The housing market is a lot hotter than many think and 2020 is going to line up heavily in favor of sellers.

A Warm December: With an Expected Market Time of 70 days for all of Orange County, this is the warmest December since 2017 when housing was hot.

So much can change in the course of a year. From one year to the next, professional sports teams can go from the bottom of the standings to playing in the playoffs, babies go from crawling to running, and kids go from picking up an instrument for the first time to playing in the school orchestra. It’s not an immediate change; instead, it is a slow evolution. That is precisely how the Orange County housing market has evolved, going from a slight Buyer’s Market last year to a slight Seller’s Market today.

December is the slowest time of the year in terms of new escrows and the number of homes that pop on the market. Both buyers and potential sellers divert their attention from housing to enjoying the holiday season. Yet, despite all of the holiday distractions, it has been a slight Seller’s Market every December since 2012 other than two years, 2014 and 2018. Many intuitively think that because it is the slowest time of the year that housing lines up in favor of buyers; it is just not true.

While it may be true that demand drops to its lowest point of the year by the end of the month, so does the active inventory. The muted demand is offset by a drop in supply. And, this year the inventory has dropped by 40% since July, shedding 3,055 homes. Demand (last 30-days of pending sales) dropped by only 22%, 556 escrows. As a result, the Expected Market Time (the amount of time it would take from hammering in the FOR SALE sign to opening escrow) dropped from 91 days in July to 70 days in the middle of December. Housing is actually hotter today than it was in July!

What happened? How is housing hotter today than July? With mortgage rates dropping all year, the housing market slowly thawed. The thaw continued through the Autumn Market as rates reached their lowest levels of the year and remained between 3.5% and 3.75%. Demand climbed and the housing inventory dropped. That is the recipe for a Seller’s Market where housing stands today.

Year over year, the differences are staggering. The active listing inventory is down by 36% compared to December 2018. There are 1,836 fewer homes on the market. Demand is up by 29% year over year. That is an extra 441 escrows. And, the Expected Market Time is down by 44%. It was a slight Buyer’s Market last year with an Expected Market Time of 127 days. Today, it is at 70 days, a slight Seller’s Market. It is important to note that both a “slight” Seller’s Market and “slight” Buyer’s Market means that homes are not appreciating or depreciating much at all; instead, it just indicates who can call more of the shots.

While the December housing market may be the slowest time of the year in terms of activity, ultimately it tees up the coming Spring Market. The New Year will start with very low inventory and decent demand. And, with rates projected to remain around 3.75% next year, the market will tilt further in favor of sellers.

The bottom line: a housing warm front has arrived in Orange County, paving the way for a hot Spring Market in 2020.

Active Inventory: The current active inventory dropped by 18% in a month.

The active listing inventory shed 988 homes in the past month and now sits at 4,546, an 18% drop. The inventory has not been this low since March 2018. It is poised to drop to around 4,000 homes, a very low-level eclipsed by only 2013 and 2018. Expect the inventory to continue to drop through the end of the year.

Last year at this time, there were 6,395 homes on the market, 1,849 more than today, or a 41% difference. The inventory is MUCH different than last year when buyers had a lot more choices.

Demand: In the past two-weeks, demand dropped by 10%. 

With so many holiday distractions, demand, the number of new pending sales over the prior month, dropped by 221 pending sales, or 10%, in the past two-weeks, its largest drop of the year and now sits at 1,949. Expect demand to continue to drop through the end of the December and will not rise until after ringing in a New Year.

Last year, there were 441 fewer pending sales than today, 23% less.

In the past two-weeks the Expected Market Time increased from 68 to 70 days, a slight Seller’s Market (60 to 90 days), where home values are only appreciating slightly, and sellers get to call more of the shots during the negotiating process. 70 days beats the socks off last year when the Expected Market Time was at 127 days and continuing to climb, a much slower market that favored buyers.

Luxury End:  Both luxury demand and the luxury inventory are continuing to drop right now.

In the past two-weeks, demand for homes above $1.25 million decreased by 22 pending sales, a 7% drop, and now totals 284. The luxury home inventory decreased by 145 homes and now totals 1,695, down 8%, and its lowest level of the year. With both demand and the luxury inventory dropping, the overall Expected Market Time for homes priced above $1.25 million decreased slightly from 180 days to 179 over the past two-weeks.

Year over year, luxury demand is up by 98 pending sales, or 53%, and the active luxury listing inventory is down by 237 homes, or 12%. The Expected Market Time last year was at 312 days and climbing, substantially slower than today.

For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time increased from 79 to 120 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 125 to 117 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 285 to 223 days. For homes priced above $4 million, the Expected Market Time increased from 387 to 518 days. At 518 days, a seller would be looking at placing their home into escrow around May 2021.

Orange County Housing Market Summary:

  • The active listing inventory dropped by 389 homes in the past two-weeks, down 8%, and now totals 4,546, the lowest level since March 2018. Last year, there were 6,395 homes on the market, 1,849 more than today, or an extra 41%.
  • Demand, the number of pending sales over the prior month, decreased by 221 pending sales in the past two-weeks, down 10%, its largest drop of the year, and now totals 1,949. Last year, there were 1,508 pending sales, 23% fewer than today.
  • The Expected Market Time for all of Orange County increased from 68 days to 70, a slight Seller’s Market (between 60 to 90 days). It was at 127 days last year and climbing, substantially different compared to today.
  • For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 46 days. This range represents 36% of the active inventory and 54% of demand.
  • For homes priced between $750,000 and $1 million, the expected market time is 54 days, also a hot 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 73 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 79 to 120 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 125 to 117 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 285 to 223 days. For luxury homes priced above $4 million, the Expected Market Time increased from 387 to 518 days.
  • The luxury end, all homes above $1.25 million, accounts for 37% of the inventory and only 13% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 1.2% of all listings and 1.2% of demand. There are only 18 foreclosures and 36 short sales available to purchase today in all of Orange County, 54 total distressed homes on the active market, down 6 from two-weeks ago. Last year there were 66 total distressed homes on the market, similar to today.
  • There were 2,242 closed residential resales in November, 10% more than November 2018’s 2,047 closed sales. November marked a 13% drop compared to October 2019. The sales to list price ratio was 97.6% for all of Orange County. Foreclosures accounted for just 0.6% of all closed sales, and short sales accounted for 0.5%. That means that 98.9% of all sales were good ol’ fashioned sellers with equity.