Category : Laguna Beach Real Estate
The Summer Market: The Summer Market has been the hottest since the heydays of housing prior to the Great Recession.
This year has been quite a bit different than a typical summer cycle as demand increased by 5% in the past month. It feels like June, the tail end of the Spring Market, and not at all a typical summer
As expected, the Orange County housing market slowed in July a bit, transitioning from the red hot Spring Market to the beginning of the Summer Market. It was as if housing downshifted a gear, from 5th to 4th; it was still cruising, just not as fast as the spring. August typically looks a lot like July, maybe increasing a smidgeon, but still slower than the peak of the real estate market, March through mid-June. This cyclical phenomenon is easily explained by logically looking at the timing of the year. There are plenty of summertime distractions, especially in Southern California, from splashing around in the waves to traveling on the annual family vacation. The distractions lead to less buyer activity and demand drops. That’s the typical, annual real estate cycle in Orange County. Spring is the busiest time of the year. Summer is the second busiest. Then, there is the Fall and Winter Markets, where demand continues to downshift until it drops to its lowest level of the year by the end of December.
This year has been quite a bit different as demand increased by 5% in the past month. It feels like June, the tail end of the Spring Market, and not at all a typical summer. Demand, the number of new pending sales over the prior month, increased from 2,783 to 2,935 in the past month. Compare that to last year at this time when demand decreased by 2% from 2,810 to 2,762 (6% less than today’s level). Demand has not been this high since 2012 when it reached 3,544 pending sales; however, 17% were short sales that took a very long time to sell and often never closed. Today, only 1.2% of demand are short sales. Stripping short sales from demand, the last time it was this high dates all the way back to 2005, prior to the great recession.
Many may wonder why housing is so hot this summer. It took the market a while to get to this point. Housing has healed. Foreclosures and short sales are scary stories from the past, currently representing less than 3% of all closed sales. In 2012, they represented 31%. Now that housing has been restored and distressed properties are only an asterisk, the market has been blossoming. Throw in rock bottom interest rates, even lower than last year, and you have a recipe for strong demand. And, it does not look like interest rates are going anywhere fast. The Federal Reserve raised the short term rate for the first time in nine years back in December of last year. They hinted at four more hikes in 2016. So far, NOTHING. It doesn’t appear that there will be a change until December, if at all.
Low interest rates are only part of the reason for hot demand. This year, like every year since 2008, fewer homeowners are opting to sell. There are 30% fewer homes on the market compared to 2000 through 2007. People are staying in their homes a lot longer and are just not moving. On average, the current turnover rate for homeowners is 23 years. That’s a far cry from the days of lore, prior to the Great Recession, when homeowners moved much more frequently.
With a low supply of homes and strong demand, it’s no wonder that there’s a heat wave in housing.
Luxury End: Luxury demand has increased by 11% in the past month.
Demand for homes above $1 million reached a height at the start of May of 542 pending sales. After dropping by 19% by mid-July, totaling 436, it has climbed its way back to 483 pending sales, an 11% increase.
The peak in the Orange County luxury inventory occurred a month ago at 2,756 homes. Since then, the inventory of homes above $1 million has dropped by 3% and now totals 2,666. With elevated demand and fewer luxury homes coming on the market, look for the trend in a falling luxury inventory to continue.
For homes priced between $1 million to $1.5 million, the expected market time dropped from 120 days to 114 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time decreased slightly from 162 days to 159 days. For homes priced above $2 million, the expected market time dropped from 334 days to 304 days.
Active Inventory: The inventory appears to have peaked early.
Typically, the active inventory peaks from mid to late August. But, with stronger demand for this time of year, the inventory has actually been falling over the prior month. More homes placed in escrow means fewer homes that remain within the active inventory. So, the peak occurred in mid-July at 7,329 homes and has since dropped by 34 homes to 7,295.
Last year there were 128 fewer homes on the market, 2% less, totaling 7,167.
Orange County Housing Market Summary:
Different Markets: Even though Orange County as a whole is HOT, there are plenty of cities and price ranges that are not.
