Roy Hernandez Real Estate Services

Orange county real estate houses for sale

You are here: Home / Archives for orange county real estate news

OC Housing Report: Payment Not Price

By

Hello!
When it comes to housing, everybody puts way too much emphasis on the price of a home when they should really be taking a closer look at the monthly payment.

Focus on the Payment: Just a year ago mortgage rates were at 4.75% and rising, substantially higher than today’s 3.5% rate. Everyone has done it. When it is time to look for a brand-new car, narrowing down the car of choice is the first step. After isolating the perfect car, the next step is to sit down and negotiate. Once the initial paperwork and credit application are complete, the salesperson leaves the negotiating table and visits privately with the manager. Upon their return, they then go over the payment for the car. After going back and forth to lower the monthly obligation by $20, it is not uncommon to get up and start calling around other dealers to see if a better payment is out there. After all, it will be the same monthly amount that will come out of the checking account for five-years!

In purchasing a home, buyers tend to focus a bit too much on the price of a home and do not consider enough the monthly payment. After settling on a home and closing, the price no longer matters, it is the payment that is withdrawn from the checking account every single month for 30-years. It happens 360 times for a home loan versus 60 for a car. As a society, why is so much time devoted to the monthly payment for a car and not a home?

Everybody is focusing on how high values are today. For detached homes they are up 60% in Orange County since bottoming in 2011. Homes appreciated significantly from 2012 through 2017. In June of 2017, values eclipsed the record peak reached prior to the Great Recession in June 2007. Since breaking the record, values have only increased slightly. Homes are not appreciating much at all in 2019. Many believe that home values are unaffordable and have reached a peak. That is what a lot of buyers are hoping for. That is simply not correct, home values have not yet peaked.

Many buyers are sitting on the sidelines and waiting… and waiting. They are trying to time the market. Yet, economists and prognosticators will attest that timing markets is next to impossible. As a result, many capable buyers have been permanently sitting on the sidelines rather than cashing in on an excellent opportunity.

Housing is in a very good spot right now and it has everything to do with interest rates. In November of last year, the 30-year mortgage climbed all the way to 5%. Consequently, housing slowed to a crawl. But, since then rates have plummeted to 3.5%, that is down 30%. For a $700,000 loan, that is a $614 per month savings, or $7,373 per year. That is a HUGE savings!

In digging a little deeper, prior to the Great Recession, mortgage rates were at 6.35% in 2007. A $625,000 home with 20% down had a monthly payment of $3,111 back then. Today at 3.5%, the monthly mortgage payment is only $2,245, an $866 per month savings, or over $10,000 per year! The difference is jaw dropping.

The giant savings are a result of excellent interest rates. They have been an absolute lift to housing this year and the momentum is slowly building. Homes are not unaffordable today like they were prior to the Great Recession. So, just because home values have returned to their prior recession levels, the current low interest rate environment is very good for housing. And, rates are not going to change much anytime soon.

In Orange County, demand is up 13% year over year and the active inventory is down 8%. And, unlike last year, the inventory is dropping right now. It will continue to drop through the end of the year and 2020 will start with a lot fewer homes than the start to 2019. With lower rates, demand will be stronger at the beginning of 2020. As a result, the market will be a lot hotter than what everybody has become accustom to.

An important message for buyers: do not wait on the sidelines. Instead, cash in on these incredible rates now. An important fact to remember, buyers do NOT have to put 20% down to purchase a home. FHA financing allows buyers to buy a home with as little as 3.5% down.

Active Inventory: The current active inventory dropped by 4% in the past two-weeks. In the past two-weeks, the active listing inventory dropped by 244 homes, down 4%, and now totals 6,616, levels not seen since March. There are fewer and fewer choices for buyers as fewer and fewer homes enter the fray. Many homeowners are waiting until next spring to place their homes on the market; and, many sellers are throwing in the towel now that both the Spring and Summer Markets are in the rearview mirror. 

Last year at this time, there were 7,201 homes on the market, 585 more than today, or a 9% difference. The inventory is MUCH different than last year when it continued to rise through Thanksgiving.

Demand: In the past two-weeks, demand dropped by 4%.  Demand, the number of new pending sales over the prior month, dropped by 90 pending sales in the past two-weeks, a 5% drop, and now sits at 2,311. Demand will continue to drop for the remainder of the year and will rapidly drop after Thanksgiving, similar to the active listing inventory.

Last year at this time, there were 261 fewer pending sales than today, 11% less.

Since both supply and demand are falling at the same rate, in the past two-weeks the Expected Market Time remained unchanged at 86 days, a slight Seller’s Market (60 to 90 days), where home values do not change much, and sellers get to call more of the shots during the negotiating process. Last year, the Expected Market Time was at 105 days and rising, much slower than today.

Luxury End:  The luxury market continued to slow. In the past two-weeks, demand for homes above $1.25 million decreased by 25 pending sales, an 8% drop, and now totals 304. The luxury home inventory decreased by 81 homes and now totals 2,257, down 3%. The overall Expected Market Time for homes priced above $1.25 million increased from 213 days to 223 over the past two-weeks, a bit sluggish.

Year over year, luxury demand is up by 25 pending sales, or 9%, and the active luxury listing inventory is up by an additional 132 homes, or 6%. That may be more seller competition, but at least demand is stronger. The Expected Market Time last year was identical at 228 days, slightly slower than today.

For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time decreased from 136 to 121 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 155 to 171 days. For homes priced between $2 million and $4 million, the Expected Market Time increased from 278 to 332 days. For homes priced above $4 million, the Expected Market Time increased from 555 to 557 days. At 557 days, a seller would be looking at placing their home into escrow around April 2021.

Orange County Housing Market Summary:

  • The active listing inventory decreased by 244 homes in the past two-weeks, down 4%, and now totals 6,616. Last year, there were 7,201 homes on the market, 585 more than today.
  • Demand, the number of pending sales over the prior month, decreased by 90 pending sales in the past two-weeks, down 4%, and now totals 2,311. Last year, there were 2,055 pending sales, 11% fewer than today.
  • The Expected Market Time for all of Orange County remained at 86 days, a slight Seller’s Market (between 60 to 90 days). It was at 105 days last year, a much slower market.
  • For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 56 days. This range represents 38% of the active inventory and 57% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 75 days, a slight Seller’s Market. This range represents 19% of the active inventory and 22% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 101 days, a Balanced Market.
  • For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 136 to 121 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 155 to 171 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time increased from 278 to 332 days. For luxury homes priced above $4 million, the Expected Market Time increased from 555 to 557 days.
  • The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and only 13% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.8% of all listings and 1.3% of demand. There are only 22 foreclosures and 32 short sales available to purchase today in all of Orange County, 54 total distressed homes on the active market, up one in the past two-weeks. Last year there were 78 total distressed homes on the market, a bit more than today.
  • There were 2,823 closed residential resales in August, 0.6% more than August 2018’s 2,806 closed sales. August marked a 2% drop compared to July 2019. The sales to list price ratio was 97.2% for all of Orange County. Foreclosures accounted for just 0.2% of all closed sales, and short sales accounted for 0.3%. That means that 99.5% of all sales were good ol’ fashioned sellers with equity.

