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Pending Activity: Housing has officially been sluggish in Orange County since April 2018 and it is not changing anytime soon.
There are some mountain roads that are extremely steep. In trying to ascend it behind the wheel of a car, often the pedal is all the way to the floorboard. The engine revs loudly and the car sluggishly makes its way to the top. You want your car to zoom up the mountain, but it’s out of your control. It takes time.
Similarly, the housing market has been moving along sluggishly since the spring of last year. In April 2018, demand (the last 30-days of pending sales) was off 11% compared to April 2017. By July 2018, it was off by 13%. As the year continued to unfold, muted demand became the new normal. After hearing how slow the market had become in 2018, many homeowners eagerly waited for 2019’s Spring Market. Yet, muted demand was not just a blip on the housing radar screen in 2018. Instead, sluggish demand had been a trend that continued to this day.
There are many experts and plenty of media reports that are beginning to talk about a robust second half to 2019. They point to the tremendous drop in interest rates as a catalyst to a sharp increase in buyer demand. Their thinking is that rates have dropped more than a full percentage point since last November, which has improved affordability dramatically. They are correct; affordability has improved considerably. The payment for a $650,000 mortgage has dropped from $3,489 per month at 5% back in November, to $3,103 per month at 4% today. That’s a savings of $386 per month or $4,632 per year.
The underlying issue is that mortgage rates have been much lower than last year, after dropping considerably in March, but they have not changed the number of pending deals at all. Demand has been lockstep with last year’s muted demand curve. Even with lower rates that have improved overall affordability, there are not as many buyers in the marketplace.
For years now, everybody has heard that there are not enough homes on the market. Many have stated that if there were more homes with FOR SALE signs in their yards, that there would be even more pending sales, and, ultimately, a lot more closed sales. That was pure speculation. There have been more homes for sale compared to the prior year since May 2018, yet demand has remained muted the entire time, 14 straight months.
For the second half of this year, the issue is going to be that there will be plenty of news stories regarding the numbers being better compared to last year. These stories need to be taken with a grain of salt. They will be comparing this year’s numbers to the second half of 2018, which were considerably muted, and interest rates climbed all the way to 5% by November. In November, year over year demand was down by 23%.
Instead, it is better to compare this year’s active listing inventory, demand, and closed sales numbers to two years ago, when the market was much hotter. It is the market that today’s sellers long for. Current demand is off by 15% compared to July 2017, and nearly identical to last year. The active listing inventory is 26% higher than July 2017, and 15% higher than last year. The Expected Market Time is 92 days, compared to 63 days in July 2017 and 80 days last year. June 2019’s closed sales are down 16% compared to June 2017, and down 6% from last year.
The moral to the real estate trend story is that despite the incredible improvement in affordability due to low mortgage rates, buyer demand remains muted. Lower rates are not igniting a run-up in demand. Instead, there is an underlying theme that nobody is talking about. Homes appreciated handsomely from 2012 through the first couple of months of 2018, rising over 70%. That rise has brought housing to a point where many can no longer afford to purchase, and are sitting on the sidelines. With sluggish demand, for the remainder of 2019, sellers should expect fewer closed sales and a market where pricing is absolutely crucial in order to find success.
Active Inventory: The current active inventory decreased by 39 homes in the past two weeks.
In the past two weeks, the active listing inventory decreased by only 39 homes, down 0.5%, and now totals 7,561. The active listing inventory typically continues to rise until peaking in July or August. However, in the month of June, 12% fewer homes came on the market compared to June 2018. Only time will tell if this trend continues. Fewer homes coming on the market eases competition a bit. This recent phenomenon has not had an impact on the overall market yet.
Last year at this time there were 6,579 homes on the market. That means that there are 15% more homes available today. This continues to be the highest level of homes on the market for this time of the year since 2011.
Demand: In the past four weeks, demand dropped significantly by 8% and housing transitioned into a Balanced Market.
