past couple of weeks, the largest drop off the year as well. Since 2013, the average drop from Thanksgiving to New Year’s Day has been 34%. There are two forces contributing to this massive drop in December demand. First, there are simply not enough homes on the market and there are fewer and fewer choices every day. Second, many buyers are ready for a holiday break. They step aside and enjoy the season.

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The bottom line: the holiday lull is here, so set your expectations accordingly.

Active Inventory: The active inventory dropped by 8% over the past couple of weeks.

The active listing inventory shed 391 homes in the past two weeks and now sits at 4,323, the largest drop of the year. Since peaking in mid-July, the inventory has plunged by 1,660 homes, a tremendous 28% drop.  Expect the inventory to continue to descend dramatically for the remainder of the year. As a result, the New Year will start with fewer than 4,000 homes, the second lowest inventory behind 2013.

Last year at this time, there were 5,177 homes on the market, 854 additional homes, or 20% more than today.

Demand:  Demand decreased by 10% in the past couple of weeks.

Yes, the Holiday Market has arrived. In the past two weeks, demand, the number of new escrows over the prior month, decreased by 232 pending sales, or 10%, and now totals 2,082. Like the active inventory, demand just experienced its biggest drop of the year. The decline will continue through the end of the month. By the start of 2018, demand will be at its lowest point in a year

Last year at this time, demand was at 2,116 pending sales, 34 more than today

The expected market time, the amount of time it would take for a home that comes onto the market today to be placed into escrow, increased slightly from 61 to 62 days, a slight seller’s market with mild appreciation. Last year’s expected market time was at 73 days.

Luxury End:  Luxury demand plunged in the last couple of weeks.

In the past two weeks, demand for homes above $1.25 million decreased from 299 to 236 pending sales, down 21%. The beginning of the Holiday Market walloped luxury demand. The luxury home inventory decreased from 1,672 homes to 1,585, a 5% drop in the past two-weeks. Expect both the inventory and demand to continue to drop through the end of the year. The expected market time for all homes priced above $1.25 million increased from 168 days to 201.

For homes priced between $1.25 million and $1.5 million, the expected market time increased from 112 to 129 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 143 to 169 days. For homes priced between $2 million and $4 million, the expected market time increased from 181 days to 246 days. In addition, for homes priced above $4 million, the expected market time decreased from 466 to 437 days. At 466 days, a seller would be looking at placing their home into escrow around the mid-February 2019.

 

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Orange County Housing Market Summary:

 

  • The active listing inventory decreased by 391 homes in the past couple of weeks and now totals 4,323, the largest drop of the year. Expect the inventory to drop considerably for the remainder of the year. Last year, there were 5,177 homes on the market, 854 more than today.
  • There are 32% fewer homes on the market below $500,000 today compared to last year at this time and demand is down by 9%. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly disappearing.
  • Demand, the number of pending sales over the prior month, plunged by 232 in the past couple of weeks, down 10%, and now totals 2,082. The average pending price is $841,391.
  • The average list price for all of Orange County increased to $1.8 million, a new record. This number is high due to the mix of homes in the luxury ranges that sit on the market and do not move as quickly as the lower end.
  • For homes priced below $750,000, the market is HOT with an expected market time of just 39 days. This range represents 39% of the active inventory and 63% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 54 days, a hot seller’s market (less than 60 days). This range represents 16% of the active inventory and 19% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 71 days, a slight seller’s market.
  • For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 112 days to 129. For homes priced between $1.5 million and $2 million, the expected market time increased from 143 to 169 days. For luxury homes priced between $2 million and $4 million, the expected market time increased from 181 days to 246 days. For luxury homes priced above $4 million, the expected market time decreased from 466 to 437 days.
  • The luxury end, all homes above $1.25 million, accounts for 37% of the inventory and only 11% of demand.
  • The expected market time for all homes in Orange County increased slightly from 61 days to 62, a tepid seller’s market (60 to 90 days). From here, we can expect the market time to rise slightly through the end of the year.
  • Distressed homes, both short sales and foreclosures combined, make up only 1.5% of all listings and 2.3% of demand. There are only 21 foreclosures and 43 short sales available to purchase today in all of Orange County, that’s 64 total distressed homes on the active market, dropping by 4 in the past two weeks. Last year there were 120 total distressed sales, 88% more than today.
  • There were 2,553 closed residential resales in October, down by 1% from October 2016’s 2,575 closed sales. October marked a 7% drop from September 2017, normal for the Autumn Market. The sales to list price ratio was 98.4% for all of Orange County. Foreclosures accounted for just 0.7% of all closed sales and short sales accounted for 1.2%. That means that 98.1% of all sales were good ol’ fashioned sellers with equity.

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All Information deemed reliable but not guaranteed.  Buyers and sellers should conduct their own research.

Report Compliments of Steven Thomas Reports on Housing.