Article courtesy of Steven Thomas, Quantitative Economics and Decision Sciences

Have a great week,

Roy Hernandez
Realtor
TNG Real Estate Consultants
949.922.3947

[ninja_form id=4]

OC Housing Report: Green Shoots

By Leave a Comment

Good evening!

Even though the housing market is not as hot as prior years,trends have emerged that confirm that it is starting to heat up.

Green Shoots: Trends are developing which demonstrate that the housing cool down is beginning to heat up.

Headlines are the same across the country: there are more homes on the market and it is taking a lot longer to sell a home. Multiple offers and instantaneous success are characteristics of housing a couple of years ago. After many years of rapid appreciation, demand for homes slowed considerably as mortgage rates climbed to 4.5% in March 2018. Demand deteriorated further when rates unexpectedly squeezed past 5% last November.

Ever since the housing market slowed last year, demand has remained sluggish, a bit subdued in comparison to the hot years from 2012 through 2017. Those markets were characterized by a very limited inventory and sizzling demand. Yet, behind the scenes, the 2019 housing market has been boosted by falling mortgage rates. After starting the year at 4.5%, rates have dropped ever since, dipping below 4% in June for the first time since the end of 2017. Today, they sit at 3.5%, the lowest level since October 2016, nearly three years ago.

As a result of the return to historically low mortgage rates, trends have surfaced that highlight a marketplace that is heating up.

GREEN SHOOT – The current active inventory has dropped by 8% since the end of July. The inventory shed 604 homes in that time, the largest drop since 2008. Today, there are 6,997 homes on the market. It is the first time that there are fewer homes compared to the prior year since April 2018. The current trend is for a rapidly falling active inventory and fewer homes on the market than the prior year.

GREEN SHOOT – Demand has only dropped by 7% since peaking back in April. That is the smallest drop since 2009. On average, demand (the number of new pending sales over the prior month) has dropped by 19% after peaking in the spring. And, since mid-July, it has surprisingly increased by 3%. During that same time period, mortgage rates dropped from 3.8% to 3.5%. Lower interest rates are absolutely propping up buyer demand in Orange County.  Today, demand is at 2,528 pending sales, which is 17% higher than last year’s anemic 2,162 reading.

GREEN SHOOT- The Expected Market Time dropped from 92 days back in mid-July to 83 days today. Typically, from July to September the Expected Market Time (the amount of time from coming on the market to opening escrow) increases or remains flat. This year it dropped from 92 days to 83 days, a 10% dip. It was the largest decline since 2011. Last year, the Expected Market Time was at 98 days and climbed all the way to 134 days by year’s end. At 83 days, other than last year, it is still the highest level for this time of the year since 2014, but it is moving in the right direction. It is a slight Seller’s Market where homes are not appreciating much at all, but sellers get to call more of the shots during negotiations.

GREEN SHOOT – Affordability has dramatically improved since November of last year. So many buyers are hoping for housing to tilt in their favor and for home values to fall like they did during the Great Recession. Quite simply, that is not going to happen anytime soon. Instead, buyers really need to focus on how affordability has substantially improved since last November when rates eclipsed 5%. With mortgage rates falling back down to historically low levels, affordability is absolutely tilting in their favor. If a buyer was looking for a $3,000 monthly payment with 20% down, they would have been looking at a home priced at $698,750 in November 2018 with a 5% interest rate. Today’s 3.5% rate allows a buyer to look at homes priced at $835,000 with the exact same $3,000 per month payment. That is an extra $136,250 in a time when there has been very little appreciation in the past year. These low rates are a total gift to home buyers.

While definite green shoots have emerged, the market is still a slight Seller’s Market. It is just not as cool as the winter of 2018. These trends have slowly developed this year. The market is on track to improve further, but it will take time. The housing market will not change overnight. While promising for sellers, the market still necessitates a more cautious, deliberate strategy and approach to housing. For buyers, the current low interest rate environment is a strong advantage that has reduced the monthly mortgage payment significantly and greatly improved affordability.

Active Inventory: The current active inventory shed 310 homes in the past two-weeks.

In the past two-weeks, the active listing inventory dropped by 310 homes, down 4%, and now totals 6,997, the largest drop of the year. In the past month, it has dropped by 491 homes, a 7% plunge. The inventory will continue to drop for the rest of the year. The decline is the fastest pace since 2012. That means that there will be far fewer homes to start 2020 compared to the start of this year. The headlines once again will be an anemic inventory. 

Last year at this time, there were 7,070 homes on the market, 73 more than today, or 1%. Two years ago, there were 19% fewer homes on the market compared to today.

Demand: In the past two-weeks, demand decreased by 1%. 

Demand, the number of new pending sales over the prior month, decreased by 20 pending sales in the past two-weeks, down 1%, and now totals 2,528. Expect demand to continue to drop through the end of the year, just not at the same downward pace as is customary. Lower mortgage rates are having a positive impact on demand.

Last year at this time, there were 366 fewer pending sales than today, 14% less. Two years ago, it was 4% stronger than today.

In the past two-weeks, the Expected Market Time dropped from 86 days to 83 days, a slight Seller’s Market (60 to 90 days), where home values do not change much, and sellers get to call more of the shots during the negotiating process. Last year, the Expected Market Time was at 98 days, slower than today. Two years ago, it was at 64 days.

Luxury End:  Since July, the luxury market has continuously improved.

In the past two-weeks, demand for homes above $1.25 million decreased by only 2 pending sales, a 0.6% drop, and now totals 347. The luxury home inventory decreased by 124 homes and now totals 2,337, a 5% drop. The overall Expected Market Time for homes priced above $1.25 million decreased from 212 days to 202 over the past two-weeks, moving in the right direction.

Year over year, luxury demand is up by 28 pending sales, or 9%, and the active luxury listing inventory is up by an additional 193 homes, or 9%. The Expected Market Time last year was identical to today, 202 days. There are more luxury homes on the market, but demand is a lot stronger.

For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time decreased from 149 to 146 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 162 to 147 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 249 to 220 days. For homes priced above $4 million, the Expected Market Time increased from 509 to 527 days. At 527 days, a seller would be looking at placing their home into escrow around February 2021.

