The Orange County housing market is hot with the strongest demand
in three-and-a-half years.

HOT Seller’s Market: Homes priced below $1 million are flying off the market.
The Orange County housing market is firing on all cylinders and sellers are in the driver’s seat. Multiple offers are back, values are on the rise, and the appraisal is quickly becoming the biggest obstacle in closing. Demand is stronger than one year ago and it appears as if this will be the best Spring Market since 2005.

The Spring Market runs from March through mid-June. This is when more real estate activity takes place than any other time of the year. More buyers are bumping into each other in their quest to secure a home, and they are currently flooding the housing market. The historically low interest rates are adding fuel to the fire, allowing buyers to afford even more home.

Mistakenly, many believe that the Summer Market is the best time of the year to sell. It’s just not true. In mid-June, summer distractions creep into the housing market starting with graduation. Graduation, family vacations, the beach, the pool, hiking, and picnics slows the home buying process down a bit. Instead, that is when many of the pending transactions that were put together in the Spring Market close. As a result of all of the summer distractions, there is a cyclical downshift in buyer activity and demand.

For now, buyers below $1 million are experiencing an extremely challenging time securing a home. Below $750,000 is nothing short of crazy. There are homes that have the look and feel of an auction type of atmosphere. These new homes that hit the market cannot be shown until Saturday at a specific time that coincides with the REALTOR’s “mega open house.” Buyers are quite literally bumping into each other and everybody gets the sense that the bidding process is about to begin. The bids come in the form of multiple offers, the more offers secured, the better the price and terms for the seller. During the negotiating process, offers are pit against each other to drive prices even higher. The end result, only one buyer gets to purchase the home and often at a premium.

In order to find success, many buyers are getting creative. Family pictures combined with personal notes detailing why a house is the perfect place for them to call “home” are included with many offers to purchase. Hand delivered offers to the listing agent at their office, or even the open house, is another strategy. Finding out what the sellers want prior to writing an offer is very important. From a quick closing to renting back, getting the seller what they are looking for can really help secure the deal and enable a buyer to achieve success.

When the housing market tilts heavily in favor of the seller, it is an invitation for new sellers to overprice. Many sellers initially hit the market overconfident and overzealous and price their home off the radar screen. What sellers need to understand is that rapid appreciation is a thing of the past, dating back to when Orange County was underpriced and extremely affordable. In March 2012 the median sales price was $400,000. In March 2016, the median was $625,000, that’s a 56% increase in four years. Since homes are not rapidly appreciating today, the best strategy to employ for a seller is to price their home close to its Fair Market Value. As a result, the realistic value will generate multiple offers, which will ultimately allow them to get their price, and often even more. Values are slowly rising and continue to push the envelope, making the appraisal process a major hurdle to closing the sale.

Is the luxury market hot too? In terms of demand, yes, it is stronger this year than one year ago today. In terms of supply, there’s a lot more homes in the luxury end compared to last year. The end result, it has a more sluggish feel to the market. From $1 million to $1.5 million, demand is up 19% and the inventory is up 22% compared to 2015. From $1.5 million to $2 million, demand is up only 2% and the inventory is up 24%. Above $2 million, demand is up 7% and the inventory is up 22%. So, above $1.5 million, demand may be up, but the extra inventory means many home sellers are having a tough time achieving success due to the increased competition. For these sellers it all boils down to price, condition, amenities, and location, and sellers only have control over price and condition.

Active Inventory: The inventory increased by only 2% in the past two weeks.
The active inventory increased by 130 homes in the past two weeks and now sits at 5,862. Every price range, except for homes priced below $500,000, experienced a slight increase. The inventory was growing at a much more rapid rate at the beginning of the year when the worldwide stock and financial markets were taking a beating, but as soon as stability was restored, so was Orange County housing demand. Higher demand means more pending sales. More pending sales means fewer active listings on the market. Now that demand is sizzling hot again, homes are not staying on the market and the inventory is not rising as fast. We can expect this trend to continue through mid-June, the start of the Summer Market. From there, the inventory will rise and peak in mid-August and reach levels similar to 2015.

Last year there were 169 fewer homes on the market, 3% less. So far this year, the same number of homes have come on the market compared to one year ago today. Historically speaking, the inventory is well below the long term average of 9,238, an incredible 37% less. There just are not enough homes coming on the market compared to a decade ago.

Demand: In the past two-weeks demand increased by 6%.
Demand, the number of new pending sales over the prior month, increased by 184 homes in the past two-weeks, and now totals 3,183, the highest level since October 2012 when there were a lot more short sales embedded in demand. Back then, many short sales never closed.

This Spring Market has the potential of being the strongest since 2005, prior to the Great Recession. High demand will equate to higher closed sales. The expected market time for all of Orange County is 55 days, identical to one year ago today.

Last year at this time, demand was at 3,121 pending sales, 62 fewer than today.

Summary:

Have a great week.

Sincerely,

Roy Hernandez
TNG Real Estate Consultants
Cell      949.922.3947

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Good Afternoon!

After a shaky start, Orange County housing is proving to be
durable and strong.

A 1st Quarter Overview: The housing market continues to lean in favor of the seller. Due to worldwide stock market and economic turbulence, the Orange County housing market had a very sluggish start to the year. It seemed as if housing was lying face down in the dirt of the economic arena. The four-year hot seller’s market appeared to be bruised and battered and ready to begin tilting slowly to the buyer’s favor. In spite of very little supply, buyers were unilaterally balking at higher prices and were unwilling to stretch and pay a little bit more than the most recent sale. As a result, demand was off.

This is where the resilience of housing stepped in. The Orange County housing market got up from the dirt of the economic arena, brushed itself off, flexed its massive muscles, displaying its incredible strength and endurance, and surged forward. The hot market came back with a vengeance. Here’s a breakdown of the current OC housing trends:

• After a slow start, the active listing inventory is rising, but will remain well below the long term average. After starting the year with the second lowest inventory behind the extremely anemic 2013 housing market, it seemed as if there would not be enough homes to satiate buyers’ demand leftover from 2015. There were 7% fewer homes coming on the market through mid-February compared to the prior year. As the worldwide financial volatility found its footing, more homes started coming on the market. By the end of the first quarter, the exact same number of homes had come on the market as 2015. The slow start was replaced with an eagerness for homeowners to sell again, and they made up for lost time. The inventory had grown by 30% since ringing in the New Year. There are 2% more homes on the market today compared to last year due to the fact that demand is off a bit. Fewer new pending sales mean a higher inventory. The long term average inventory since 2005 is 9,238. The current active listing inventory is at 5,732, nearly 38% off the average. The trend is for the inventory to continue to grow at a slow methodical pace, peaking in mid-August right above the 7,000 home mark.

• Demand has regained its strength and looks a lot more like 2015. After an initial strong start, demand was 10% higher than the start to 2015, buyers quickly adjusted to the continuously streaming news of the stock market turbulence and demand slowed. It actually took an unprecedented drop after the first two weeks of January. As a result, after the first two months, demand was off by 11%. By the end of the first quarter, demand was only 3% less than 2015, and the Orange County housing market was humming along on all cylinders. The trend is for demand to remain strong through the second quarter, the hottest time of the year in terms of activity. It will then decelerate in July, like it cyclically does during every Summer Market.

• Every seller and buyer MUST understand that the lower the price range, the hotter the market; AND, the higher the price range, the slower the market. Not all price ranges behave the same. There are four vastly different market in Orange County. Below $750,000 is red hot. Price a home in good condition close to the Fair Market Value and it will generate multiple offers and will often sell at or above the asking price. With an expected market time of only 37 days, home values are climbing and it is a deep seller’s market. This range represents 44% of the active inventory and 68% of all demand. The second hottest price range, homes priced between $750,000 and $1 million has an expected market time of 75 days. This is a slight seller’s market, meaning that they are able to call the shots in negotiating a sale with a buyer, but values are not appreciating. Overprice in this range and sellers will sit. The third range, homes priced between $1 million and $2 million, is slow at 115 days, but will eventually move when priced accurately. The final price range, homes priced above $2 million, is extremely sluggish with an expected market time of 269 days. It accounts for 16% of the entire inventory, yet only 3% of demand. There just are too many sellers competing for a very small pool of buyers

• Closed sales are slightly up compared to 2015, but that trend changed in March. For the residential resale market, closed sales were up by 10% for January, up 5% in February, and down 5% in March. Overall, the first quarter saw closed sales up 3.3%. Demand has been less than 2015 levels since mid-January. In turn, that means that sales will be less as well. That trend will continue as long as demand trails the prior year. It is also important to note that distressed sales are way down. Foreclosures are down 14% and short sales are down 38% compared to 2015. Distressed seemingly vanished in 2014, and every year its impact has become less and less. This year is no exception. There were only 239 total distressed closed sales in the first quarter. Compare that to 336 last year, 416 in 2014, a staggering 1,573 in 2013, and a mind blowing 2,779 in 2012. Distressed has gone from 55% of the market in 2012 to just 5% today.