Demand, the number of new pending sales over the prior month, dropped by 200 pending sales in the past four weeks, down 8%, and now totals 2,461. Demand continues to drop during the Summer Market, typical for this time of the year. The real story is how demand remains subdued despite the extremely favorable drop in interest rates. The low rates are failing to ignite demand. Demand will drop through the rest of summer and then will downshift when the kids go back to school at the end of August, the beginning of the Autumn Market.
Last year at this time, there were 7 fewer pending sales, nearly identical to today. Two years ago, it was 15% stronger than today.
The current Expected Market Time increased from 89 days to 92 days in the past two weeks, a Balanced Market (90 to 120 days), one that does not favor sellers or buyers. The market has slowed to February levels. Last year, the Expected Market Time was at 80 days, better than today.
Luxury End: The luxury market slowed slightly in the past couple of weeks.
In the past two-weeks, demand for homes above $1.25 million decreased by 7 pending sales, a 2% drop, and now totals 345, its lowest level since February. The luxury home inventory dropped by 27 homes and now totals 2,522, a 1% drop and identical to a month ago. The overall Expected Market Time for homes priced above $1.25 million increased from 217 days to 219 over the past two-weeks, extremely sluggish.
Year over year, luxury demand is up by 15 pending sales, or 5%, and the active luxury listing inventory is up by an additional 328 homes, or 15%. Extra seller competition and continued muted demand compared to 2017 (the last time the luxury range was stronger) is a trend that will persist for the remainder of the year. The expected market time last year was at 199 days, slightly better than today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time increased from 118 to 143 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 192 to 189 days. For homes priced between $2 million and $4 million, the Expected Market Time increased from 250 to 262 days. For homes priced above $4 million, the Expected Market Time decreased from 667 to 518 days. At 518 days, a seller would be looking at placing their home into escrow around December 2020.
Orange County Housing Market Summary:
Have a great week.
Regency Real Estate Broker
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of my E-Book "Above Market Value" simply by clicking on this link: http://bit.ly/32tX4Bk
Orange County Housing Report: The Price is Right
Sellers have until the end of July to get their homes into escrow, indicating that the price better be right.
Jeff's Orange County Housing Report:
Jeff's Orange County Housing Report:
Prospective buyers and sellers constantly ask when is it the right time to buy or sell. It is now.
The right time: With low interest rates and a surge in demand, it is a good time for both buyers and sellers to make a move.
Everybody is always trying to time life perfectly. When we go to the movies, which of the three lines is going to get us to the box office window the fastest? Is it better to wait to buy that first car as a teenager or wait until after college? Will it be too crowded to visit Disneyland now or is it better to wait until the fall? When is it the right time for a guy to pop the question and ask his girlfriend for her hand in marriage? When should a couple have a baby, right now or is it better to travel first? Life is all about “perfect timing,” and deciding to buy or sell is yet another instance where everybody wants to wait for the very best time to make that move.
When is “the” best time to make a move? For prospective buyers and sellers, the current housing conditions and trends point to NOW. How can it be both an excellent time to buy and sell at the very same time? For buyers, it is all about interest rates. For sellers, it is all about top dollar and cashing in on this year’s consistent, growing demand.
At the end of 2018, prognosticators, economic experts, and major financial institutions were all 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.
These rates could be gone tomorrow if more and more positive economic news hits the presses. The tremendous twist of fate has allowed buyers to afford a lot more home. Affordability improved radically. For a buyer 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 abuyer to purchase a home at $698,750. The drop in rates has allowed a buyer to purchase $63,750 more home, yet the mortgage payment did not change.
For sellers, lower rates have pushed the market from a slight Buyer’s Market at the end of 2018 and start to January of this year, to a Balanced Market in February, to a slight Seller’s Market today. Last month, rates dropped nearly a half of a percentage point, dropping from 4.5% to nearly 4%. That plunge resulted in a considerable uptick in demand (prior 30-days of pending sales). In the past two weeks alone, demand increased by 11%, while the active inventory only increased by 1%. As a result, the Expected Market Time (the number of days it would take for a home placed on the market today to open escrow down the road) dropped from 84 to 76 days, the largest drop at this time of year since 2009. This dip is not typical for mid-April.
Why is it such a great time to sell right now? From here, demand typically rises slowly until peaking by the end of May. With the distractions of graduation and the kids off for summer break, demand starts to slow in June. In the past seven years, from May to August, demand drops, on average, by 10%. At the same time, the inventory increased, on average, by 18%. With falling demand and an increasing supply of homes that sellers are competing against, the Expected Market Time rises. The best time of the year for sellers, with the lowest Expected Market Time, is from February until mid-May.
For sellers to properly take advantage of the most optimal time to sell, they need to be on the market now and priced right. Currently, there are plenty of homes that are flying off the market with multiple offers, often selling for more than their asking prices. BUT, there are also plenty of homes that are sitting on the market with no interest, or offers to purchase that come in well below the asking price. Accurately pricing a home based upon the condition, location, upgrades, and overall appeal is fundamental in order to find success. Any home that look like the final reveal on one of the many HGTV programs where a fixer-upper is transformed into a dream home, will procure an avalanche of offers in today’s market IF it is priced well. Pricing a home too aggressively will result in very little activity and ultimately will just sit, missing the opportunity to cash in on the best time of the year to sell.
The bottom line: the best time of the year for buyers and sellers to make a move is right now.
Active Inventory: In the past couple of weeks, the active inventory increased by 1%.
In the past two weeks, the active listing inventory increased by 57 homes, up 1%, and now totals 6,933, knocking on the door of 7,000 for the first time since November. Expect the inventory to continue to climb from now until it peaks sometime between July and August. The inventory will most likely eclipse the 8,000 home level and reach its highest summer peak since 2011.
Last year at this time there were 5,144 homes on the market. That means that there are 35% more homes available today. This is the highest level of homes on the market for this time of the year since 2011.
Demand: In the past couple of weeks, demand increased by an astonishing 11%.
Demand, the number of new pending sales over the prior month, jumped by 279 pending sales in the past two weeks, up 11%, and now totals 2,272, surpassing last year’s level for the first time since July 2017. This spike is unusual for this time of the year, most likely prompted by the massive drop in rates last month. From here, expect demand to slowly rise as it draws closer to its peak, sometime in May. After that, it will drop for the remainder of the year.
Last year at this time, there were 84 fewer pending sales, 3% fewer than today.
Luxury End: The luxury market improved dramatically in the past two weeks.
In the past two-weeks, demand for homes above $1.25 million increased by 54 pending sales, a 15% increase, and now totals 424, its highest level since mid-May 2018. The luxury home inventory grew by 69 homes and now totals 2,279, a 3% increase. The overall expected market time for homes priced above $1.25 million decreased from 179 days to 161 over the past two-weeks, a significant drop.
Year over year, luxury demand is up by 53 pending sales, or 14%, and the active luxury listing inventory is up by an additional 305 homes, or 15%. There is a lot more seller competition so far this year compared to 2018. The expected market time last year was at 160 days, nearly identical to today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the expected market time decreased from 109 to 108 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 154 to 133 days. For homes priced between $2 million and $4 million, the expected market time decreased from 222 to 186 days. For homes priced above $4 million, the expected market time decreased from 466 to 425 days. At 466 days, a seller would be looking at placing their home into escrow around June of 2020.
Orange County Housing Market Summary:
• The active listing inventory increased by 57 homes in the past two weeks, up 1%, and now totals 6,933. Last year, there were 5,144 homes on the market, 1,789 fewer than today. There are 35% more homes than last year.
• So far this year, 3% fewer homes came on the market below $500,000 compared to 2018, and there were 15% fewer closed sales. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is continuing to vanish.
