The O.C. Housing Report: “Inventory Has Doubled”
A bi-weekly report on the housing market in Orange County, California, from Steven Thomas:
Despite extremely strong demand, the active inventory has doubled from last year’s historical lows.
In the first quarter of 2013, the active inventory in Orange County was at an unprecedented, extremely anemic level. The low was achieved at the very start of January and bounced around that bottom through mid-March where it reached a level of 3,183 before climbing without pause for seven straight months. It tapped out at 6,350 homes in mid-October, after nearly doubling. Typically, the inventory reaches a yearly height at the beginning of the Autumn Market, the end of August when the kids go back to school. Reaching the height was delayed because too many homes were coming on the market despite the slower season. Homeowners were hearing about massive appreciation in year-over-year numbers, so they were still clamoring onto the market. But, they were not getting the complete picture. Many of these reports failed to talk about, or highlight, month-over-month appreciation. True appreciation had come to a grinding halt at the beginning of the Autumn Market.
One way to explain what we were experiencing in terms of housing appreciation is in the analogy of taking off from John Wayne Airport, the craziest airport takeoff pattern in the country. Because of a noise ordinance over Newport Beach, pilots accelerate their jet engines to an extraordinarily high level and then release the brake as they rapidly take off and climb into the sky. That was appreciation from January 2012 through July 2013. After hastily climbing for a very short period of time, the pilot cuts back the engines as the plane flies over the Newport Beach Back Bay. Passengers feel like they are on an amusement park ride, zooming into the air and then, suddenly, gliding over Newport. From August through now, Orange County housing has been flying over Newport Beach, experiencing very little appreciation.
The market has shifted from buyers climbing over each other, doing whatever it took to purchase a home, even if that meant wildly paying way over the last comparable sale, to a much more methodical approach, a desire to pay the Fair Market Value for a home. Sellers used to be able to get away with randomly pricing a home way over the last comparable sale because demand was high, prices were low, interest rates were low, and the inventory was at a very low level. As prices escalated, the desire to pay much more than the most recent comparable sale dropped substantially. When sellers overpriced their homes, they sat on the market and did not achieve success. More homes were coming on the market than were going off as pending sales. The active inventory blossomed.
This year has been no different in terms of buyers approach to the market. They still are acutely aware of price and do not want to overpay. The active inventory started 2014 at 4,733 and has since added an additional 1,636 homes, again without pause. It has climbed by 35% so far this year and now sits at 6,369, a level not seen since March of 2012, over two years ago. Compared to last year’s bottom, prior to turning skyward, the inventory has increased by 100%, doubling. From here the trend will continue in adding more inventory at a faster clip than homes are pulled off the market and into escrow. It appears as if it will reach a height of 8,000 to 8,500 homes at the end of August, attaining a long term average for Orange County, a normal. To this point, the inventory has been at abnormal, anemic levels. It has been growing on the backs of overzealous, overpriced sellers.
For buyers, more inventory is great news. That means that there are more homes on the market with more choices. However, buyers need to understand that it is still a seller’s market, with an expected market time of 2.3 months, or 69 days. Sellers are still in control. That does not mean that they are in control of price, able to randomly choose a value and achieve success. It does mean that if they price according to the Fair Market Value, they will sell fast, with multiple offers, and will be able to dictate many of the terms.
Ultimately, the market is moving towards balance as the inventory rises. It has come a long way since the crazy lows of last year, moving towards a healthy, sensible level.
Last year at this time, the active inventory was at 3,556, that’s 2,813 fewer than today.
Demand: Demand decreased by 2% in the past two weeks.
Demand – the number of new pending sales over the past month – decreased by 65 and now totals 2,753. Last year at this time, demand was at 3,108 pending sales after increasing by 7% in just two weeks, 355 more than today. Demand was increasing last year, yet dropping this year because of Easter weekend. Typically, real estate takes a backseat during Easter, yet the date is always different. Last year Easter fell on March 31st, that’s nearly three weeks earlier than this year. So, the current demand reading is muted due to the holiday weekend. From here, demand will most likely increase slightly and then remain elevated through the rest of Spring, cyclically the hottest time of year for housing.
Distressed Breakdown: The distressed inventory decreased by 9% in the past two weeks, despite an overall rising inventory.
The distressed inventory, foreclosures and short sales combined, decreased by 24 homes and now totals 249, its lowest level since August of last year. The distressed inventory long term trend is to remain at a very low level, representing less than 10% of all sales in Orange County. As a matter of fact, it was only 6% of all closed sales last month. Only 4% of the active listing inventory and 8% of demand is distressed.
In the past two weeks, the number of active foreclosures dropped by 9 homes and now totals 63. There are 144 zip codes in Orange County, so there simply are not enough foreclosures to go around. 1% of the inventory is a foreclosure. The expected market time for foreclosures is only 34 days. The short sale inventory increased by 15 homes in the past two weeks and now totals 186. The expected market time is 33 days and has remained one of the hottest segments of the housing market. Short sales represent a little less than 3% of the total active inventory. ( End of Steven’s report.)