Sometimes it is a great idea to step away from the
noise swirling around housing and focus on the trends.
Top 5 Housing Trends: With five months of the year in the rearview mirror, there are crystal clear trends in 2019.
Everybody seems to have an opinion about the direction of the housing market. “Up!” “Down!” “The housing run has peaked!” “I’m going to wait for values to come crashing down.” In the end, there is way too much noise that is not rooted in facts, ignoring the data. It is time to step aside from the commotion and look at the trends that have surfaced in 2019.
Here’s a breakdown of the “Top 5” current Orange County housing trends:
- There are a lot more homes on the market. In fact, this is the highest active inventory level since 2011. There are 7,479 homes that are currently FOR SALE. That is 27% more than last year, an additional 1,605 homes. At the start of the year, the difference was 2,204, so this trend is beginning to diminish. The big rumor is that there are a lot more homeowners opting to sell and flooding the market. The reality is that there are nearly the same number of sellers coming on the market year after year. In 2017, from January through May, 18,264 homes were placed on the market. In 2018 there were 18,199. And, there were 18,180 this year. No flood. Instead, fewer and fewer listings have been converted to sales due to muted demand. With less success, the active inventory has grown.
- Demand is muted compared to 2012 through the 2017. This trend emerged last year. In 2018, through May, demand (the number of new pending sales in the prior 30-days) was down by 13% compared to 2012 through 2017, the housing recovery. In 2019, it is down 20% compared to those same years. The muted demand has made it more challenging to sell. Homes are not appreciating like they used to. With values reaching record levels, the rise in incomes coupled with inflation has not been able to keep up with home prices. Also, many believe that the current seven-year housing run is reaching a peak and running out of steam. These factors are softening demand. Year over year, current demand looks a lot similar, off by only 19 pending sales, but keep in mind it was muted last year at this time. The trend of muted demand will continue for the remainder of the year.
- Muted demand has put a damper on closed sales. The number of closed sales is down 9% compared to last year and off by 12% compared to 2017. When there are fewer pending sales, that translates to fewer successful closed sales. For the rest of the year, expect reports of year over year closed sales to be almost identical. Keep in mind, closed sales last year were muted compared to prior years as well. From May through December in 2018, closed sales were down by 12% compared to 2017.
- Home appreciation is now flat, so careful pricing is crucial. With a higher active inventory, coupled with muted demand, the Expected Market Time has increased substantially. Currently, it is at 85 days, a slight Seller’s Market. Unlike 2012 through 2018, housing did not enjoy a HOT Seller’s Market. It only evolved to a slight Seller’s Market, one where sellers get to call more of the shots, but homes are not appreciating much at all. Expect this trend to continue through the remainder of the year. As demand remains flat through the summer, more homes will be placed on the market and housing will evolve to a Balanced Market, one that does not favor buyers or sellers. There will be fewer multiple offer situations and homes will take an even longer time to sell.
- Interest rates have dropped dramatically over the past 6 months, improving affordability substantially, but not fueling much of a bump in demand. After nearly reaching 5% back in November, mortgage rates have dropped to 4%. They have not been this low since January 2018, right before they began to spike. This has increased affordability greatly. For a $750,000 mortgage, the monthly payment difference between 4% and 5% is $445. That is an annual savings of $5,340, or $26,700 in five-years. The drop in mortgage rates saved housing from slipping into a deep funk like September through December of 2018, but is has not moved the needle much in terms of increased demand. Even with the return of historically low interest rates, demand remains muted. With the Spring Market in the past, there are only a couple of great months left in the meatiest time of the year to sell. Once the market rolls into August, housing will start to transition to the Autumn Market where demand falls along with the active inventory.
Active Inventory: The current active inventory is at its highest point since September 2014.
In the past two weeks, the active listing inventory increased by 66 homes, up 1%, and now totals 7,479, its highest level since September 2014. This is the time of the year when the active inventory climbs until it peaks in the middle of the summer, most likely mid-August. This occurs due to all of summer’s distractions, muting demand while more and more homes enter the fray. It most likely will eclipse the 8,000-home level for the first time since 2014 and then reach a peak not seen since 2011.
Last year at this time there were 5,874 homes on the market. That means that there are 27% 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 was nearly unchanged.
Demand, the number of new pending sales over the prior month, decreased by 7 pending sales in the past four weeks, nearly unchanged, and now totals 2,646. Demand has been muted for the past 16-months straight and is not going to change anytime soon. What you see is what you get. Expect demand to slowly drop from here, which will pick up steam during the Autumn Market after the kids go back to school. With summer distractions, demand is not quite as high as during the Spring Market.
Last year at this time, there were 19 more pending sales, 1% more than today. Two years ago, it was 10% stronger than today.
The current Expected Market Time increased from 84 days to 85 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 66 days, better than 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 28 pending sales, an 8% increase, and now totals 389. That’s still down from its mid-April peak of 424 pending sales, but a step in the right direction. The luxury home inventory grew by 25 homes and now totals 2,508, a 1% increase and its highest level in years. The overall expected market time for homes priced above $1.25 million decreased from 206 days to 193 over the past two-weeks, a significant drop. Six weeks ago it was at 161 days.
Year over year, luxury demand is down by 34 pending sales, or 8%, and the active luxury listing inventory is up by an additional 407 homes, or 19%. Extra seller competition and muted demand in the luxury ranges in 2019 is a trend that will persist. The expected market time last year was at 149 days, noticeably less compared to today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the expected market time decreased from 125 to 107 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 174 to 167 days. For homes priced between $2 million and $4 million, the expected market time increased from 262 to 302 days. For homes priced above $4 million, the expected market time decreased from 568 to 419 days. At 568 days, a seller would be looking at placing their home into escrow around the end of July 2020.
Orange County Housing Market Summary:
- The active listing inventory increased by 66 homes in the past two weeks, up 1%, and now totals 7,479, the highest level since September 2014. Last year, there were 5,874 homes on the market, 1,605 fewer than today. There are 27% more homes than last year.
- Demand, the number of pending sales over the prior month, decreased by 9 pending sales in the past two-weeks, nearly unchanged, and now totals 2,646. Last year, there were 2,665 pending sales, 1% more than today.
- The Expected Market Time for all of Orange County increased from 84 days two weeks ago to 85 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 66 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 60 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 67 days, a slight Seller’s Market. This range represents 18% of the active inventory and 23% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 108 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 125 to 107 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 174 to 167 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time increased from 262 to 302 days. For luxury homes priced above $4 million, the Expected Market Time decreased from 568 to 419 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 0.9% of all listings and 1.4% of demand. There are only 23 foreclosures and 42 short sales available to purchase today in all of Orange County, 65 total distressed homes on the active market, up two in the last two-weeks. Last year there were 44 total distressed homes on the market, fewer than today.
- There were 2,558 closed residential resales in April, 2% fewer than April 2018’s 2,614 closed sales. April marked a 13% increase from March 2019. The sales to list price ratio was 97.9% for all of Orange County. Foreclosures accounted for just 0.3% of all closed sales, and short sales accounted for 0.4%. That means that 99.3% of all sales were good ol’ fashioned sellers with equity.
Have a great week.
Quantitative Economics and Decision Sciences
Report courtesy of Steven Thomas Reports on Housing. Information deemed reliable but not guaranteed.