The 2016 Orange County housing market has been incredibly hot, yet there are plenty of unsuccessful sellers.
Unsuccessful Sellers: There are 7% more homes pulled off the market this year compared to 2015.
The housing market has been HOT this year. As a matter of fact, current demand is up 13% year over year. The inventory has been way below the long term average, homes have flown off the market, multiple offers are still the norm, and homes are fetching values very close to their asking prices. Yet, through September, there were still 7,577 sellers who were not successful and pulled their homes off the market, 7% more than last year.
What gives? If the market is blazing hot, why in the world wouldn’t every seller be successful? There are many reasons why homes don’t sell, even in an environment where supply is low and demand is high; but, the number one reason boils down to over exuberant sellers. Buyers are just not that willing to stretch too far above the most recent comparable sale.
This is not just a luxury market phenomenon. 48% of all homes pulled off the market could be found below $750,000, and 66% were below $1 million. There were plenty of unsuccessful sellers in the hottest ranges. Even the sizzling hot price range below $500,000, where the expected market time has been less than 2 months all year long, experienced a lack of success. 1,667 sellers pulled their homes off the market in this range, or 22% of all unsuccessful sellers.
Price is the biggest bellwether in successfully selling a home. Many homeowners come on the market feeling that their home is the absolute best in the neighborhood, and, therefore, should fetch the highest sales price, more than the most recent comparable sale. This leads to stretching the price too high and pushes away buyers from writing an offer.
A brilliant strategy is to price a home very close to the most recent comparable or pending sale. Typically, this approach results in multiple offers. Multiple offers can be leveraged to procure negotiated prices above the asking price. Another strategy is to offer a little less than the last comparable or pending sale, leading to even more offers to purchase. This approach quickly can turn into a bidding war for a home and often results in negotiated prices way above the asking price.
Instead, most sellers initially opt to overprice their home. In tracking the sales to list price ratio, sellers are fetching values very close to their asking prices. But, if you look at the Sales to the Original List Price Ratio and compare it to the Sales to Last List Price Ratio, the higher the price, the more a home had to reduce the price in order to find success. For example, a home originally priced at $850,000, on average, had to reduce the price to $838,000, ultimately selling for $826,000.
Sellers take a look at the most recent comparable pending and closed sales and then justify a higher asking price for their home. They want a little extra cushion for negotiations. They also feel their home is the best in the neighborhood and will bring them a record price. Both result in overpricing and prevent a home from obtaining any offers. Consequently, they will have to reduce the asking price to be in alignment with the Fair Market Value; or, ultimately, they will have to pull their home off the market.
Pricing is essential and homeowners need to lean on the expertise of a professional, their REALTOR®, or they risk wasting their time and energy in preparing and exposing their home to the market for a lengthy period of time.
Luxury End: Luxury demand increased by 9% in the past month.
In the past month, demand for homes above $1 million increased from 417 to 456pending sales, a 9% increase. During that same time, the luxury home inventory dropped from 2,574 homes to 2,402, a 7% drop. With an increase in demand and a falling inventory, the expected market time dropped from 175 days to 158 days for homes priced above $1 million.
For homes priced between $1 million to $1.5 million, the expected market time decreased from 122 days to 113 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time decreases from 168 days to 165 days. For homes priced above $2 million, the expected market time dropped significantly from 306 days to 245 days. It was at 385 days just one month ago. Still, at 245 days, a seller is looking at placing their home in escrow in mid-June 2017.
From $1 million to $2 million, demand (the number of pending sales over the prior month) is up by 18%, 327 pending sales today compared to 276 last year. The inventory is up by 12%, 357 homes compared to 318 in 2015. For luxury homes above $2 million, demand is up by 8%, 103 pending sales compared to 95, a difference of 8. The inventory is up 17%, 1,049 homes today compared to 894 last year, a difference of 155. Even though demand is up a few pending sales, there are a lot more luxury homes on the market competing against each other.
Active Inventory: The active inventory shed 314 in just two weeks, a 5% drop.
In the past couple of weeks, the active inventory dropped by 314 homes, the largest drop so far this year. The 5% drop resulted in reaching levels not seen since mid-May and now totals 6,472. In the past month, the inventory has plunged by 568 homes, or 8%. A drop in the inventory is typical for the Autumn Market, but a 568 home drop in a month is the largest for this time of the year since 2008 when it declined from 13,582 homes to 12,940, or 5%. Keep in mind, there were a lot more homes on the market back then.
Expect the inventory will continue to drop for the remainder of the year. Last year there were 257 more homes on the market, an additional 4%, totaling 6,729.
Demand: The market is surging with demand up 13% year over year.
Demand, the number of new pending sales over the prior month, decreased from 2,812 to 2,693, a drop of 119, or 4%. Yet, it is the hottest start to October since 2012. That market was completely different with foreclosures and short sales accounting for 31% of all sales compared to just 3% today.
Demand is considerably stronger than last year at this time, up 13% year over year. There were 315 fewer pending sales last year, totaling 2,378.
Orange County Housing Market Summary:
There were 2,745 closed sales in September, a 10% drop from July and up 2% compared to September 2015’s total of 2,680 closings. The sales to list price ratio was 97.9%. Foreclosures accounted for 1.3% of all closed sales and short sales accounted for 1.9%. That means that 96.8% of all sales were good ol’ fashioned equity sellers.
|Opened for LFA – Over 15 International Pieces from the world’s all-time top designers|
|Peter has always been crazy about architecture but it wasn’t until recently by a fluke he got into designer furniture and he and his wife having been traveling the world buying these pieces.
Peter has been nice enough to open his gallery especially for us so come on down and take a tour of the Peter Blake Gallery at 435 Ocean Blvd (near the corner of Forest and Ocean) any time between 5 and 7 o’clock this Thursday, October 13th.
If you like Palm Spring Modernism come and have a glass of wine and enjoy a tribute to one of the great Modernist architects, the late Donald Wexler (January 23, 1926 – June 26, 2015), We’ll be screening a documentary film about Wexler’s illustrious career. The film features interviews and many graphic examples of Wexler’s wide-ranging commercial and residential designs.
Wexler’s associate Bill Sharp will do the introduction and will answer audience questions
Friday, September 23rd
Laguna College of Art and Design
Main Campus, Studio 12 (MC12)
2222 Laguna Canyon Road
Laguna Beach, CA 92651
All are invited
Buyer’s Market: There just is not enough inventory to tip the market in the buyer’s direction.
There are ominous signs that the market is slowing down. Open house directional arrows are flooding busy intersections. Homes are not flying off the market like the crazy days of the Spring Market. Buyers are not tripping over each other in viewing the latest home to hit the market. What’s going on? Is the market finally tipping in the direction of the buyer? No, it’s just the time of the year, the Autumn Market.
Every year after transitioning from the Summer to the Autumn Market, buyers start talking about a housing correction. Factoring into that belief is that it has been a strong seller’s market for five years now. Home prices have appreciated nonstop, and the median sales price eclipsed record levels earlier this year. As a result, home affordability has dropped dramatically along with buyer’s purchasing power. Many believe that the run-up in values has reached a peak, not just for this year, but for this cycle. The housing market is due for a correction, right? No, not yet.
The expected market time for the Orange County inventory has remained low for years now. This is the expected time it would take to place a home on the market until a buyer and seller consummate a deal by signing an agreed upon contract and open escrow. Currently for the county, it is at 2.59 months, or 78 days, a slight seller’s market. Based upon today’s activity, if a home was just placed on the market, escrow would be opened on November 28th. Remember, that is the average for all of Orange County. The expected market time for the lower ranges is even faster, 51 days for all properties below $750,000. And, it is much higher in the luxury ranges, 385 days for homes priced above $2 million.
The expected market time takes into consideration both the active inventory, homes on the market and not yet in escrow, and demand, the number of new escrows over the prior month. The last time housing leaned in the buyer’s favor was back at the very beginning of 2011.
Values have risen dramatically in the past several years and the expected market time has remained below 90 days, seller’s market territory. It has even been as low as 33 days back in March of 2013, a HOT seller’s market where homes were rapidly appreciating on a weekly basis.
Many believe that the housing market is due for a correction and that it will finally be the buyers turn to take advantage of the market. What has been standing in the way is the active listing inventory and continual hot buyer demand. The inventory has been at anemic levels dating back to 2008. Homeowners are not placing their homes on the market like they did prior to the Great Recession. Slower, buyer’s markets come in the way of more homes on the market. There needs to be more than 8,000 homes on the market for a sustainable period of time. The inventory last surpassed that mark in August of 2014, but it only lasted for a month, and then quickly reversed direction. Other than at the end of 2009, the inventory was above 8,000 homes from 2006 through 2011, the meat of the Great Recession. Today, the active listing inventory is at 7,040 homes and dropping. It reached a peak in mid-July of 7,329 homes. The inventory is not poised to surpass and climb past 8,000 homes anytime soon.
Demand has been hot for a very long time and the low interest rate environment that the Federal Reserve created, and is in no rush to change, has helped keep homes affordable. Prior to the great recession, interest rates were at 6.25%. They are at 3.75% today. To put that in proper perspective, at $695,000 (the median detached home in July) the payment with 20% down would be $2,575 a month with a 3.75% interest rate versus $3,423 a month at 6.25%.
As the economy improves and interest rates rise, the inventory will eventually rise to a point where the market will finally lean in favor of buyers and prices will fall; not yet and not anytime soon.