Conclusion: from here, we can expect a market very similar to 2015 with slightly less demand, resulting in slightly fewer closed sales.

Active Inventory: The inventory increased by 5% in the past two weeks.
The active inventory increased by 267 homes in the past two weeks and now sits at 5,732. Every price range, except for homes priced below $500,000, experienced an increase.

The trend does not look like it is going to methodically increased like it did in 2014; instead, it looks like it will be a lot more sporadic like 2015. Ultimately, it will peak somewhere between 7,200 and 8,000 homes in mid-August. The eventual height depends upon future evolutions in the housing market.

Last year there were 108 fewer homes on the market, 2% less.

Demand: In the past two-weeks demand increased by 4%.
Demand, the number of new pending sales over the prior month, increased by 103 homes in the past two-weeks, and now totals 2,999, the highest level since June of last year. After an initial slow start to the year in terms of demand, it has recovered nicely and is beginning to follow closer to last year’s path. The expected market time for all of Orange County is 57 days.

Last year at this time demand was at 3,107 pending sales, 108 more than today, with an expected market time of 54 days.

Summary:

Have a great week.

Sincerely,
Roy A. Hernandez
TNG Real Estate Consultants
Cell. 949.922.3947

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Good Afternoon!

The Spring Market has officially arrived and demand is poised to
continue its spring surge.

Spring Market: Over the next month, demand will rise to its highest levels of the year, where it will remain through the end of Spring.

The Orange County housing market did not look at all like 2015 after the first couple of months of the year. Instead, it looked a lot like it was going to be 2014, a year with a bit less demand and an inventory that continuously grew on the backs of overpriced homes. After ringing in the New Year, stocks were diving, prices at the gas pump were dropping to levels not seen in many years, and there was quite a bit of uncertainty in the air. All of these factors were a drag on the county’s housing market and there was a delay in the start to the Spring Market. Typically, the local market revs its monstrous engine right after the Super Bowl. Instead, demand was off by 11% throughout February. Where was housing heading? Would there be a correction in pricing? Is it still a good time to buy? Are we moving towards an economic slowdown?

The trend for this year is that housing is NOT headed for a correction; not anytime soon. Nationally, and especially locally, there has been a real supply issue that dates back to 2012. For this time of year, the average active inventory for Orange County since 2005 is 8,766 homes. Currently, we are at 5,444 homes. That means it is off by 38%. Since 2012, the average inventory for this time of year has been 5,349 homes. REALTORS® are not exaggerating when they state that there are not enough homes on the market. It is an absolute fact. With extremely favorable interest rates, there is tremendous demand. Strong demand coupled with a low supply means that the real estate market favors sellers, not buyers. The expected market time, the time it would take, on average, to list a home and place it under contract, is 61 days. The year started with an expected market time of 81 days and has been dropping ever since. In order for the market to shift in favor of buyers, the inventory would have to rise and demand would have to drop. The expected market time would have to exceed 120 days, double from where we are today. That is just not going to happen, not anytime soon.

Now that the stock market has turned around, along with a rise in oil prices, it looks as if it is now business as usual for our economy and the local housing market. The anxious start to housing has shifted back to the fact that it is a good time to buy and buyers want to take advantage of the very low interest rate environment. Everybody gets it, as soon as the economy starts rolling along again, the Federal Reserve is ready to raise the short term interest rate again. Long term rates may not rise by much over the course of this year, but everybody knows that the low rates today cannot stick around forever. Naturally, buyers want to buy now while they know for certain that they will be able to cash in on a great rate. If interest rates were to jump from 4% to 5% (and, someday they will), the payment for January’s median priced home, $618,500, at 20% down would climb from $2,362 to $2,656, an increase of $294 per month, or $3,528 per year.

