Orange County Housing Report

Orange County Housing Report:  A Buyer’s Market?

July 1, 2018                                                                                                                                                                                                                                       

The overall Orange County housing market is a seller’s market,

but not at a certain price point.

A Cool Market: The housing market feels a bit frigid in the higher end compared to the rest of the market.

Recent headlines exclaim that the median sales price has reached a record level in Orange County, Los Angeles County, and all of Southern California. Article after article details the continued lack of supply, hot demand, and years of nonstop appreciation. How in the world can any local market be a buyer’s market? Technically, luxury housing favors buyers and it is anything but hot.

While it may be true that the lower the price range, the hotter the market; the reverse is true as well, the higher the price range, the cooler the market. For homes priced above $1.25 million in Orange County, housing is extremely cool. Luxury housing (defined by many as the top 10% of recent closed sales) starts at $1.45 million locally. The luxury end is technically, a “Buyer’s Market.” When the expected market time, the amount of time it would take to place a home into escrow if it were listed FOR SALE today, exceeds 120 days, it is considered a buyer’s market.

It is good ol’ supply and demand. While there is plenty of supply, demand just is not hot like the lower ranges. For homes priced between $1.5 million and $2 million, the expected market time is at 150 days. That would be opening escrow at the end of November. For homes priced between $2 million and $4 million, the expected market time climbs to 225 days. That would be opening escrow in mid-February of next year. For homes priced above $4 million, the expected market time balloons to 427 days, which translates to opening escrow in September of next year, 14-months from now.

The number of potential buyers that can afford to purchase a home diminishes as prices rise. In the lower ranges, that is where there are plenty of buyers and not enough choices. They attract a steady stream of buyers and many sellers entertain multiple offers. Yet, at the luxury end of the market, most sellers sit on the market for months and do not find success. There is tremendous seller competition for a limited number of buyers able to afford these homes.

In order to find success within the luxury price range, sellers must pack their patience and keep their fishing pole in the water for a lot longer than the lower ranges. Some homes may fly off the market at the higher price points, but they are the exception and not the rule. Luxury sellers also must be priced right. Like any home, buyers are unwilling to pay more than a home’s Fair Market Value. Yet, many luxury sellers arrive at their asking price arbitrarily, a lot higher than their Fair Market Value. They lack true motivation, as many state that they “don’t have to sell” to help rationalize their price. This is the Achilles’ heel of the luxury market and prevents so many sellers from achieving success. Instead, sellers need to approach pricing with extreme care by looking cautiously at all of the most recent comparable pending and closed sales and local data and statistics.

The best advice for a luxury seller: do not pay attention to all of the real estate headlines. Instead, they should rely on the professional analysis and advice of a seasoned REALTOR®.

Active Inventory: The active inventory grew by 4% in the past two-weeks.

The active listing inventory continued its climb in the past two-weeks, adding 257 homes, or 4%, and now totals 6,362, its highest level since October 2016. Expect the active inventory to continue to grow until peaking most likely in mid-August.

Demand:  Demand decreased by 4% in the past two-weeks.

In the past two weeks, demand, the number of pending sales over the prior 30-days, decreased by 95 pending sales, or 4%, and now totals 2,604, the lowest demand reading for this time of the year since 2007. Demand reached a peak for 2018 in mid-May at 2,726 pending sales. That was the lowest peak since 2007.

Last year at this time, demand was at 2,885 pending sales, 11% more than today, or 281 pending sales. This is why REALTORS® in the trenches have articulated how the market is a bit more sluggish this year compared to 2017.

The expected market time, the amount of time it would take for a home that comes onto the market today to be placed into escrow down the road, increased from 68 to 73 days in the past two-weeks. At 73 days, it is a slight seller’s market (between 60 to 90 days) where sellers still get to call the shots, but appreciation is muted. Last year at this time, the expected market time was at 62 days, a lot hotter than today.

Luxury End:  Demand for luxury homes dropped by 7% in the past couple of weeks.    

In the past two-weeks, demand for homes above $1.25 million decreased by 26 pending sales, down 7%, and now totals 363, its lowest level since the start of April. The luxury home inventory increased by 9 homes and now totals 2,174, nearly the same as two weeks ago. The overall expected market time for homes priced above $1.25 million increased from 167 to 179 days over the past two-weeks.

Year over year, luxury demand is up by 19 pending sales, or 6%, and the active luxury listing inventory is up by an additional 106 homes, or 5%. The expected market time last year was at 180 days, nearly identical to today.

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