Luxury End: Luxury demand dropped 10% in the past couple of weeks.
In the past couple of weeks, demand for homes above $1 million dropped from 465 pending sales to 417, a 10% drop. The inventory of luxury homes now totals 2,574, a drop of 84 homes, or 3%, in the past couple of weeks. As a result, the expected market time dropped from 5.72 months to 6.17 months, a slowdown that is a direct result of the transition from the Summer to Autumn Market.
For homes priced between $1 million to $1.5 million, the expected market time increased from 116 days to 125 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time remained the same at 159 days. For homes priced above $2 million, the expected market time dramatically increased from 357 days to 385 days, over a year.
The current luxury trend has been evolving with a dramatic slowdown in the higher price ranges. The luxury end does not typically follow a normal cyclical pattern. Compared to last year at this time, it has been better below $2 million. However, the luxury end above $2 million has been profoundly slower with a lot more inventory and considerably less demand.
Active Inventory: After hitting a plateau, the active listing inventory dropped significantly in the past couple of weeks.
After peaking this year in mid-July at 7,329 homes, the active inventory only shed a few homes in the four weeks that followed. That drop picked up considerable steam in the past couple of weeks and shed 227 homes, a 3% drop, and now totals 7,040 homes. It will drop below 7,000 homes for the first time since June sometime within the next week. We are officially in the Autumn Market with fewer homes coming on the market. Also, unsuccessful sellers from the Spring and Summer Markets are opting to throw in the towel after not being successful during the best time of the year for real estate. The inventory will continue to drop for the remainder of the year.
Last year there were exactly the same number of homes on the market, 7,040.
Demand: In the past two-weeks demand dropped by 4%.
Demand, the number of new pending sales over the prior month, dropped by 124 homes, or 4%, and now totals 2,719 pending sales, levels not seen since the start of March. Demand is still stronger compared to last year when there were 74 fewer pending sales, 3% fewer than today.
The expected market time increased from 77 days two weeks ago to 78 days today.
By Carlos N. Olvera
This area, once divided up into Mexican land grants, provided the means for cattle raising, which eventually lured Richard Henry Dana here. The scenic area brought many people here to settle. And the land grants were bought, divided and sold to accommodate the influx of those looking for a better life.
The Monarch Beach Community of Dana Point was once a part of those grazing lands. Rancho Niguel, established in 1842, was bought by Laguna Niguel Corp. in 1959 from Lewis Moulton and Pierre Daguerre, to build a new community. In November 1959, plans were announced for the new community of a 7,000-acre city bounded by the new freeway and the coastline. In these plans were many amenities, including a man-made sea lake. By July 1968, plans were announced describing the saltwater inland sea with a depth up to 65 feet. The surface would cover over 35 acres inland of Pacific Coast Highway. The Pacific Ocean and the lake were to be separated by a concrete dam.
It was promoted as the first man-made mini-ocean of its kind. It was to be called Sea Lake Village and located in what is today the northern half of the Monarch Beach Golf Links. Dreams included fishing activities, vacation homes and a water cultural center with dolphin performances.
Huge pumps would be required to bring in ocean water in the amount of 300 million gallons. The concept of a lake was proposed as cheaper than maintaining a golf course, and just under $1 million. To overcome evaporation and seepage, the pumps would run periodically to cover the level change of about seven feet a year, but would be free of any tides. The salt content of the water was expected to vary, but able to sustain several species of ocean fish.
By 1969, AVCO Corp., based in New York, was successful in developing the planned community of Rancho Bernardo in San Diego County and a merger with Laguna Niguel Corp. ensued. The plans continued with an August 1969 newspaper announcement that Mr. & Mrs. Morris S. Book, of Arcadia, had moved into their new home at Laguna Niguel overlooking an inland sea area known as “Sea Lake Village,” even though it hadn’t been built yet.
In 1971, AVCO got an agreement with the County of Orange to abandon some public prescriptive rights associated with the Salt Creek Beach area. But after some debate, the deal wasn’t deemed reasonable. Part of the reason was rumors from Sacramento of a freeze on all of the shoreline. We know today that rumor was the creation of the California Coastal Commission in 1972.
A subsequent lawsuit followed. AVCO continued under their 1971 development agreement with the county. About 473 acres, formerly known as the Capron Property, came under the new Coastal Zone. The county would not grant permits until after the grading. After the grading, the Coastal Commission said AVCO did not have their building permits and therefore not vested and not exempted from the new act. This lawsuit carried on through 1975. And at that time, the real estate building industry was going through a recession.
Somewhere in all of this mess, the Sea Lake Village dried up. Ten years later, David Stein and Barry Brief, the managers of the AVCO project, defaulted on their loans. Today, we have the St. Regis and a champion golf course.
Carlos N. Olvera is Chair of the OC Historical Commission, and Councilman of Dana Point.