So, we are not headed for an economic disaster, no slowdown, no correction in housing, and interest rates remain low. As a result, housing is springing forward and demand is back. However, prices are not surging. Home prices are much higher than they were back in the beginning to 2012, the real start to the housing turnaround. Buyers do not have the stomach to pay much more than the last comparable sale. They want to pay the Fair Market Value for a home, which can be determined by carefully considering the most recent pending and closed sales. Prices may rise a bit during the first half of 2016 in the lower price ranges, below $750,000, but they are not going to surge.

Active Inventory: The inventory increased by 3% in the past two weeks.
The active inventory increased by 173 homes, or 3%, in the past two weeks and now sits at 5,444. After a very slow start to the year, when far fewer homes were coming on the market compared to 2015, the trend has reversed course. To date, there are only 45 fewer homes that have come on the market compared to last year. As a matter of fact, over the last month, 3% more homes came on the market. On January 1st, there were only 4,396 homes on the market. Since then, the inventory has added an additional 1,048 homes.

In order for the active inventory to grow, more homes have to come on the market than go off the market. The only way for a home to come off the market is for a home to move to pending status or for a seller to pull their home off the market and throw in the towel. With the beginning of the Spring Market, we know that sellers are not throwing in the towel. So, the increase in the inventory is indicative of an accumulation of homes that stay on the market without being able to procure an acceptable offer to purchase. The biggest culprit during the spring to successfully selling are the sheer number of overpriced homes. Most homeowners start off a bit overzealous and unrealistically price their homes. In time, the market illustrates that a reduction in price is necessary in order to find success.

Last year at this time the inventory totaled 5,560 homes, 116 more than today, with an expected market time of 1.98 months, or 59 days, a slight seller’s market. Today’s expected market time is at 2.04 months, or 61 days, still a slight seller’s market. A slight seller’s market means that there is not much price appreciation but sellers get to call more of the shots in terms of negotiating the finer details of a contract.

Demand: In the past two-weeks demand increased by 3%
Demand, the number of new pending sales over the prior month, increased by 87 homes in the past two-weeks, and now totals 2,671, the highest level since August of last year. Today’s demand is not as good as 2015, currently 5% less, but much better than 2014, 15% higher. The disparity from last year is growing smaller and is poised to continue to surge over the course of the next month. Last year at this time demand was at 2,813, that’s 142 additional pending sales. Two weeks ago the disparity was 307.

Summary:

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For the past seven years there have been significantly fewer sellers
coming on the market.

Not Enough Sellers: since 2009, fewer homeowners have been diving into real estate in spite of massive appreciation.Home values have risen tremendously since the beginning of 2012. With a return of equity, logically you would think that there would also be a return of the number of homeowners opting to sale. However, that has not been the case. It makes sense that fewer homeowners decided not to sell from 2008 through 2011. Those were the years that values took a pounding and homeowners witnessed the equity in their homes vanish. Since 2012, those same homeowners have watched their equity return; yet, 2012 through 2015 all posted the lowest number of homes to come on the market since the turn of this century. As a matter of fact, from 2000 through 2007, there were an average of 1,500 additional homes that popped on the market every single month compared to the past four years. That’s an additional 18,000 homes.

Based upon 2015 closed sales, the turnover rate for the Orange County housing stock is once every 23 years. That’s an improvement over 2014, once every 24 years, but not by much. The lowest turnover rates in the county can be found in Cypress, Fountain Valley, La Palma, and Westminster. These cities’ homes are turning over at a rate of once every 30 years or longer. There are a few exceptions; Aliso Viejo, Ladera Ranch, Laguna Woods, Los Alamitos, and Mission Viejo all have turnover rates of 15 years or less. But, based upon current trends, gone are the days of homeowners moving every 7 years.

So, why aren’t homeowners moving like they did a decade ago? There are a number of factors that illustrate why they are staying put. The homeownership rate for 18 to 34 year olds has been dropping since reaching a height in 2005, and about a third of all millennials live with their parents. Ultimately, that delays would-be empty nesters from downsizing. Also, there aren’t as many new homes being built in Orange County, especially below the $1-million mark. This used to create a lot more real estate activity as many locals bought new, but had to sell their existing homes first. With the county running out of vacant land, this will be an ongoing issue.

