Source: Steven Thomas - Orange County Housing Report
1. There are a lot more homes on the market. In fact, this is the highest active inventory level since 2011. There are 7,479 homes that are currently for sale. That is 27% more than last year, an additional 1,605 homes. The big rumor is that there are a lot more homeowners opting to sell and flooding the market. The reality is that there are nearly the same number of sellers coming on the market year after year. In 2017, from January through May, 18,264 homes were placed on the market. In 2018 there were 18,199. And, there were 18,180 this year, making it evident that there is not a flood of homes coming on. Instead, fewer and fewer listings have been converted to sales due to muted demand. With less success, the active inventory has grown.
2. Demand is muted compared to 2012 through the 2017. This trend emerged last year. In 2018, through May, demand (the number of new pending sales in the prior 30-days) was down by 13% compared to the month of May in the years of 2012 through 2017 (a.k.a. the housing market recovery period). In 2019, it is down 20% overall compared to those same years. The muted demand has made it more challenging to sell. Homes are not appreciating like they used to. With values reaching record levels, the rise in incomes coupled with inflation has not been able to keep up with home prices. Also, many believe that the current seven-year housing run is reaching a peak and running out of steam. These factors are softening demand. Year over year, current demand looks a lot similar, but keep in mind it was muted last year at this time. The trend of muted demand will continue for the remainder of the year.
3. Muted demand has put a damper on closed sales. The number of closed sales is down 9% compared to last year and off by 12% compared to 2017. When there are fewer pending sales, that translates to fewer successful closed sales. For the rest of the year, expect reports of year over year closed sales to be almost identical. Keep in mind, closed sales last year were muted compared to prior years as well. From May through December in 2018, closed sales were down by 12% compared to 2017.
4. Home appreciation is now flat, so careful pricing is crucial. With a higher active inventory, coupled with muted demand, the Expected Market Time for Orange County as a whole has increased substantially. Currently, it is at 85 days, a slight Seller’s Market. Unlike 2012 through 2018, housing did not enjoy a HOT Seller’s Market in 2019. It only evolved to a slight Seller’s Market, one where sellers get to call more of the shots, but homes are not appreciating much, if at all. Expect this trend to continue through the remainder of the year. As demand remains flat through the summer, more homes will be placed on the market and housing will evolve to a Balanced Market, one that does not favor buyers or sellers. There will be fewer multiple offer situations and homes will take longer to sell.
5. Interest rates have dropped dramatically over the past 6 months, improving affordability substantially, but not fueling much of a bump in demand. After nearly reaching 5% back in November, mortgage rates have dropped to 4%. They have not been this low since January 2018, right before they began to spike. This has increased affordability greatly. For a $750,000 mortgage, the monthly payment difference between 4% and 5% is $445. That is an annual savings of $5,340, or $26,700 in five-years. The drop in mortgage rates saved housing from slipping into a deep funk like September through December of 2018, but is has not moved the needle much in terms of increased demand. Even with the return of historically low interest rates, demand remains muted. With the Spring Market in the past, there are only a couple of great months left in the meatiest time of the year to sell. Once the market rolls into August, housing will start to transition to the Autumn Market where demand falls along with the active inventory.
An Update on the Luxury Market - Notable Improvement in Recent Weeks
In the past two-weeks, demand for homes above $1.25 million increased by 8%, and now totals 389. That’s still down from its mid-April peak of 424 pending sales, but a step in the right direction. The overall expected market time for homes priced above $1.25 million also decreased, from 206 days to 193 over the past two-weeks, a 6% drop. While this trend is now moving in the right direction, six weeks ago it was at 161 days. Year over year, luxury demand is down 8%, and the active luxury listing inventory is up by 19%. Extra seller competition and muted demand in the luxury ranges in 2019 is a trend that will persist.
Low rates and high demand means it may be a good time to make a move.
Source: Steven Thomas Housing Report - April 22, 2019
Timing is arguably the second most important key to success in real estate, behind the #1 key we all know: "Location, location, location!"
When is the best time to make a move? Current housing conditions and trends point to now being the best time, for both buyers and sellers. Buyers can take advantage of low interest rates, and sellers can get the best prices possible as demand rises and inventory starts to decrease.
At the end of 2018, economic experts and major financial institutions were forecasting interest rates anywhere from 5.25% to 6% in 2019. That seemed more than reasonable given the fact that rates had climbed from 3.95% at the beginning of 2018 to nearly 5% by November. Yet, after an exceptionally rocky December for Wall Street and news of an economic slowdown in both China and Europe, interest rates retreated and dropped to 4%. Since then, they have risen slightly to about 4.2%, where they stand today. The bottom line, mortgage rates are back down to historical lows. It is a great time to be a buyer.
To put this newfound affordability in practical terms, if a buyer is looking for a payment of about $3,000 per month with 20% down, they are now looking at purchasing a home priced at $762,500 with a 4.25% mortgage rate. Compare that to last November when rates were just about 5%; that $3,000 per month payment allowed a buyer to purchase a home at $698,750. The drop in rates has allowed this buyer to purchase $63,750 more home for the same money.
These lower rates and surge in buyer demand has been beneficial for sellers as well, with growth in demand in recent weeks outpacing new inventory coming on. As a result, expected days-on-market (the number of days it would take for a home placed on the market today to sell) has dropped from 84 last month, to 76 days now. This kind of drop has not been seen during this time of year in a decade.
If you are thinking of thinking of making a move, let's get the conversation started!