Orange County Housing Market Summary:

  • The active listing inventory decreased by 310 homes in the past two-weeks, down 4%, and now totals 6,997. It was the largest drop so far this year. Last year, there were 7,070 homes on the market, 73 more than today. Two years ago, there were 19% fewer homes on the market.
  • Demand, the number of pending sales over the prior month, decreased by 20 pending sales in the past two-weeks, down 1%, and now totals 2,528. Last year, there were 2,162 pending sales, 14% fewer than today. Two years ago, demand was 4% stronger than today.
  • The Expected Market Time for all of Orange County remained dropped from 86 to 83 days, a slight Seller’s Market (between 60 to 90 days). It was at 98 days last year.
  • For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 57 days. This range represents 38% of the active inventory and 56% 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 19% of the active inventory and 24% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 121 days, a Balanced Market.
  • For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 149 to 146 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 162 to 147 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 249 to 220 days. For luxury homes priced above $4 million, the Expected Market Time increased from 509 to 527 days.
  • The luxury end, all homes above $1.25 million, accounts for 33% of the inventory and only 13% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.7% of all listings and 1.4% of demand. There are only 27 foreclosures and 23 short sales available to purchase today in all of Orange County, 50 total distressed homes on the active market, down two in the past two-weeks. Last year there were 56 total distressed homes on the market, slightly more than today.
  • There were 2,871 closed residential resales in July, 5% more than July 2018’s 2,734 closed sales. July marked a 6% increase compared to June 2019. The sales to list price ratio was 98.3% for all of Orange County. Foreclosures accounted for just 0.5% of all closed sales, and short sales accounted for 0.24%. That means that 99.3% of all sales were good ol’ fashioned sellers with equity.

Have a great weekend,

Compliments of ….
Roy Hernandez
TNG Real Estate Real Estate Consultants
Cell 949.922.3947

Article courtesy of Steven Thomas and Quantitative Economics and Decision Sciences

OC Housing Report- It is what it is

By Leave a Comment

Many buyers and sellers are holding out for a major shift in the market favoring their point of view, but housing is not changing anytime soon.

Status Quo: For the rest of the year, the housing market is not going to change much at all.

There is an old saying, “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” No matter how hard you wish it was something else, it is still a duck at the end of the day.

Today’s housing market is a slight Seller’s Market. That is when homes are not appreciating much at all, but sellers get to call more of the shots during the negotiating process. For buyers and sellers, wishing that the market was different is a complete waste of time.

Many buyers and sellers are holding out and hoping for a change in the market. Buyers want to see housing slow to a crawl like it did in the last four months of 2018 where, for a moment, they were in the driver’s seat. They would love to see prices come down, after all, aren’t values too high?

Sellers expect the housing market to behave like it did from 2012 through 2017. Boy those were HOT years!! They should once again be able to stretch their housing price and get $15 or $20,000 more than the last sale with multiple offers within the first couple of weeks, right?

This kind of thinking is stinking thinking. Neither are correct. What you see in the market today is ultimately what you are going to see for the rest of the year. More simply, it is what it is; what you see is what you get. Values are not going to grow much. The overall pace of housing is not going to change. Housing is going to move along at the same clip. Buyers think that the end of the year is the BEST time of the year to buy. Nope! What you see is what you get. Sellers think that the market is going to suddenly heat up.  Nope! What you see is what you get.

Here is how the rest of the year is going to play out. With the kids back in school, it is officially the Autumn Market. The Spring and Summer Markets are now in the past. The busiest time of the year for real estate is in the rearview mirror. From right now, today, the active inventory will drop for the rest of the year. In Orange County, the current active inventory peaked at the end of July with 7,601 homes on the market. It had grown by 29% since then beginning of the year. Yet, in the last month, the inventory has already dropped by 294 homes, or 4%, and now sits at 7,307.

Now that it is the Autumn Market, there will be fewer new homes that enter the fray. Combine that with many unsuccessful sellers throwing in the towel and pulling their homes off the market and you have the recipe for an active inventory that will continuously drop. As the year progresses, there will be fewer and fewer choices for buyers. That is normal. Last year, the inventory grew on the backs of rising rates, which is not normal. Current rates are at a three-year low. The inventory is going to do what it normally does at the end of the year, consistently drop. On average, it drops 37% after reaching a peak during the Summer Market.

At the same time, buyer demand will drop slowly but surely for the remainder of the year. It just is not the most advantageous time for families to move with the kids back in school, so demand continuously drops. It picks up steam in November and December with all the distractions of the holidays. On average, in the last decade, it has dropped by 35% from August through the end of the year.

With both supply and demand dropping at nearly the same rate, the velocity of the market will not change much as well. What you see is what you get. The Expected Market Time, the amount of time it would take from listing a home to placing it in escrow down the road, has increased, on average, by only 2% from August through December during years where housing peaks during the summer. The current Expected Market Time is at 86 days. A 2% change would be an increase to 88 days, nearly unnoticeable for anyone in the real estate trenches.

Buyers and sellers need to be careful with their wild expectations. They need to be based upon the realities of today’s housing market, not what they wish for… what you see is what you get.

Active Inventory: The current active inventory shed 181 homes in the past two-weeks.In the past two-weeks, the active listing inventory dropped by 181 homes, down 2%, and now totals 7,307, the largest drop of the year. The significant drop illustrates the direction that the active listing inventory will be heading for the remainder of the year: DOWN. There are fewer homeowners opting to list their homes during this time of the year and many unsuccessful sellers are throwing in the towel with the best time of the year officially in the rearview mirror.

Last year at this time, there were 7,001 homes on the market, 306 fewer, or 4% less. Two years ago, there were 20% fewer homes on the market compared to today.

Demand: In the past two-weeks, demand decreased by 2%.  Demand, the number of new pending sales over the prior month, decreased by 58 pending sales in the past two-weeks, down 2%, and now totals 2,548. With the kids back in school, demand slowly and methodically drops for the rest of the year. It is just not the most advantageous time for families to move. Most families prefer to move when it is easiest on the kids, during the summer months, from June through mid-August while their kids are enjoying their summer break.

Last year at this time, there were 198 fewer pending sales than today. Current demand is still muted, just not as severe as this time last year when interest rates were climbing. Two years ago, it was 11% stronger than today.

In the past two-weeks, the Expected Market Time remained unchanged at 86 days, a slight Seller’s Market (60 to 90 days), where home values do not change much, and sellers get to call more of the shots during the negotiating process. Last year, the Expected Market Time was at 89 days, a little slower than today.

Luxury End:  The luxury market continued to improve in the past couple of weeks.In the past two-weeks, demand for homes above $1.25 million increased by 18 pending sales, a 5% increase, and now totals 349, the highest level since June. The luxury home inventory decreased by 46 homes and now totals 2,461, a 2% drop. It too reached a peak four weeks ago and is descending like the rest of the active inventory. The overall Expected Market Time for homes priced above $1.25 million decreased from 227 days to 212 over the past two-weeks, better, but still sluggish.

Year over year, luxury demand is up by 4 pending sales, or 1%, and the active luxury listing inventory is up by an additional 328 homes, or 15%. The expected market time last year was at 185 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 130 to 149 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 240 to 162 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 280 to 249 days. For homes priced above $4 million, the Expected Market Time increased from 404 to 509 days. At 509 days, a seller would be looking at placing their home into escrow around January 2021.