Another factor that helps explain why homeowners are not moving as often as they used to is that owning a home long term and paying off the mortgage is now in vogue. The severity of the Great Recession rattled our collective psyche and people now look at home ownership a bit differently. As is typical in the Midwest, people want to hang onto their homes and dig in their roots.

One of the biggest factors, that is talked about in the real estate trenches on a daily basis, is that homeowners are afraid to sell their home only to turn around and find nothing available to buy. Essentially, the low inventory is preventing would be sellers from coming on the market, which only exasperates the problem. Yet, there are ways around this dilemma. A double move is a solution, where a homeowner sells their home, moves into a monthly rental, and then takes their time to isolate the most ideal home for their family. Moving companies work with the double move scenario often and can crate and store whatever will not be used at the short term rental. Another solution is for a seller to accept an offer to purchase with the condition that they are able to find a replacement property within a specific time period, 30-days being most common. If they are unable to find a replacement home within the given time period, then the contract is cancelled or additional time may be negotiated.

The current trend of an underwhelming annual inventory and a low housing turnover rate is not going to change anytime soon. With that knowledge, buyers and move-up (or move-down) sellers need to approach the market with realistic expectations and plan accordingly, utilizing the expertise of a professional REALTOR®.

Active Inventory: the inventory increased by 6% in the past two weeks.
The active inventory increased by 298 homes, or 6%, in the past two weeks and now sits at 5,271, the largest increase since May 2014. More homes are finally coming on the market after a lackluster start to 2016. 9% fewer homes entered the fray in January compared to 2015. More homes are coming on the market in February, so the annual difference to date is now only 3% fewer.

Last year at this time the inventory totaled 5,433 homes, 162 more than today, with an expected market time of 1.88 months, or 56 days, a seller’s market. Today’s expected market time is at 2.04 months, or 61 days, still a slight seller’s market. A slight seller’s market means that there is not much price appreciation but sellers get to call more of the shots in terms of negotiating the finer details of a contract.

Demand: in the past two-weeks demand increased by 10%.
Demand, the number of new pending sales over the prior month, increased by 242 homes in the past two-weeks, and now totals 2,584, the highest level since September of last year. Demand had looked a lot like 2014 for the first 6-weeks of the year, but broke away in the past couple of weeks. Demand is now 5% higher than two years ago, 126 additional pending sales.

However, today’s demand is nowhere close to 2015, 11% less than the 2,891 pending sales posted a year ago. That’s 307 fewer and has resulted in a noticeably different housing market. In spite of the low expected market time (the amount of time it takes to place a home listed today into escrow), buyers are not willing to budge much higher in price than the most recent comparable pending and closed sales, also known as the Fair Market Value. Thus far in 2016, homes that are not priced well are still realizing plenty of showing activity, but are not receiving any offers to purchase. Pricing is currently crucial in order to find success.

Expect demand to continue to increase methodically through March and then remain elevated through the end of Spring, mid-June.

 

Summary:

Have a great week.

Sincerely,
Roy Hernandez
TNG Real Estate Consultants
Cell 949.922.3947

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Ever since ringing in the New Year, 2016 has had its own look and
feel and it is not a repeat of last year.

Not 2015: Demand is off by 11% and the inventory is 9% less than last year.
This year’s housing market has its own unique look and feel. There are major differences from this time last year. The biggest glaring difference is that there are not enough homes on the market, 476 fewer. That would not be that big of an issue if we were anywhere close to the long term average inventory for Orange County, 9,238 homes; however, there are fewer than 5,000 homes on the market right now. The current trend of a very low inventory dates back to 2012, and todays even more anemic supply can truly be felt in the streets of the local housing market.

Another major difference is that demand is down significantly as well. Within the last month, there have been 277 fewer pending sales compared to 2015. Demand is actually much more similar to 2014 levels. Demand is increasing right now, just not at the incredible pace of one year ago when it just took off in February.

 

 

So, where are we headed in 2016? It appears as if 2016 is looking a lot more like 2014 than 2015. One of the biggest reasons for the shift is the amount of uncertainty surrounding worldwide financial and stock markets, and the current volatility in Wall Street. Even the Federal Reserve seems a little less certain of their monetary policy than they were just a couple of months ago. That’s good news for interest rates. The chances that they will continue to increase the short term federal funds rate has dropped precipitously. As a matter of fact, interest rates have dropped well below 4% and are at unprecedented levels again.

If you are wondering how interest rates could drop so low right after the Federal Reserve increased the short term rate in December, it is because long term rates are not directly tied to the short term rate. Instead, they are tied to long term United States treasury bonds. With all of the worldwide financial uncertainty, everybody from around the world is turning to US treasury bonds as a safe haven. With so much money flooding to treasuries, the long term rate has dropped significantly. And, it doesn’t seem like things are going to be changing anytime soon either; so, the low interest rate environment looks like it will stick around for most of 2016. It is a great time to be a buyer, as these low rates make housing affordability a once in a lifetime opportunity. These rates are almost unbelievable in historical context.

For sellers, the uncertainty in the air means that they will not be able to get away with stretching the value of their home by pricing it much more than the Fair Market Value. This value can be determined by carefully analyzing the most recent sales and pending activity, taking into consideration location, condition, amenities, and upgrades.

In 2012 through 2013, sellers were able to aggressively stretch their price and, more often than not, they eventually got it. In 2014, buyers focused on the Fair Market Value and overpriced homes remained on the market without success until they reduced their asking prices more in alignment with their true value. The inventory grew on the backs of overpriced homes. But, in 2015, with stronger demand, the inventory remained low and sellers were able to get away with stretching the price again. They were not able to stretch as much as 2012 and 2013, but values were on the rise for the first half of the year. The second half of last year was more like 2014 and sellers needed to be priced right in order to find success. With demand more in line with two years ago, the current trend in the market indicates that this year will be a lot more like 2014.

The bottom line: Seller will find success when priced according to the Fair Market Value and buyers will still be diving into the housing market to take advantage of historically low interest rates.

Active Inventory: the inventory increased by only 3% as more homes are placed into escrow.
The active inventory increased by 132 homes, or 3%, in the past two weeks and now sits at 4,973, knocking on the door of 5,000 homes for the first time since the start of December. Thus far in 2016, fewer homes are coming on the market compared to the same time last year, 7% fewer. With fewer homes added to the inventory and more homes pulled off as they are placed into escrow, the inventory is not climbing as rapidly as it was during January, a cyclical phenomenon for February.

Last year at this time the inventory totaled 5,449 homes, 476 more than today, with an expected market time of 2.08 months, or 62 days, a slight seller’s market. Today’s expected market time is similar at 64 days, also a slight seller’s market. A slight seller’s market means that there is not much price appreciation but sellers get to call more of the shots in terms of negotiating the finer details of a contract.

Demand: in the past two-weeks demand jumped by 21%.
Demand, the number of new pending sales over the prior month, increased by 406 homes in the past two-weeks, and now totals 2,342, the most since November. That’s the largest increase since one year ago today, also a cyclical phenomenon that occurs in the month of February. During the same two-week period in 2015, demand actually increased by 566 pending sales and it totaled 2,619, or 12% more than today.

Today’s demand looks a lot more like 2014 when it reached 2,381 pending sales, just 39 more than today.

Expect demand to continue to increase methodically through March and then remain elevated through the end of Spring, mid-June

 

Summary:

Have a great week.

Sincerely,
Roy Hernandez
TNG Real Estate Consultants
949-922-3947
RoyaltyAgent@Gmail.com

With holiday distractions behind us, the Orange County housing Market has thawed and is beginning to rev its engine.

Housing Awakens: Inventory and demand improved dramatically in the past couple of weeks.

The stock market was taking a beating, driven by low oil prices and worldwide economic turmoil. The start of 2016 had everybody, including the Orange County housing market, on pins and needles. It seemed that the Holiday Market slowdown was not going to thaw like it typically does starting in mid-January.

Right after the Super Bowl’s clock winds down to zero, housing’s Spring Market begins. However, an important step needs to occur first, a cyclical thaw in January with an increase in the inventory and the number of homes coming on the market followed by an increase in demand. All of the holiday trappings of eggnog, family gatherings, the exchanging of gifts, and New Year’s resolutions were now in the rearview mirror. It was time to move on and for the Orange County housing market to awaken. But, it was not happening.

Both inventory and demand were off during the first couple weeks of the year. It appeared as if homeowners and buyers were all taking a wait and see attitude before jumping into the housing market. After the first three weeks of 2016, there were 8% fewer homes coming on the market compared to the start of last year. Demand actually dropped from the start of the New Year to the second week of January, something it had never done in the last decade.

Had the recent Fed hike in the short term rate slowed housing? Did the worldwide economic turmoil and the collapse in financial markets and Wall Street infect Orange County housing? It may have seemed like it, but it’s just not the case. As it turns out, interest rates are actually lower today than when the Federal Reserve hiked the short term rate for the first time in nine years in December. Long term interest rates for housing are not directly tied to the short term rate. Instead, those rates are more closely tied to treasury bonds. Because of all of the international turmoil, worldwide investors have flocked to treasury bonds as one of the safest investments on the globe. As a result, interest rates have actually dropped despite the Fed increasing the short term rate. However, if they continue to increase that rate, it will eventually spread to long term rates and have an effect on housing.

At first, it seemed as if the Orange County housing market’s slow start was tied to Wall Street and the worldwide economic turbulence. Regardless of the reason, it doesn’t matter now. The housing market has turned the corner and revved its powerful engine. In the past two weeks, demand jumped 22% with more buyers and sellers signing on the bottom line. The active inventory has been climbing as well, despite more pending transactions (when homes are changed to pending, they no longer count as part of the active listing total). More homeowners are taking advantage of the low, anemic inventory levels and entering the fray.

With interest rates so low, it is a great time to purchase and cash in on the historically low interest rates. The average interest rate since 1990 is 6.6% (since 1972 it is 8.5%). Today’s rates are unbelievably low. And, it looks as if the Federal Reserve has paused their rate hikes for now due to worldwide economic instability. So, it appears as if these low rates will be around for at least the first half of 2016, making it extremely advantageous to be a buyer. Despite Orange County home values inching its way closer to its prior peak set just prior to the Great Recession, the current interest rate environment has made homeownership much more affordable.

The monthly payment for the detached single family residence median sales price in December of $670,000, at today’s rate of 3.75% and 20% down, would be $2,482. When rates eventually rise to 4.75%, and they will (Freddie Mac forecasted 4.7% by the end of 2016), the payment would rise to $2,796 per month. That’s an increase of $314 per month or $3,768 per year. The bottom line: it makes sense to take advantage of today’s rates. Down the road, today’s buyers will be thrilled that they did.

For sellers in Orange County, the current inventory is extremely anemic and there are buyers waiting for new product to hit the market. The Spring Market officially begins next week after the Super Bowl and there is less competition today than there will be in the middle of spring. While April through May is typically the peak for the year in terms of demand, it is also a peak in the number of homes coming on the market, more competing homes. Waiting in anticipation of more appreciation makes sense in markets that are appreciating rapidly, but buyers today are not overly excited to stretch much more than the most recent sale. Instead, they are looking to purchase at or near a home’s Fair Market Value. Homes are no longer appreciating rapidly. The bottom line: it makes sense to take advantage of today’s low inventory and less competition.

Active Inventory:  the inventory has increased by 10% thus far this year.

The active inventory increased by 265 homes, or 6%, in the past two weeks and now sits at 4,841. That’s the largest increase in the inventory since July of last year. With interest rates being so low coupled with a low inventory, today’s hot demand may keep the inventory from growing rapidly until the Summer Market. That remains to be seen and depends upon how quickly seller adjust their prices closer to their Fair Market Values. Last year, 10% of the active inventory reduced the asking price each and every week. Overzealous sellers will have to reduce this year as well until they are in alignment with the Fair Market Value.

Last year at this time the inventory totaled 5,331 homes, 490 more than today, with an expected market time of 2.6 months, or 78 days, a slight seller’s market. Today’s expected market time is similar at 75 days, also a slight seller’s market. A slight seller’s market means that there is not much price appreciation but sellers get to call more of the shots in terms of negotiating the finer details of a contract.

 

Demand:  in the past two-weeks demand skyrocketed and increased by 22%.

Demand, the number of new pending sales over the prior month, increased by 343 homes in the past two-weeks, and now totals 1,936. That’s the largest increase since February of last year. During the same two-week period in 2015, demand actually increased by 454 pending sales and it totaled 2,053, or 6% more than today.

Expect demand to increase sharply through February and then remain elevated through mid-June, peaking sometime between April and May.

Summary:

Have a great week.

Sincerely,
Roy Hernandez
TNG Real Estate Consultants
Cell     949.922.3947

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