• Demand, the number of pending sales over the prior month, increased by 279 pending sales in the past two-weeks, up 11%, and now totals 2,724, surpassing the prior year for the first time since July 2017. Last year, there were 2,340 pending sales, 3% fewer than today.
• The Expected Market Time for all of Orange County decreased from 84 days two weeks ago to 76 days today, a slight Seller’s Market (between 60 to 90 days) and the highest level for this time of the year since 2011. It was at 58 days last year.
• For homes priced below $750,000, the market is a Seller’s Market (less than 60 days) with an expected market time of 55 days. This range represents 40% of the active inventory and 55% of demand.
• For homes priced between $750,000 and $1 million, the expected market time is 66 days, a slight Seller’s Market. This range represents 18% of the active inventory and 21% of demand.
• For homes priced between $1 million to $1.25 million, the expected market time is 83 days, a slight Seller’s Market.
• For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the expected market time decreased from 109 to 108 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 154 to 133 days. For luxury homes priced between $2 million and $4 million, the expected market time decreased from 222 to 186 days. For luxury homes priced above $4 million, the expected market time decreased from 466 to 425 days.
• The luxury end, all homes above $1.25 million, accounts for 33% of the inventory and only 16% of demand.
• Distressed homes, both short sales and foreclosures combined, made up only 0.9% of all listings and 1% of demand. There are only 23 foreclosures and 36 short sales available to purchase today in all of Orange County, 59 total distressed homes on the active market, down 2 in the last two-weeks. Last year there were 43 total distressed homes on the market, slightly fewer than today.
• There were 2,265 closed residential resales in March, 13% fewer than March 2018’s 2,613 closed sales. March marked a 47% increase from February 2019. The sales to list price ratio was 97.3% for all of Orange County. Foreclosures accounted for just 0.4% of all closed sales, and short sales accounted for 0.5%. That means that 99.1% of all sales were good ol’ fashioned sellers with equity.
Orange County Housing Report: Buyers Gamble and What's Happening With Interest Rates?
Many buyers are sitting on the fence waiting for interest rates to fall, but don’t know when to cash in their chips.
Gambling on Rates: Interest rates have fallen to 4.25%, the lowest level in over a year.
No matter what your age, or what kind of music you like, everybody has listened to and knows the lyrics to Kenny Roger’s “The Gambler.” “You’ve got to know when to hold ‘em. Know when to fold ‘em. Know when to walk away. And know when to run.” It is a song about a young man who stumbles upon gambling advice from a seasoned, old, veteran gambler “on a train bound for nowhere.”
So many potential buyers are just like the young gambler, they simply don’t know when they should walk away from the fence they are sitting on and cash in their chips. They are waiting to make the plunge into home ownership but are trying to “time the market.” Unfortunately, so many of these buyers, and homeowners waiting to refinance, have been sitting on the sideline and have already missed prior opportunities to cash in on excellent interest rates. Fortunately, rates are excellent once again.
Last week was a huge week for interest rates. The last several months have been huge for interest rates. Since November 2018, interest rates have dropped dramatically from 5% to 4.25%, a substantial difference that helps on the homebuyer affordability front. Today’s rate of 4.25% is the lowest since February 2018.
What happened? The United States economy is showing signs of slowing, there has been an international economic slowdown, the price of oil has dropped substantially, the trade war seems as if there is no end in sight, and there has been tremendous stock market volatility. That is enough for investors around the world to park their money in long term U.S. government bonds. When this happens, interest rates fall. And, last week, the Federal Reserve stated that they were done raising the short-term rate and will not make a move on rates at all in 2019.
As a result, interest rates have dropped to new lows not seen in over a year. For buyers looking at a $500,000 mortgage, the drop has resulted in a savings of $224 per month compared to last November. That is an annual savings of $2,688, or
$13,440 in 5 years. The savings are even more substantial for higher mortgage amounts.
