Orange County Housing Report: Three Distinct Ranges November 24, 2013 Hello there! All price ranges have experienced a dramatic increase in their inventories, yet they each march to the beat of a different drum. Three Distinct Ranges: Contrary to popular belief, the current active inventory has increased the most in the lower ranges and not the upper ranges. The Orange County housing market is comprised of three distinctly different price ranges. For all homes priced below $1 million, it remains a seller’s market, just not as heated and no longer experiencing skyrocketing appreciation. The range of homes priced between $1 million and $2 million is currently experiencing a balanced market, not a buyer’s nor seller’s market. The luxury range above $2 million is experiencing a buyer’s market with only mild activity. The lower ranges, below $1 million, account for 74% of the current active inventory and 88% of demand. The expected market time, how long it would take to exhaust the current inventory based upon today’s demand, is at a little over 2 months, or 64 days. Sellers new to the market should no longer expect to sell within the first week; the market has changed. It is no longer the heydays of this year’s Spring market. And, for all of those homeowners waiting to come on the market in the Spring of 2014, do not expect a repeat of this year’s rapid appreciation, multiple offers, and total seller control of the market. Buyers are no longer willing to pay massive premiums over the most recent comparable sales and that will continue to be the case next year. Instead, they are interested in paying the Fair Market Value for a home. The active inventory has increased dramatically, and the lower ranges have actually realized the largest gains. Despite the most recent drops in the active inventory due to the Holiday Market, the lower ranges are still more than double where they were in mid-March. Many sellers have opted to throw in the towel over the past month; yet, the active inventory remains elevated. REALTORS® in the trenches are reporting that many of the homeowners who are throwing in the towel are going to pop right back on the market during the Spring. They will join a throng of first time sellers who are waiting until then as well. They are waiting until the Spring Market because demand is cyclically the strongest; it is the busiest time of the year. Yet, from now until then, there will be virtually no change in the Fair Market Value, no appreciation. For the sellers who have pulled their homes off the market only to come back on in the Spring at the same price or higher, they will end up wasting valuable market time with no success. That is because of a shift in the buyers approach to the market. Sellers will not get away with aggressively pricing their homes. Quite simply, buyers are not going to bite. For sellers that price their homes accurately, according to the most recent comparable and pending sales, they will achieve success, a shorter market time, and, in many cases, multiple offers. Homes priced between $1 million and $2 million, had experienced a seller’s market earlier in the year. In mid-March, the expected market time was just 63 days, but today these sellers are looking at nearly five months, or 143 days. It’s a market in equilibrium, not a seller’s nor a buyer’s market. The change to equilibrium comes from an increase in the inventory from 551 homes to 923 today. Combine that with a 25% drop in demand and the expected market time has soared to a point where sellers can no longer expect quick success. Instead, it is best to be patient and listen to how the market responds to their price. As the market time rises, accurately pricing becomes absolutely essential to achieve success. Testing the market is a complete waste of everybody’s time. Only motivated sellers should participate. The luxury home market, homes priced above $2 million, are currently experiencing a buyer’s market. However, this range is unique in that there may be a lot more homes on the market with very low demand, but sellers are typically in no rush either. They are willing to sit on the market for quite some time to wait for the right buyer to eventually isolate their home. There are currently 635 homes on the active market within this range and only 72 pending sales within the last month. The expected market time is nearly nine months, which is pretty good compared to during the downturn a few years ago when it was well over a year. The range represents 11% of the active inventory and only 3% of demand. Still, many of these homeowners in the luxury range arbitrarily pick a value and err on overpricing their homes. Most are custom homes with loads of upgrades, amenities, large lots and panoramic views. Pricing is difficult because each home is unique and individual. But, accurately pricing is not impossible; it takes tremendous homework, analysis, and tediously pouring over comparable and pending sales to obtain a true sense of value, the fair market value. Regardless of the range, the inventory has increased, most dramatically in the lower ranges. The market has evolved and buyers are carefully approaching the market, willing to pay based upon what is fair. Sellers who are in tune with the evolution in Orange County housing will eventually achieve success. Active Inventory: The inventory shed 5% in the past two weeks as more sellers throw in the towel and fewer homes come on the market. In the past two weeks, the active listing inventory dropped by 279 homes and now totals 5,880, dipping below 6,000 homes for the first time since August. It’s the largest drop since November of last year. The drop in inventory is not only due to many sellers collectively opting to pull their homes off of the market, but is also due to far fewer homes coming on the market at this time of the year, about one-third fewer than the summer months. This is part of the normal, Holiday Market, a phenomenon that will pick up steam as we move further into the holidays. Last year at this time there were 3,534 homes on the market, 2,346 fewer than today. The low supply was one of the main reasons that homes were appreciating so rapidly last year, even during the slower, holiday market. Demand: Demand increased 1% in the past two week. Demand, the number of new pending sales over the past month, increased by 18 and now totals 2,295. From here, we can expect demand to drop to its lowest levels of the year. It’s the holidays and for many buyers, their attention is going to move towards eating turkey, giving thanks, sipping eggnog, exchanging presents, and ringing in a New Year. It will not be until after the first couple of weeks into January 2014 that demand will start to rise again. Last year demand was at 3,013 pending sales, 718 more than today. Those numbers were a bit inflated as there were a lot more short sales embedded in demand, 810 pending short sales compared to 224 today. Since only about half of all short sales ever close, the 586 additional pending short sales skewed the demand totals last year. Even so, the disparity between last year and this year’s demand is large enough that it will result in fewer sales in the coming months in comparing year over year numbers. Distressed Breakdown: The distressed inventory increased by 1% in the past two weeks. The distressed inventory, foreclosures and short sales combined, increased by 1%, or 3 homes, and now totals 288, levels not seen since February. For perspective, the year started with 400 and there were 450 in November 2012 and 3,400 in November 2011. Only 4.9% of the active listing inventory and 11% of demand is distressed. Compare that to last year when it represented 13% of the inventory and 33% of demand, and two years ago when it represented 37% of the inventory and 55% of demand. Distressed properties today play only a small role in a housing market dominated by sellers with equity. In the past two weeks, the foreclosure inventory increased by 12 homes and now totals 64. 1% of the inventory is a foreclosure. The expected market time for foreclosures is 55 days, its highest level of the year. The short sale inventory decreased by 9 homes in the past two weeks and now totals 224. Short sales remain the hottest segment of the Orange County housing market with an expected market time of 31 days. Short sales represent just 3.8% of the total active inventory.
Posted on: Mon, 25 Nov 2013 15:04:24 +0000
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