It is not uncommon to hear a REALTOR® from one area express how the market is “dead,” while a REALTOR® from another area exclaims how they had tons of showings and homes are flying off the market. Yet, they are both right. The problem is that we all tend to focus on Orange County as a whole. There are 34 cities and 14 unincorporated areas. Orange County is HUGE. As a result, some cities come with a higher price tag, and others are much more affordable.
It is price that determines whether a market is hot or cold. Detached homes priced below $750,000 are hot. Condominiums priced below $500,000 are hot too. A detached home priced at $680,000 is going to attract a lot more attention than a home priced at $1.5 million. As prices rise, the pool of buyers able to purchase a home shrinks. So, it takes a lot longer to sell homes in the upper ranges compared to the lower ranges.
The hottest markets can be found in cities and areas where the vast majority of their homes are priced within the hottest price ranges. For example, Fountain Valley has an expected market time of only 26 days. There are 46 homes on the market today and only 6 are priced above $1 million, 13%. On the other hand, Ladera Ranch has an expected market time of 117 days. There are 171 homes on the market today and 69 homes priced above $1 million, 40%. And, at the far extreme, Laguna Beach has an expected market time of 337 days. There are 281 homes on the market and 265 are priced above $1 million, 94%.
The cities and areas with an expected market time of less than 60 days, the hottest markets, have an average list price of $669,000. About a third of Orange County is considered HOT. Conversely, the cities and areas with an expected market time of over 90 days, or three months, cumulatively have an average list price of $2.3 million. Nearly a third of Orange County is considered slow, or “dead” as some REALTORS® have described it.
For buyers looking to purchase in the lower price ranges, the market is hot. Lower priced homes attract a lot more attention and are more inclined to generate multiple offers and plenty of activity. Buyers need to be on their toes in order to be successful; “you snooze, you lose.” Yet, in the higher ranges, the market is a lot slower. Buyers can afford to be a bit more patient.
Sellers can price a bit more aggressively in the lower ranges. But, stretching the price too far, which many sellers initially do, results in less activity and no offers. In the upper ranges, sellers have their work cut out for them. Carefully pricing based upon recent comparable pending and closed sales is absolutely fundamental in order to achieve success. Sellers are not getting away with stretching the price in the upper ranges right now. There is just too much competition.
Luxury End: Luxury demand increased by 8% within the past couple of weeks.
Demand is calculated by the number of new pending sales over the prior month. Demand for homes above $1 million reached a height at the start of May of 542 pending sales. It dropped by 19% by mid-July and totaled 436. Within the past couple of weeks, it bounced back and added an additional 33 pending sales, an 8% increase.
The inventory of homes above $1 million has been increasing all year long. It has grown from 1,523 homes at the start of the year to 2,756 homes just two weeks ago, an increase of 81%. It finally dropped for the first time this year, shedding 34 homes, or 1%, in the past couple of weeks. It will be interesting to see where it goes from here. At the very least, the upward trend has taken a break.
For homes priced between $1 million to $1.5 million, the expected market time dropped from 141 days to 120 in the past two weeks. For homes priced between $1.5 million to $2 million, the expected market time increased slightly from 158 days to 162 days. For homes priced above $2 million, the expected market time dropped from 345 days to 334 days.
Active Inventory: The inventory dropped for the first time this year.
The active inventory shed 12 homes in the past two weeks and now sits at 7,317 homes. That’s the first time the active inventory dropped this year. The inventory typically peaks in mid to late August, so it will be interesting to see if Orange County just experienced an early peak, or if there’s a little more room for growth in the coming weeks. It will most likely grow a bit from here. The inventory is having a hard time continuing its trend in growth because demand is a lot stronger right now than it has been in years. More homes placed in escrow means fewer homes that remain within the active inventory.
Last year there were 201 fewer homes on the market, 3% less.
Demand: In the past two-weeks demand increased by 3%.
Demand, the number of new pending sales over the prior month, increased by 3%, or 83 homes, and now totals 2,866 pending sales, its highest level for this time of year since 2012. The low interest rate environment has helped fuel the surge in demand. For perspective, demand is 10% off of its start of May peak of 3,196 pending sales. The expected market time dropped from 79 days two weeks ago to 77 days today.
Orange County Housing Market Summary: