Orange County Housing Report: The Market is Cooling
Market time is growing
due to an increasing inventory and a
decline in demand as
housing transitions to summer.
Expected
Market Time: It’s still a seller’s
market, but there is a dramatic cooling trend.
REALTORS®
on the streets of Orange County are describing a housing market that is
obviously in transition. Some homes fly off the market in seconds, while others
sit with very few showings. Some buyers are starting to take their time as
summer distractions set in, yet others are chomping at the bit and are ready to
jump at a moment’s notice. What is going on? This is the time of the year where
the market seems a bit like Dr. Jekyll and Mr. Hyde.
An
ominous sign of a market in flux are the growing number of open house
directional arrows sprouting up at busy intersections. Typically, more open
house signs mean that homes are not flying off the market as quickly as they
once did. This is due to a combination of reasons.
The
number one reason that homes are sitting a bit longer right now (and they will
sit even longer as the Summer Market evolves) is that sellers are not getting
away with overpricing and stretching the asking price. Demand falls at the end
of the Spring Market during the graduation season, and it falls further as all
of summer’s distractions set in. With demand falling, buyers start to bump into
each other less and their mindset changes as well. They are no longer willing
to overpay for their home; instead, they pursue the Fair Market Value for a home.
Many
ask how the Fair Market Value is
determined for a home. Quite simply, it can be determined by carefully
analyzing all of the comparable pending and most recent closed sales. Many
sellers fall into the trap that their home is better than all the comps, which
is why it is important to lien on a professional REALTOR®. As humans, it is
very difficult to separate the emotions of a home from the real factors that
determine the true value.
In the past
month, the expected market time has increased from 60 days to 69 days and that
trend does not look like it will slow anytime soon. It is a seller’s market,
but it is weakening and evolving into a slight seller’s market where
appreciation slows. The number of showings drops as does the potential for
multiple offers. This is precisely why pricing is so crucial at this stage of
the market. Overprice and a seller can sit on the sidelines all summer. And,
the Autumn Market is even slower. The expected market time is going to push its
way to a “Balanced Market,” one that does not favor a buyer or seller, in
August. That occurs when the expected market time is between three and four
months. For those buyers holding out for a buyer’s market, it does not look
like that is going to occur in 2016. The expected market time needs to push
past four months to tilt in the buyer’s favor. That would require an enormous
increase in the inventory, which will not occur this year.
In
the past month, the active listing inventory, “supply,” has risen from 6,267
homes to 6,868, a 10% increase. “Demand,” the number of new pending sales over
the prior month, decreased from 3,144 to 2,989 in the past month, a 5% drop.
Basic Econ 101 tells us that when supply increases by 10% and demand drops by
5%, the pace at which homes sell cools. As a result, homes are not selling like
hot cakes like they were a month ago.
Luxury End: The luxury ranges are
slowing right now as well.
For
homes priced between $1 million to $1.5 million, demand dropped by 10% in the
past two weeks and the inventory increased by 5%. As a result, the expected
market time grew from 102 days to 119. Many sellers are wondering why they are
not getting as many showings right now; it’s because their market is cooling.
For
homes priced between $1.5 million to $2 million, demand dropped by 6% in two
weeks and the inventory increased by 6%. As a result, the expected market time
swelled from 137 days to 152 days. For homes priced above $2 million, demand
fell by 8% and the inventory increased by 1%, so the expected market time moved
from 231 days to 249 days. For proper perspective, 249 days from now is the end
of February 2017.
Active Inventory: The inventory increased by 4% in the past two weeks.
The
active inventory increased by 265 homes in the past two weeks and now total
6,868, its highest level since September of last year. The inventory will
continue to climb during the Summer Market and will peak in mid-August, much
higher than last year’s peak of 7,167. The inventory could stretch all the way
to 8,000 homes if the current accelerated trend of new homes hitting the market
continues.
Last year there
were 334 fewer homes on the market, 5% less.
Demand: In the past two-weeks
dipped below 3,000 for the first time since the start of April.
Demand
peaked at the beginning of May and has dropped by 6% since. In the past two
weeks, demand, the number of new pending sales over the prior month, decreased
by 33 homes and now totals 2,989, dropping to below the 3,000 pending sale mark
for the first time since the beginning of April. The last time demand dropped
during this time of the year was in 2011. This is a trend that has lasted a
month now and is part of the reason the market has been rapidly shifting away
from a deep seller’s market.
Last
year at this time demand was at 3,094 pending sales, 105 more than today.
