October 7, 2018
The momentum of the housing market has paved the way for cooler Autumn and Holiday Markets.
No End of Year Surge: There will not be a sudden surge in closed sales for the remainder of the year.
It is that time of the year. The days are growing shorter, the leaves are changing, and Halloween decorations have emerged. Autumn has arrived. Just as the seasons change, so does the housing market. The Spring and Summer Markets are officially in the rearview mirror. There’s very little of 2018 that remains.
Housing’s Autumn Market runs from the end of August through mid-November. Typically, this is the season when the active inventory drops along with demand. The Expected Market Time (from listing a home to opening escrow) does not change much. The number of monthly closed sales slows from the highs of spring and summer. They fall from September to October and drop from October to November. Some years’ experience a surge in closed sales from November to December. This surge in closed sales is because of an increase in pending sales, demand, during October, an “Oktoberfest” for housing. Yet, 2018 is shaping up to be a completely different year, and the remainder of the year will prove to be no exception.
The current momentum and market trends have paved the way for a slower end to 2018. There were 2,108 closed resales in September. That’s down a staggering 24% compared to the 2,734 closed sales last year. The last time there were fewer sales dates to 2007 when there were only 1,334. Today’s housing market looks a lot like 2006 in terms of sales.
In comparing monthly closed sales at the end of the year, December is on average down 8% compared to September. There wasn’t much of an Oktoberfest surge in 2016 and 2017. The last time there was any type of a surge dates to 2013 through 2015, when there was a sharp rise in closed sales from November to December.
The rest of 2018 will be more of the same, muted buyer demand, longer market times, a lingering supply of homes, and a large drop in closed sales compared to last year. Demand (the number of pending sales over the prior month) is down by 15% compared to last year. The Expected Market Time has risen to 105 days, the highest level since September 2011. It was at 67 days last year. And, the active listing inventory is at 7,201 homes, 34% higher than last year’s 5,382.
A falling supply of homes and falling demand normally occurs during the Autumn Market. While demand has fallen as expected, the active inventory just peaked and has not begun its usual drop. The peak in the active listing inventory predictably occurs anywhere from July to August. This year, it happened two weeks ago at 7,207 homes. It has remained at that level and has shed only six homes since, sitting at 7,201 homes today. With only demand dropping, the Expected Market Time has been climbing when normally it tends to remain the same. At 105 days, the Orange County housing market is no longer a Seller’s Market; instead, it is a Balanced Market that does not favor buyers or sellers.
Today’s sellers need to understand that housing is not going to suddenly tilt back in their favor. There will be fewer closed sales for the remainder of the year. Demand will be muted, and it will continue to fall. The inventory will start to drop a bit, but it will remain elevated with a lot more competition. It is going to take a lot longer to find success. Only sellers who are accurately priced according to their Fair Market Values, and pack plenty of patience, will achieve their goal in selling. Carefully pricing is critical. 64% of all closed sales in September reduced their asking price at least once. This is a time when sellers need to look in the mirror and be certain that they are willing to do what it takes to get their homes sold, knowing that there will not be a sudden surge in activity. There will be no Oktober-Housingfest this year.
Active Inventory: The active inventory finally peaked.
Typically, the active listing inventory peaks in July or August, but not in 2018. Instead, the inventory reached a peak two weeks ago at 7,207 homes. It has only shed six homes since and sits at 7,201 homes today, virtually unchanged. From here expect the active inventory to start to drop slowly, picking up momentum as the year continues to unwind. The late peak means that the inventory will remain elevated compared to 2017 for the remainder of the year. As a result, 2019 will start with a lot more homes on the market compared to recent years.
Last year at this time, there were 5,382 homes on the market, 1,819 fewer. That means that there are 34% more homes available today. The year over year difference continues to grow each week. The trend of more homes on the market year over year is here to stay.
Demand: Demand dropped 5% in the past two-weeks.
In the past two-weeks, demand, the number of pending sales over the prior month, decreased by 117 pending sales, a 5% drop. Demand now totals 2,050, the lowest demand reading for this time of the year since 2007. The housing market has shifted from a supply problem, not enough homes on the market, to a demand problem, not enough pending sales. Interest rates have climbed to their highest levels since 2011. Higher rates and higher values have weakened affordability, impacting demand tremendously.
Last year at this time, demand was at 2,426 pending sales, 15% more than today, or 376 additional pending sales.
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 down the road, increased from 100 to 105 days in the past two-weeks, a Balanced Market (between 90 and 120 days). Last year, the expected market time was at 67 days, drastically different than today.
Luxury End: Both luxury demand and luxury supply dropped in the past two-weeks.
In the past two-weeks, demand for homes above $1.25 million decreased by 24 pending sales, an 11% drop, and now totals 279. The luxury home inventory decreased by 29 homes and now totals 2,125, a 1% drop. The overall expected market time for homes priced above $1.25 million increased from 205 to 228 days over the past two-weeks.
Year over year, luxury demand is down by 24 pending sales, or 8%, and the active luxury listing inventory is up by an additional 238 homes, or 13%. The expected market time last year was at 187 days, better than today.
For homes priced between $1.25 million and $1.5 million, the expected market time increased from 134 to 143 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 164 to 170 days. For homes priced between $2 million and $4 million, the expected market time increased from 291 to 384 days. For homes priced above $4 million, the expected market time increased from 328 to 354 days. At 354 days, a seller would be looking at placing their home into escrow around the end of August 2019.
Orange County Housing Market Summary:
- The active listing inventory decreased by 6 homes in the past two weeks, almost identical, and now totals 7,201. The inventory finally reached a peak for 2018. Normally it peaks between July and August. Last year, there were 5,382 homes on the market, 1,819 fewer than today.
- So far this year, 14% fewer homes have come on the market below $500,000 compared to last year, and there have been 26% fewer closed sales. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly vanishing.
- Demand, the number of pending sales over the prior month, decreased in the past two-weeks by 117 pending sales, and now totals 2,050. Demand peaked in mid-May at 2,726 pending sales. Last year, there were 2,426 pending sales, 15% more than today.
- The average list price for all of Orange County remained at $1.5 million over the past two-weeks. 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 still a slight Seller’s Market (less than 90 days) with an expected market time of 77 days. This range represents 42% of the active inventory and 58% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 98 days, a Balanced Market (between 90 to 120 days). This range represents 20% of the active inventory and 21% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 116 days, a Balanced Market.
- For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 134 to 143 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 164 to 170 days. For luxury homes priced between $2 million and $4 million, the expected market time increased from 291 to 384 days. For luxury homes priced above $4 million, the expected market time increased from 328 to 354 days.
- The luxury end, all homes above $1.25 million, accounts for 30% of the inventory and only 14% of demand.
- The expected market time for all homes in Orange County increased from 100 to 105 days, a Balanced Market (between 90 to 120 days).
- Distressed homes, both short sales and foreclosures combined, made up only 1.1% of all listings and 1% of demand. There are only 30 foreclosures and 48 short sales available to purchase today in all of Orange County, 78 total distressed homes on the active market, up by 10 from two-weeks ago. Last year there were 81 total distressed homes on the market, 4% more than today.
- There were 2,090 closed residential resales in September, 24% fewer than September 2017’s 2,746. September marked a 25% drop over August 2018. The sales to list price ratio was 96.9% for all of Orange County. Foreclosures accounted for just 0.4% of all closed sales, and short sales accounted for 0.3%. That means that 99.3% of all sales were good ol’ fashioned sellers with equity
Have a great week.
Quantitative Economics and Decision Sciences
Report courtesy of Steven Thomas Reports on Housing. Information deemed reliable but not guaranteed.