Orange County Housing Market Summary:

  • The active listing inventory decreased by 181 homes in the past two-weeks, down 2%, and now totals 7,307. The inventory reached a peak for the year of 7,601 four-weeks ago. Last year, there were 7,001 homes on the market, 306 fewer than today, 4% less. Two years ago, there were 20% fewer homes on the market.
  • Demand, the number of pending sales over the prior month, decreased by 81 pending sales in the past two-weeks, down 2%, and now totals 2,548. Last year, there were 2,350 pending sales, 8% fewer than today. Two years ago, demand was 11% stronger than today.
  • The Expected Market Time for all of Orange County remained unchanged at 86 days, a slight Seller’s Market (between 60 to 90 days). It was at 89 days last year.
  • For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 57 days. This range represents 38% of the active inventory and 57% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 74 days, a slight Seller’s Market. This range represents 19% of the active inventory and 22% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 117 days, a Balanced Market.
  • For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time increased from 130 to 149 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 244 to 162 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 280 to 249 days. For luxury homes priced above $4 million, the Expected Market Time increased from 404 to 509 days.
  • The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and only 13% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.7% of all listings and 1.4% of demand. There are only 20 foreclosures and 32 short sales available to purchase today in all of Orange County, 52 total distressed homes on the active market, down five in the past two-weeks. Last year there were 58 total distressed homes on the market, slightly more than today.
  • There were 2,871 closed residential resales in July, 5% more than July 2018’s 2,734 closed sales. July marked a 6% increase compared to June 2019. The sales to list price ratio was 98.3% for all of Orange County. Foreclosures accounted for just 0.5% of all closed sales, and short sales accounted for 0.24%. That means that 99.3% of all sales were good ol’ fashioned sellers with equity.

Article courtesy of Steven Thomas, Quantitative Economics and Decisions Sciences

Have a nice week, and a safe Labor Day weekend!

Roy Hernandez
TNG Real Estate Consultants
Realtor@Royalagent.net
Cell/Text 949.922.3947

OC Housing Report: The Sky is NOT Falling

By Leave a Comment

Buyer demand may not be as hot as prior years, but the Housing market is not collapsing either.

No Housing Collapse: The underlying housing fundamentals have stabilized significantly compared to last year’s slide.

Little kids often have a tough time climbing under the covers and swiftly dozing off to sleep. Instead, they look under their bed to make sure there is nothing there. They look in their closet and then close the door tight. They make certain that the nightlight is brightly shining. There are even times when they will ask dad or mom to be absolutely certain that there are no monsters in their room. Finally, they anxiously fall asleep.

For buyers or sellers wondering if there are any monsters lurking around the corner, they can be rest assured that the sky is not falling, there are no surprises on the housing front anytime soon. Reports from the housing trenches are that many buyers expect the market to drop like a rock and that is when they will finally be able to purchase. That simply is not on the horizon. Sitting back and waiting on the sidelines will prove to be a waste of time.

Last year, major cracks in the housing market emerged. The HOT market continued from 2012 through the start of 2018, until the underlying fundamentals quickly eroded. From May through August of last year, the active inventory climbed by 17%, demand dropped by 10%, and the Expected Market Time (the amount of time it would take from hammering in the FOR SALE sign to opening escrow) rocketed upward. The Expected Market Time continued to soar by climbing an additional 56% from August through the end of the year, compared to a 7% average from 2012 through 2017.

This year, from May to the start of August, the active inventory has remained unchanged, demand has only dropped by 2%, and the Expected Market Time increased by only 1%. Housing is not grinding to a halt. The sky is not falling. Typically for this time of the year, the Summer Market, the active inventory rises, demand drops slightly, and the Expected Market time slowly increases. This year, there has not been much change at all.

Orange County housing has improved dramatically since all the cracks of last year. But that does NOT mean that the market is back on track and will rapidly appreciate like it did before. Take a closer look at demand. It is up 9% compared

to last year. But, do NOT get too excited in comparing the market this year to last year. The numbers are going to look great for the rest of the year compared to 2018. However, housing grinded to a halt from July to the end of 2018. A better comparison is to look at the market when it was hot, improving, and appreciating.

Contrasting this year to 2017 paints a much better picture as to where local real estate is heading. Demand in Orange County is off by 10% compared to 2017. It is still muted, just not sliding off a cliff like it was last year. The inventory is up by 27% compared to two years ago. The Expected Market Time is at 86 days compared to 61 days in 2017.  

It is time for everybody’s expectations to be adjusted. The market is not as hot as before. Housing is not sliding into the abyss. Property values are not skyrocketing right now, but they are not falling either. Local real estate is not changing that much; what you see is what you get. Low mortgage rates have saved the day and they are not going anywhere. Instead, they are on the decline, reaching three-year lows. These low rates will cushion the market from stalling.

The Expected Market Time today is 86 days, identical to last year. Unlike last year, when it climbed to 134 days by year’s end, it will only rise slightly from here. At 86 days it is a slight Seller’s Market. That is a market that is characterized by not a lot of appreciation, but sellers get to call more of the shots during negotiations. It will most likely move to a Balanced Market from here, one that does not favor sellers or buyers. The market is hottest in the lower ranges where there are more multiple offers and sales prices are closer to their list prices. As the price climbs above $1 million, the market slows considerably, Expected Market Times climb, multiple offers are NOT the norm, sales prices are not as close to their asking prices, and there are a lot fewer success stories.

The bottom line: while housing is not as robust today as prior years, it is not spiraling out of control and will not result in a housing downturn anytime soon. The sky is not falling.

Active Inventory: The current active inventory shed 113 homes in the past two-weeks. In the past two-weeks, the active listing inventory dropped by only 113 homes, down 1%, and now totals 7,488. It looks as if the housing peak occurred two weeks ago and will drop from here. In comparing this year to last year, the difference at the beginning of the year was staggering. There were 2,204 more homes than 2018 at the start of January, 59% more. Today, there are 595 more homes compared to last year in August, 9% more. The difference is dissipating and within the next month, there will be fewer homes compared to the prior year.

From now through the end of the year, the active listing inventory will slowly drop, and will pick up speed during the holidays when fewer homes come on the market and many unsuccessful sellers pull their homes off the market.

Demand: In the past two-weeks, demand increased by 4%.  Demand, the number of new pending sales over the prior month, increased by 101 pending sales in the past two-weeks, up 4%, and now totals 2,606. It is the largest gain for the beginning of August since 2013. In the coming weeks ahead, the market will be transitioning to the Autumn Market when fewer homes come on the market and demand begins to dip slowly, leaving behind the two best times of the year in terms of activity, the Spring and Summer Markets. It will slowly decline for the remainder of the year, picking up steam during the holidays.

Last year at this time, there were 212 fewer pending sales than today. Current demand is still muted, just not as severe as this time last year when interest rates were climbing. Two years ago, it was 11% stronger than today.

The current Expected Market Time decreased from 91 days to 86 days in the past two weeks, a slight Seller’s Market (60 to 90 days), where sellers get to call more of the shots during a negotiation and property values are not increasing by much. Last year, the Expected Market Time was at 86 days, identical to today.

Luxury End:  The luxury market improved in the past couple of weeks. In the past two-weeks, demand for homes above $1.25 million increased by 15 pending sales, a 5% increase, and now totals 331. The luxury home inventory decreased by 44 homes and now totals 2,507, a 2% drop after reaching a height for the year two-weeks ago. The overall Expected Market Time for homes priced above $1.25 million decreased from 242 days to 227 over the past two-weeks, still sluggish.

