Pedal to the Metal
With the holidays in the rearview mirror, the 2020 Orange County housing market is revving its massive engine.
Getting Hot: Strong demand and a low supply of available homes is allowing the market to accelerate fast.
Drag racecars are loud. After a quick burn of the tires to get them hot and ready to go, the cars back up behind the starting line and wait for the race to begin. The drivers are ready, and the initial light goes on. The yellow flashes next indicating that the start is moments away. It is quickly followed by a green light… it is GO TIME!! The racecars accelerate down the track at a mind-blowing speed.
The 2020 housing market is looking a lot like a drag race. The green light just went on and the market is already propelling down the racetrack at an amazing speed. It was just a year ago that housing was moving along at a much slower pace. Buyers were taking their time and it definitely was not a race to purchase. Mortgage rates were at 4.5%, eating into a buyer’s motivation to find a home.
Flash forward a year later and there is no lingering inventory from the prior year. Interest rates are at 3.75%. The low interest rate environment is the rocket fuel that is propelling the market down the dragstrip. Multiple offers are once again the norm. Homes that are priced well and in good condition are selling quickly. In most cases it is the winning bidder who finds success.
Everything priced below $1 million is experiencing a HOT market. It all boils down to supply and demand. Current demand is extremely strong, and the active inventory is at exceptionally anemic levels. Compared to last year, there are 34% fewer homes on the market right now, and demand (new pending sales over the prior month) is up by 19%. The expected market time (the time it would take to list a home today and then place it into escrow down the road) dropped from 82 days two weeks ago to 71 days today. This is because the supply of homes increased by only 122 homes, up 3%, while demand exploded upward, adding an extra 268 pending sales, up 19%.
The only thing holding back demand right now is that it is only January and not that many homes are coming on the market. Even in California it is still winter. Demand will continue to climb as more and more homes come on the market, peaking between April and May. Sellers who opt to sell now, versus waiting until later in the spring, are taking advantage of a market ripe for the pickings. Carefully pricing a home according to its Fair Market Value, taking into consideration condition, location, and upgrades, will result in selling quickly and at, or even slightly higher, than the asking price. Stretching the price too much will result in wasting the most valuable market time, the first few weeks after coming on the market.
For homeowners waiting to place their homes on the market in the spring, there will unquestionably be more buyers looking to purchase; however, there will also be a significant increase in the number of sellers coming on the market. The Expected Market Time typically starts to rise in April as the number of new FOR SALE signs outpaces the rise in demand. One thing is for certain, right now is a really good time to place a home on the market, just as the housing market is putting the “pedal to the metal.”
Active Inventory: The current active inventory increased by 3% in the past two-weeks.
The active listing inventory increased by 122 homes in the past two-weeks and now sits at 4,023, a 3% rise. Now that the holidays are in the past, it is time for the inventory to rise as slowly but surely more homeowners opt to place their homes on the market. The momentum will increase after the Super Bowl, picking up speed in March. More homes come on the market from March through June than any other time of the year. Last year at this time, there were 6,122 homes on the market, 2,099 more than today, a 52% difference. There were a lot more choices for buyers last year.
Demand: In the past two-weeks demand increased by 19%.
Demand, the number of new pending sales over the prior month, increased from 1,434 to 1,702, an additional 268 pending sales, up 19%. Demand will continue to rise from here, peaking in late April to mid-May. The current pace of new pending sales is outstripping the increase in the active inventory, which is why the market is currently getting hotter.
Last year, there were 267 fewer pending sales than today, 16% less.
In the past two-weeks the Expected Market Time decreased from 82 to 71 days, a slight Seller’s Market (60 to 90 days), where home values are only appreciating slightly, and sellers get to call more of the shots during the negotiating process. At 71 days, the Orange County housing market is knocking on the door of a HOT Seller’s Market (less than 60 days). Last year the Expected Market Time was at 128 days, a much slower market that favored buyers.
Luxury End: Luxury demand exploded upward in the past two-weeks.
In the past two-weeks, demand for homes above $1.25 million increased by 53 pending sales, a 23% jump, and now totals 284. The luxury home inventory increased by only 37 homes and now totals 1,522, up 2%. With demand soaring and the inventory only rising slightly, the overall Expected Market Time for homes priced above $1.25 million dropped from 193 to 161 days in the past couple of weeks.
Year over year, luxury demand is up by 97 pending sales, or 52%, and the active luxury listing inventory is down by 348 homes, or 19%. The Expected Market Time last year was at 300 days, noticeably slower than today. For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time decreased from 124 to 83 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 149 to 144 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 199 to 181 days. For homes priced above $4 million, the Expected Market Time decreased from 605 to 468 days. At 468 days, a seller would be looking at placing their home into escrow around May 2021.
Orange County Housing Market Summary:
- The active listing inventory increased by 122 homes in the past two-weeks, up 3%, and now totals 4,023. Last year, there were 6,122 homes on the market, 2,099 more than today, or an extra 52%.
- Demand, the number of pending sales over the prior month, increased by 268 pending sales in the past two-weeks, up 19%, and now totals 1,702. Last year, there were 1,435 pending sales, 16% fewer than today.
- The Expected Market Time for all of Orange County decreased from 82 days to 71, a slight Seller’s Market (between 60 to 90 days). It was at 128 days last year, substantially slower than today.
- For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 49 days. This range represents 35% of the active inventory and 52% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 49 days, also a hot Seller’s Market. This range represents 18% of the active inventory and 24% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 96 days, a Balanced Market.
- For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 124 to 83 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 149 to 144 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 199 to 181 days. For luxury homes priced above $4 million, the Expected Market Time decreased from 605 to 468 days.
- The luxury end, all homes above $1.25 million, accounts for 39% of the inventory and only 16% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 1.1% of all listings and 1.2% of demand. There are only 20 foreclosures and 24 short sales available to purchase today in all of Orange County, 44 total distressed homes on the active market, down 1 from two-weeks ago. Last year there were 56 total distressed homes on the market, slightly more than today.
- There were 2,469 closed residential resales in December, 40% more than December 2018’s 1768 closed sales. December marked a 10% increase compared to November 2019. The sales to list price ratio was 97.4% for all of Orange County. Foreclosures accounted for just 0.6% of all closed sales, and short sales accounted for 0.5%. That means that 98.9% of all sales were good ol’ fashioned sellers with equity.
Report courtesy of Steven Thomas Reports on Housing. Information deemed reliable but not guaranteed.