The Latest Orange County Housing Report
Below is the latest Orange County Housing Report from my friend, Steven Thomas.
Summer is flying by and so is the second best time of the year to sell a house
Window of Opportunity: The second best time of the year to sell will come to an end as soon as the kids go back to school and housing transitions into the Autumn Market.
This year, the transition from the Summer Market to the Autumn Market is a bit more significant because the expected market time is moving away from a seller’s market to one that is balanced, favoring neither the seller nor the buyer. It is also important to note that the best time of the year to sell is already behind us, the Spring Market. Summer is mistakenly viewed as the best, but the higher sales numbers are actually a reflection of pending sales that were negotiated during the spring, but did not close until the summer. As a result of a lot of publicity that is circulated about closed sales, many are duped into thinking that right now is the best time to sell; unfortunately, they are wrong.
Back to school means that fewer buyers are yearning to make an immediate move. Buyers with children factor the displacement of their children and the strain on their family in moving during a school year. As a result, many buyers simply opt to wait until the following spring to start the process of isolating their next home.
As housing transitions into the Autumn Market, the window of opportunity in taking advantage of the summer will come to an end. That does not mean that sellers will not be successful; however, it is going to take a bit more patience and accurately pricing will be fundamental in luring a willing and able buyer. Sellers will absolutely NOT get away with overpricing a home. Ironically, most sellers initially list their homes outside of the realm of reality and arbitrarily price based upon what they want rather than what buyers are willing to pay. Today’s buyers are looking to pay very close to a home’s Fair Market Value, a value based upon the most recent comparable sales activity.
Appreciation has already slowed to a crawl, but it is going to slow further, from 1% to 0%, a flat line. Pricing a home in hopes that the market will appreciate enough to come up to an overpriced level is a fruitless strategy only resulting in a decision to make: reduce the asking price or throw in the towel.
The proverbial “window of opportunity” is closing further because the Orange County housing market is marching its way towards a balanced market, leaving behind the seller’s market of the past 2½ years. This may not occur in all price ranges or cities, but, at the very least, will slow across the board, affecting every community and every price across the county. This will require patience and accurate pricing to succeed. Today’s seller’s market means sellers can call the shots, but does NOT mean that they will get away with arbitrarily overpricing their homes. That will be true for any remaining seller’s markets for the rest of the year. The higher price ranges, above $750,000, will be much slower. This range accounts for 43% of the active listing inventory and 29% of total demand. As is always true, there are fewer buyers, as a percentage, in the upper ranges compared to the lower ranges. It is purely an affordability issue. Thus, it makes sense that this range has many more challenges in selling.
The higher the price, the more challenging it becomes to sell. In many cases throughout the year, the ultra-luxury ranges, homes priced above $2 million, slip into a lethargic market with expected market times ballooning to above one or even two years. This market does not respond with quick price reductions; instead, they must patiently wait for either the market to evolve on its own or carefully analyze any changes that need to be addressed. It also marches to the beat of its own drum and does not change as radically as the rest of the housing market.
Currently, Newport Coast, Laguna Beach, Corona del Mar, Coto De Caza, Ladera Ranch, and all homes above $1.5 million, are experiencing a balanced market with an expected market time of at least five months. Expect the number of cities and price ranges in this select group to increase during the Autumn and Holiday Markets. It is incumbent upon sellers to know their specific market and price range as it continues to evolve.
The lower ranges are slowing too. For homes priced below $750,000, the expected market time is at 2.5 months compared to 1.5 months one year ago. This range will not be an exception, as it too will slow during the Autumn and Holidays, just not as profound as the upper ranges. It will still require a very careful approach and accurate pricing. There are simply fewer buyers in the market, so not every seller will be successful. Properly pricing homes NOW is the best strategy and approach.
The bottom line, the window of opportunity in taking advantage of the second best time of the year, the Summer Market, as well as a more favorable expected market time, is coming to a close. Benefit from proper pricing now before a different, more patient strategy will be required.
Active Inventory: The active inventory increased by 4% in the past two weeks.
The active listing inventory added an additional 276 homes in the past two weeks and now totals 7,811. Thus far in 2014 the inventory has grown without pause, adding an additional 3,093, a 65% increase, and is poised to continue to increase through the end August. Keep in mind, in order for the active inventory to grow, more home need to be placed on the market than are coming off as pending sales. Last year at this time there were 5,340 homes on the market, 2,486 fewer than today.
Demand: Demand increased by 1% in the past two weeks.
Demand, the number of new pending sales over the past month, increased by 24 and now totals 2,501. After an initial small dip in demand in July, it will slightly rise in August. Last year at this time demand was at 2,663, 162 additional pending sales compared to today.
Distressed Breakdown: The distressed inventory increased by 6% in the past two weeks.
The distressed inventory, foreclosures and short sales combined, increased by 17 homes and now totals 281. In 2014, the distressed inventory has not changed much, starting the year at 271. The long term trend is for it to remain at a very low level. Last month, they represented only 5% of all closed sales.
In the past two weeks, the number of active foreclosures increased by 7 homes and now totals 76. 1% of the active inventory is a foreclosure. The expected market time for foreclosures is 69 days. The short sale inventory increased by 10 homes in the past two weeks and now totals 205. The expected market time is 46 days and remains one of the hottest segments of the Orange County market. Short sales represent 2.6% of the total active inventory.
Steven Thomas, Quantitative Economics and Decision Sciences