Year over year, luxury demand is the same and the active luxury listing inventory is up by an additional 355 homes, or 16%. Extra seller competition and continued muted demand is a trend that will persist for the remainder of the year. The expected market time last year was at 195 days, better than today.

For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time decreased from 147 to 130 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 240 to 244 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 288 to 280 days. For homes priced above $4 million, the Expected Market Time decreased from 500 to 404 days. At 404 days, a seller would be looking at placing their home into escrow around September 2020.

Orange County Housing Market Summary:

  • The active listing inventory decreased by 113 homes in the past two-weeks, down 1%, and now totals 7,488. The inventory most likely reached a peak for the year of 7,601 two weeks ago. Last year, there were 6,893 homes on the market, 595 fewer than today. There are 9% more homes than last year.
  • Demand, the number of pending sales over the prior month, increased by 101 pending sales in the past two-weeks, up 4%, and now totals 2,606. Last year, there were 2,394 pending sales, 9% fewer than today.
  • The Expected Market Time for all of Orange County decreased from 91 days two weeks ago to 86 days today, a slight Seller’s Market (between 60 to 90 days). It was at 86 days last year.
  • For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 58 days. This range represents 38% of the active inventory and 56% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 70 days, a slight Seller’s Market. This range represents 19% of the active inventory and 24% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 109 days, a Balanced Market.
  • For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 147 to 130 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 240 to 244 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 288 to 280 days. For luxury homes priced above $4 million, the Expected Market Time decreased from 500 to 404 days.
  • The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and only 13% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.8% of all listings and 1.4% of demand. There are only 20 foreclosures and 37 short sales available to purchase today in all of Orange County, 57 total distressed homes on the active market, up one in the past two-weeks. Last year there were 88 total distressed homes on the market, slightly more than today.
  • There were 2,871 closed residential resales in July, 5% more than July 2018’s 2,734 closed sales. July marked a 6% increase compared to June 2019. The sales to list price ratio was 98.3% for all of Orange County. Foreclosures accounted for just 0.5% of all closed sales, and short sales accounted for 0.24%. That means that 99.3% of all sales were good ol’ fashioned sellers with equity.

Article courtesy of Steven Thomas Quantitative Economics and Decision Sciences.

Sincerely,
Roy Hernandez
TNG Real Estate Consultants
Cell 949.922.3947

OC Housing Report- Staying Put

By Leave a Comment

Hello!

It is the Summer Market yet there are fewer new FOR SALE signs this year.

Fewer Listings: Not as many homeowners are placing their homes on the market than what is typical for this time of the year.

The lazy days of summer are here. Sitting in the back yard under the umbrella drinking a tall cold glass of lemonade, nothing beats it. Time seems to stand still. The pressures of the rat race of life fade for a moment while basking in the warm summer air. It is a welcome break from the fast pace of working so hard.

The summer of 2019 is shaping up to be quite the same way for housing, many homeowners are kicking back in their homes and enjoying the warmer weather rather than placing their homes on the market.

In Orange County, there were 11% fewer homes that came on the market in June of this year compared to June of 2018. That equates to 439 FOR SALE signs. So far in July, there are 6% fewer, or 159 missing FOR SALE signs year-over-year. For buyers monitoring local housing closely, they have witnessed this recent phenomenon. There simply are not as many new homes coming on for buyers to tour.

With not as many homes entering the fray, the active listing inventory is not growing as fast as is typical for the Summer Market. In June and July, the inventory has only grown by 122 homes, or 2%. From 2013 through 2018, on average, it has grown by 819 homes, or 15%. The limited number of homes coming on the market this year has had an impact on the overall choices for buyers.

For sellers desiring an even hotter housing market, that is not what is going on here. Instead, the Expected Market Time (the time it would take for a home that comes on the market today to enter escrow down the road) is not slowing as much as it normally does during the summer time. At the end of May, it was at 85 days. Today, it is at 91 days. That is only an increase of 6 days compared to the average from 2013 through 2018 of 15 days. At 91 days, Orange County is experiencing a Balanced Market (from 90 to 120 days), one that does not favor sellers or buyers. Nobody is in the driver’s seat in a market that is balanced, home values do not change, and there are fewer multiple offer situations.

Had the typical number of homes come on the market, it would be a deeper Balanced Market. This is more than just a blip on the housing radar. It is a trend that will ultimately impact the overall feel and trajectory of the market for the remainder of 2019. Fewer FOR SALE signs translates to fewer choices and a stronger Expected Market Time. Summer is a time when demand softens a bit as the supply of homes increases. That continues until housing transitions to the Autumn Market, where the Expected Market Time remains relatively the same for the rest of the year. With the growth in the supply of homes slowing early, it means the Expected Market Time will not change much from the summer through the end of the year. When the kids go back to school, even fewer homes come on the market while buyer demand diminishes. With both supply and demand falling at nearly the same rate, not much changes in the overall feel of housing.

Last year, the big story was a giant drop in demand (the number of pending sales in the last month), especially noticeable from mid-July through the end of the year. The drop in demand was exasperated by rising interest rates, climbing from 4.5% to 5% from July through November. That translated to an increasing Expected Market Time through the end of the year. That is not going to occur this year while interest rates remain at a three-year low, around 3.75%.

Why are there fewer FOR SALE signs popping up in neighborhoods across Southern California? It could be the deluge of negative housing stories swirling across the nation. It could be all the talk of a pending recession. It is anybody’s guess at this point. Collectively, more homeowners are sitting in their back yards, sipping an ice-cold glass of lemonade, and enjoying the summer warmth, instead of coming on the market and participating in the game of real estate.

Active Inventory: The current active inventory increased by 40 homes in the past two-weeks.

In the past two-weeks, the active listing inventory increased by only 40 homes, up 0.5%, and now totals 7,601. That beats the 2019 height reached a month ago by one extra home. This could be the peak for 2019, unless it climbs one more time over the coming two weeks. From there, housing will transition to the Autumn Market. With both the Spring and Summer Markets in the rearview mirror, fewer homeowners place their homes on the market and many unsuccessful sellers throw in the towel and pull their homes off the market. The active listing inventory will drop for the remainder of the year.

Last year at this time there were 6,759 homes on the market. That means that there are 12% more homes available today. This continues to be the highest level of homes on the market for this time of the year since 2011. Soon, there will be fewer homes on the market this year compared to 2018. The inventory will be dropping at a time when it was increasing last year.

Demand: In the past two- weeks, demand increased by 2%. 

Demand, the number of new pending sales over the prior month, increased by 44 pending sales in the past two-weeks, up 2%, and now totals 2,505. From here, expect demand to rise slightly over the coming two weeks, a last hurrah for the Summer Market. Then, it will transition into the Autumn Market where demand will methodically fall for the remainder of the year.

Last year at this time, there were 112 fewer pending sales, fewer than today. Current demand is still muted, just not as severe as this time last year when interest rates were climbing. Two years ago, it was 13% stronger than today.

The current Expected Market Time decreased from 92 days to 91 days in the past two weeks, a Balanced Market (90 to 120 days), one that does not favor sellers or buyers. Last year, the Expected Market Time was at 85 days, slightly better than today.

Luxury End:  The luxury market slowed considerably in the past couple of weeks.

In the past two-weeks, demand for homes above $1.25 million decreased by 29 pending sales, an 8% drop, and now totals 316, its lowest level since February. The luxury home inventory increased by 29 homes and now totals 2,551, a 1% rise and the highest level of the year. The overall Expected Market Time for homes priced above $1.25 million increased from 219 days to 242 over the past two-weeks, extremely sluggish.

Year over year, luxury demand is up by 3 pending sales, or 1%, and the active luxury listing inventory is up by an additional 359 homes, or 16%. Extra seller competition and continued muted is a trend that will persist for the remainder of the year. The expected market time last year was at 210 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 143 to 147 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 189 to 240 days, the largest shift at the luxury end. For homes priced between $2 million and $4 million, the Expected Market Time increased from 262 to 288 days. For homes priced above $4 million, the Expected Market Time decreased from 518 to 500 days. At 500 days, a seller would be looking at placing their home into escrow around December 2020.

Orange County Housing Market Summary:

  • The active listing inventory increased by 40 homes in the past two-weeks, up 0.5%, and now totals 7,601, the highest level for 2019. In the month of June, 11% fewer homes came on the market compared to June 2018. And, so far in July, it is down by 6%. Last year, there were 6,759 homes on the market, 842 fewer than today. There are 12% more homes than last year.
  • Demand, the number of pending sales over the prior month, increased by 44 pending sales in the past two-weeks, up 2%, and now totals 2,505. Last year, there were 2,393 pending sales, 4% fewer than today.
  • The Expected Market Time for all of Orange County decreased from 92 days two weeks ago to 91 days today, a Balanced Market (between 90 to 120 days) and the highest level for this time of the year since 2011. It was at 85 days last year.
  • For homes priced below $750,000, the market is a slight Seller’s Market (between 60 and 90 days) with an expected market time of 62 days. This range represents 39% of the active inventory and 56% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 73 days, a slight Seller’s Market. This range represents 19% of the active inventory and 24% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 116 days, a Balanced Market.
  • For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time increased from 143 to 147 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 189 to 240 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time increased from 262 to 288 days. For luxury homes priced above $4 million, the Expected Market Time decreased from 518 to 500 days.
  • The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and only 13% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.7% of all listings and 1.4% of demand. There are only 22 foreclosures and 34 short sales available to purchase today in all of Orange County, 56 total distressed homes on the active market, up one in the past two-weeks. Last year there were 59 total distressed homes on the market, nearly the same as today.
  • There were 2,715 closed residential resales in June, 6% fewer than June 2018’s 2,879 closed sales. June marked a 7% drop from May 2019. The sales to list price ratio was 97.6% for all of Orange County. Foreclosures accounted for just 0.5% of all closed sales, and short sales accounted for 0.4%. That means that 99.1% of all sales were good ol’ fashioned sellers with equity.

Article courtesy of Steven Thomas Quantitative Economics and Decision Sciences

Have a great week.

Roy Hernandez
TNG Real Estate Consultants
Cell      949.922.394

OC Housing Report- Sluggish

By Leave a Comment

Hello friend!

Due to fewer pending sales, the overall housing market is not as hot as it used to be.

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:

  • The active listing inventory decreased by 39 homes in the past two weeks, down 1%, and now totals 7,561. In the month of June, 12% fewer homes came on the market compared to June 2018. Last year, there were 6,579 homes on the market, 982 fewer than today. There are 15% more homes than last year.
  • Demand, the number of pending sales over the prior month, decreased by 87 pending sales in the past two-weeks, down 3%, and now totals 2,461. Last year, there were 2,454 pending sales, similar to today.
  • The Expected Market Time for all of Orange County increased from 89 days two weeks ago to 92 days today, a Balanced Market (between 90 to 120 days) and the highest level for this time of the year since 2011. It was at 80 days last year.
  • For homes priced below $750,000, the market is a slight Seller’s Market (between 60 and 90 days) with an expected market time of 64 days. This range represents 39% of the active inventory and 55% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 79 days, a slight Seller’s Market. This range represents 19% of the active inventory and 22% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 98 days, a Balanced Market.
  • For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time increased from 137 to 143 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 192 to 189 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time increased from 250 to 262 days. For luxury homes priced above $4 million, the Expected Market Time decreased from 667 to 518 days.
  • The luxury end, all homes above $1.25 million, accounts for 35% of the inventory and only 14% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.7% of all listings and 1.5% of demand. There are only 20 foreclosures and 35 short sales available to purchase today in all of Orange County, 55 total distressed homes on the active market, identical to the number two-weeks. Last year there were 64 total distressed homes on the market, slightly more than today.
  • There were 2,715 closed residential resales in June, 6% fewer than June 2018’s 2,879 closed sales. June marked a 7% drop from May 2019. The sales to list price ratio was 97.6% for all of Orange County. Foreclosures accounted for just 0.5% of all closed sales, and short sales accounted for 0.4%. That means that 99.1% of all sales were good ol’ fashioned sellers with equity.

Article courtesy of Steven Thomas Quantitative Economics and Decision Sciences

Sincerely,
Roy Hernandez
TNG Real Estate Consultants
949.922.3947
Realtor@Royalagent.net

Copyright 2019 – Steven Thomas, Reports On Housing – All Rights Reserved.   This report may not be reproduced in whole or part without express written permission by author.

OC Housing Report- Golden Opportunity

By Leave a Comment

Hello!

Accurately pricing a home initially to avoid price reductions is the most lucrative strategy.

Initial Pricing: Sellers who price their homes accurately and avoid price reductions sell their homes for more.

After their own personal pre-race ritual, the sprinters approach their designated starting blocks. The starter raises the pistol into the air stating, “On your mark.” The runners carefully place their track spikes onto their blocks. After everybody looks ready, the starter then utters, “Set.” The athletes get in the loaded position and their legs are ready to fire. Finally, the gun goes off and they explode onto the track. Ultimately, somebody does not have a good start. Some delay. Others do not have the proper form. The initial start is crucial and is an advantage that often propels the athlete with the best start across the finish line with arms raised high in the air.

Similarly, when a home initially comes on the market, the price will determine whether or not a seller will be raising their arms in the air with delight as they successfully close escrow. Buyers today do not want to pay much more than the most recent closed sale. Prices are a lot stickier. The days of rapid appreciation are now in the rearview mirror. Overpriced homes sit without success. Throwing a price out there just to test the market is not a wise strategy. Instead, carefully and methodically pricing a home is vital to cashing in on the Golden Opportunity, the first few weeks after coming on the market.

It is very telling to look at the sales price to last list price ratio. This refers to the final list price prior to opening escrow. In Orange County, 68% of all closed sales in June did not reduce the asking price at all. The sales price to last list price ratio for these homes was 98.9%, meaning, on average, a home sold within 1.1% of the asking price. A home listed at $600,000 sold for $593,400. In addition, 20% of all closed sales reduced their asking prices between 1% and 4%. The sales to list price ratio for these homes was 97.8%. A home listed at $600,000 sold for $586,800. For homes that reduced their asking prices by 5% or more, 12% of closed sales in June, the sales to list price ratio was 96.6%. A home listed at $600,000 sold for $579,600. Everybody would agree that closing for $593,400 is a lot better than $579,600.

The data is staggering in looking at the sales price to original list price. This is the price when a home initially comes on the market prior to any price reductions. For homes that reduced the asking price between 1% to 4%, the sales to original list price ratio was 95.6%. A home that was listed originally for $614,000 had to reduce the asking price to $600,000 to find success. Homes that reduced the asking price by at least 5% had a sales to original list price ratio of 84.1%. A home that was originally listed at $659,000 had to reduce the asking price, often more than once, to $600,000 to find success.

Accurately pricing is critical in obtaining the highest and best sales price. Homes that do not have to reduce ultimately sell for more. The amount of market time increases substantially for those that must reduce. And, there are a lot of price reductions occurring every week right now. An eye-opening 11% of all active listings reduced their asking prices last week.

What is so important about the initial few weeks after coming on the market that helps drive success? There are many buyers who have not yet isolated their home and they are literally waiting on the sidelines for something to come on the market that meets their criteria. Every time a home is fresh to the market, there is a flood of initial activity as potential buyers clamor to be one of the first to take a look. There is more activity in the initial two weeks in entering the fray than any other time when a home is marketed. With the Internet, this period is even more important. Most buyers subscribe to a service that allows them to search homes that are on the market. When a home is newly listed, buyers receive email notifications and they are at the top of the list of homes available that match the buyer’s criteria.

With all of the fanfare, it is not a coincidence that the initial listing period is extremely important. Cashing in on the excitement makes a lot of sense; however, many sellers do not understand the significance and waste this GOLDEN OPPORTUNITY. Yes, a seller can always reduce the asking price down the road to be more in line with a home’s Fair Market Value, but the reduction will not be met with the same enthusiasm as the initial first few weeks. There is not as much excitement surrounding a price reduction. When something is brand new to the market, that is exciting. When something has been exposed to the market for a while, it becomes a bit “shop worn” and loses some of its marketing luster.

The bottom line for sellers: spend more time carefully arriving at the asking price, taking into consideration all the pluses and minuses in the home: condition, upgrades, and location. Having the right price to begin with will not only reduce market time, it will result in more activity and a higher sales price.

Active Inventory: The current active inventory increased by 1% in the past two weeks.

In the past two weeks, the active listing inventory increased by only 107 homes, up 1%, and now totals 7,600. As is normal for this time of the year, the active listing inventory continues to grow week after week. This will continue until it reaches a peak most likely in August.  

Last year at this time there were 6,362 homes on the market. That means that there are 19% 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 4%. 

Demand, the number of new pending sales over the prior month, dropped by 113 pending sales in the past four weeks, down 4%, and now totals 2,548. It is very telling that demand remains subdued, like last year. However, last year it was due to higher prices coupled with rising rates. Mortgage rates have dropped to levels not seen since September 2016, but even with lower rates, demand remains subdued. This development is a strong indicator that the current housing cycle is nearing its peak. This will develop more in time.

From here, demand will continue to slowly drop through the Summer Market. Once the kids go back to school at the end of August, housing will transition to the Autumn Market and demand will downshift further.

Last year at this time, there were 56 more pending sales, 2% more than today. Two years ago, it was 13% stronger than today.

The current Expected Market Time increased from 84 days to 89 days in the past two weeks, a slight Seller’s Market. It is knocking on the door of a Balanced Market (90 to 120 days), one that does not favor sellers or buyers. Last year, the Expected Market Time was at 73 days, much better than today.

Luxury End:  The luxury market slowed significantly the past couple of weeks.

In the past two-weeks, demand for homes above $1.25 million decreased by 54 pending sales, a 13% drop, and now totals 352, its lowest level since the end of March. The luxury home inventory grew by 27 homes and now totals 2,549, a 1% increase and the highest level of the year. The overall expected market time for homes priced above $1.25 million increased from 186 days to 217 over the past two-weeks, extremely sluggish.

Year over year, luxury demand is down by 11 pending sales, or 3%, and the active luxury listing inventory is up by an additional 375 homes, or 17%. Extra seller competition and continued muted demand, similar to the rest of the Orange County market, is a trend that will persist for the remainder of the year. The expected market time last year was at 180 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 107 to 118 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 149 to 192 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 254 to 250 days. For homes priced above $4 million, the Expected Market Time increased from 441 to 667 days. At 667 days, a seller would be looking at placing their home into escrow around the end of April 2021.

Orange County Housing Market Summary:

  • The active listing inventory increased by 107 homes in the past two weeks, up 1%, and now totals 7,600, the highest level since September 2014. Last year, there were 6,362 homes on the market, 1,238 fewer than today. There are 19% more homes than last year.
  • Demand, the number of pending sales over the prior month, decreased by 113 pending sales in the past two-weeks, down 4%, and now totals 2,548. Last year, there were 2,604 pending sales, 2% more than today.
  • The Expected Market Time for all of Orange County increased from 84 days two weeks ago to 89 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 73 days last year.
  • For homes priced below $750,000, the market is a slight Seller’s Market (between 60 and 90 days) with an expected market time of 64 days. This range represents 39% of the active inventory and 55% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 74 days, a slight Seller’s Market. This range represents 18% of the active inventory and 22% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 86 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 increased from 118 to 137 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 149 to 192 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 254 to 250 days. For luxury homes priced above $4 million, the Expected Market Time increased from 441 to 667 days.
  • The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and only 14% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.7% of all listings and 1.4% of demand. There are only 22 foreclosures and 33 short sales available to purchase today in all of Orange County, 55 total distressed homes on the active market, up two the last two-weeks. Last year there were 58 total distressed homes on the market, nearly identical to today.
  • There were 2,929 closed residential resales in May, 2% more than May 2018’s 2,870 closed sales. April marked a 15% increase from April 2019. The sales to list price ratio was 97.6% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales, and short sales accounted for 0.6%. That means that 98.6% of all sales were good ol’ fashioned sellers with equity.

Pictures and article courtesy of Steven Thomas Quantitative Economics and Decision Sciences

Happy 4th of July!
Roy Hernandez
Your Trusted Partner in Real Estate
TNG Real Estate Consultants
949-922-3947

OC Housing Report- Last Call

By Leave a Comment

Hello!

There is not a lot of steam left in the best time of the year to sell a home and get it under contract. There is not a lot of steam left in the best time of theyear to sell a home and get it under contract.

Last Call: In order for sellers to cash in on the most lucrative time to sell a home during the year, they better open up escrow soon.It is that time of the year for the family vacation. That includes airports, long lines at the TSA checkpoint, connections, and a bit of stress and anxiety. Inevitably, countless travelers with kids in tow will find themselves running to their connecting flight. The sense of urgency is intense. As if to mock the situation, the flight crew announces, “LAST CALL for flight 93!” Frantically many will barely make it, gasping for air while boarding the plane. Still others will arrive at the gate only to find that the “cabin door has been closed.”

It is that time of the year for the family vacation. That includes airports, long lines at the TSA checkpoint, connections, and a bit of stress and anxiety. Inevitably, countless travelers with kids in tow will find themselves running to their connecting flight. The sense of urgency is intense. As if to mock the situation, the flight crew announces, “LAST CALL for flight 93!” Frantically many will barely make it, gasping for air while boarding the plane. Still others will arrive at the gate only to find that the “cabin door has been closed.”

This is also the time of year when many sellers come on the market thinking they have an ample amount of time to market their home to take advantage of the Summer Market, but that simply is not the case. Yes, summer has just begun, but the Summer Market for housing already started in May. The housing market shifts from away from the Spring Market with the distractions of the end of the school year, especially graduations. From there, the distractions of summer and the family activities take hold: family vacations, trips to the beach, trips to the pool, family reunions, summer camps, and picnics. Life gets in the way for many that are looking to purchase a home. As a result, housing downshifts from the best time of the year to sell, the spring, to the second-best time of the year, summer.

Right around the corner is the Autumn Market. For housing, that begins as soon as the kids go back to school, which is the end of August. As soon as school starts, it is no longer the most advantageous time of the year to move a family. As a result, many buyers put searching for a home on hold until the following year. Once school starts, it is just too disruptive for a family move. Changing schools is out of the question for too many families; it is just too disruptive. So, buyers want to close escrow by the end of August. Most escrow are between 30 to 45 days, meaning they need to open escrow by the end of July.

For sellers to take advantage of the second-best time of the year to sell, they need to open escrow by July 31st, six weeks from now. Pricing a home correctly is absolutely fundamental to cash in on the housing market and find success. This year, similar to 2018, the market is a bit different compared to what everybody has heard. The ultra-hot Southern California housing market with rapid appreciation, zillions of offers, and only days on the market before opening escrow are in the rearview mirror. That was the housing markets of 2012 through 2017.

Orange County housing today is characterized by a bit more inventory, 23% more than last year, and muted demand, 20% less than 2012 through 2017. The local housing market feels a lot more sluggish. Sellers need to keep in mind that they are still fetching record prices, but they cannot get away with stretching their asking price like prior years. For the sellers that overprice, even slightly, expect to sit on the market with less activity and no offers.

Many sellers enter the housing fray in July, thinking they have plenty of time to cash in on the Summer Market. What they do not understand is that they need to close escrow by August 31st. They have an extremely limited amount of time to isolate a buyer, negotiate the sell, and then open escrow. They are down to a few short weeks. For those sellers that are late to the housing party, they certainly better be priced right on the money. Starting off overpriced means that they will have to reduce their asking price to be successful. That reduction may come too late, mid-August. That’s when demand is already dropping and so are their chances of achieving their goal in selling.

LAST CALL to take advantage of the second-best time of the year to sell a home!!

Active Inventory: The current active inventory is unchanged in the past two weeks. In the past two weeks, the active listing inventory increased by only 14 homes, nearly unchanged, and now totals 7,493. Typically, this is the time of the year when the active listing inventory is rising until peaking sometime between July and August; however, within the past four-weeks, 7% fewer homes have come on the market compared to last year. Only time will tell if that is just an anomaly or a developing trend.

Last year at this time there were 6,105 homes on the market. That means that there are 23% 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 four weeks, demand grew by 1%.  Demand, the number of new pending sales over the prior month, increased by 15 pending sales in the past four weeks, up 1%, and now totals 2,661. Muted demand was the theme last year and it continues to be the theme in 2019. Demand will slowly drop from here, which will pick up steam in September during the Autumn Market.

Last year at this time, there were 38 more pending sales, 1% more than today. Two years ago, it was 10% stronger than today.

The current Expected Market Time decreased from 85 days to 84 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 68 days, better than today.

Luxury End:  The luxury market improved slightly in the past couple of weeks. In the past two-weeks, demand for homes above $1.25 million increased by 17 pending sales, a 4% increase, and now totals 406, the second highest level for 2019 compared to mid-April’s 424. The luxury home inventory grew by 14 homes and now totals 2,522, a 1% increase and the highest level of the year. The overall expected market time for homes priced above $1.25 million decreased from 193 days to 186 over the past two-weeks, a slight drop, but still quite sluggish.

Year over year, luxury demand is up by 17 pending sales, or 4%, and the active luxury listing inventory is up by an additional 357 homes, or 16%. Extra seller competition and muted demand in the luxury ranges in 2019 is a trend that has endured. The expected market time last year was at 167 days, a bit 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 107 to 118 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 167 to 149 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 302 to 254 days. For homes priced above $4 million, the Expected Market Time increased from 419 to 441 days. At 441 days, a seller would be looking at placing their home into escrow around the end of August 2020.

Orange County Housing Market Summary:

  • The active listing inventory increased by 14 homes in the past two weeks, nearly unchanged, and now totals 7,493, the highest level since September 2014. Last year, there were 6,105 homes on the market, 1,388 fewer than today. There are 23% more homes than last year.
  • Demand, the number of pending sales over the prior month, increased by 15 pending sales in the past two-weeks, up 1%, and now totals 2,661. Last year, there were 2,699 pending sales, 1% more than today.
  • The Expected Market Time for all of Orange County decreased from 85 days two weeks ago to 84 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 68 days last year.
  • For homes priced below $750,000, the market is a slight Seller’s Market (between 60 and 90 days) with an expected market time of 61 days. This range represents 39% of the active inventory and 54% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 70 days, a slight Seller’s Market. This range represents 18% of the active inventory and 22% of demand.
  • For homes priced between $1 million to $1.25 million, the expected market time is 92 days, a Balanced Market.
  • For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time increased from 107 to 118 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 167 to 149 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 302 to 254 days. For luxury homes priced above $4 million, the Expected Market Time increased from 419 to 441 days.
  • The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and only 16% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.7% of all listings and 1.4% of demand. There are only 21 foreclosures and 32 short sales available to purchase today in all of Orange County, 53 total distressed homes on the active market, down 12 in the last two-weeks. Last year there were 50 total distressed homes on the market, nearly identical to today.
  • There were 2,929 closed residential resales in May, 2% more than May 2018’s 2,870 closed sales. April marked a 15% increase from April 2019. The sales to list price ratio was 97.6% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales, and short sales accounted for 0.6%. That means that 98.6% of all sales were good ol’ fashioned sellers with equity.

Article and pictures courtesy of Steven Thomas, Quantitative Economics and Decision Sciences

Have a great week.

Sincerely,

Roy Hernandez

Your Trusted Partner In Real Estate

Cell 949.922.3947

The Virtual Realty Group
Roy Hernandez
cell/text (949) 922-3947
RoyaltyAgent @ gmail.com
RoyalAgent.net
BRE#01202958