This is where buyers need to understand that right NOW is an excellent time to cash in on today’s low interest rate. Waiting for interest rates to drop further is a lot like gambling. Reminiscing about the good ‘ol days when interest rates were in the mid-3% range will not magically make rates drop. Could they go down further? Perhaps. Could they go up again? Absolutely. The old saying, “a bird in the hand is worth two in the bush” applies. It is better to cash in today than to risk losing out on this opportunity by hoping rates fall further. There are plenty of stories of buyers who have kicked themselves for waiting too long.
In taking a closer look at affordability, for buyers looking for a $3,000 mortgage payment, along with a 20% down payment, the drop in interest rates has allowed them to afford a much larger home. Back in November 2018, they were looking at a $698,750 home with a 5% mortgage. That has improved spectacularly since. With today’s 4.25% interest rate, a buyer is now looking at purchasing a $762,500 home. That is an amazing increase of $63,750 in purchasing power.
The combination of improved home affordability and substantially more inventory than the last several spring selling seasons should lead to an increase in home buyer demand. Buyers, what are you waiting for? It is time to get off of the home buying fence and cash in your chips.
Active Inventory: In the past couple of weeks, the active inventory increased by 3%.
In the past two weeks, the active listing inventory increased by 166 homes, up 3%, and now totals 6,532, the highest level since November last year. The inventory had been slowly rising, most likely due to the torrential rain that Southern California had experienced. Since much of the heavy rain is over, and now that is officially spring, more homeowners are opting to place their homes on the market. The increases will gain momentum in the coming weeks, the busiest time of the year for housing.
Last year at this time there were 4,609 homes on the market. That means that there are 42% more homes available today. This is the highest level of homes on the market for this time of the year since 2012.
Demand: In the past couple of weeks, demand increased by 3%.
Demand, the number of new pending sales over the prior month, continued to rise, increasing by 78 pending sales in the past two weeks, up 3%, and now totals 2,350. The rapid increase in demand from the start of the year is starting to slow and will most likely only increase slightly until peaking sometime in May. From there, demand will slowly diminish through the rest of the Spring and Summer Markets.
The retreat in interest rates this year has helped demand considerably. Soft demand had been an enormous issue in the second half of 2018, but with falling rates demand has picked up.
Even with the strong increase in demand, it is important to note that the current demand reading continues to be the lowest for this time of the year since 2014. There still is buyer apprehension in approaching the housing market. They are careful not to overpay and are looking to offer only the Fair Market Value for a home. They are not willing to stretch the asking price, which is why homes are currently not appreciating much at all.
Last year at this time, there were 188 additional pending sales, 7% more than today.
The current Expected Market Time dropped from 84 days to 83 days in the past two weeks, a slight Seller’s Market. It is still the highest reading for this time of the year since 2011. Last year, the Expected Market Time was at 54 days, a HOT Seller’s Market.
Luxury End: The luxury inventory climbed quite a bit.
In the past two-weeks, demand for homes above $1.25 million increased by 6 pending sales, a 2% increase, and now totals 352, its highest level since the end of June 2018. The luxury home inventory increased by 76 homes and now totals 2,090, a 4% increase. The overall expected market time for homes priced above $1.25 million increased from 175 days to 178 over the past two-weeks, a slight increase.
Year over year, luxury demand is down by 1 pending sale, basically the same as last year, and the active luxury listing inventory is up by an additional 293 homes, or 16%. There is a lot more seller competition so far this year. The expected market time last year was at 153 days, better than today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the expected market time increased from 95 to 103 days. For homes priced between $1.5 million and $2 million, the expected market time increased from 140 to 146 days. For homes priced between $2 million and $4 million, the expected market time decreased from 245 to 230 days. For homes priced above $4 million, the expected market time decreased from 650 to 562 days. At 562 days, a seller would be looking at placing their home into escrow around the start of October 2020.
Orange County Housing Market Summary: