Anna Child Group
The market remains hot, but there’s a slow change afoot.
A Market in Transition: An unabated increase in the active inventory marks a true transition from the craziness that defines today’s market.
Everybody now knows that the housing market across the nation is red hot. We hear of multiple offers, bidding frenzies, rapid appreciation, and anemic inventories from coast to coast and everywhere in-between. The stories are all the same. Buyers are frustrated after writing offer after offer to no avail. Parking has become an issue at many open houses.
Many local REALTORS® have begun to sense a change, (including myself) and they are right. Orange County housing is in a slow transition with more and more homes sitting on the market a little bit longer. Do not get me wrong, accurately priced homes are still flying off the market in the blink of an eye. But, the rapid appreciation has invited a throng of homeowners to the table and many of these sellers are a bit too zealous in their pricing.
Since mid-March, the active listing inventory has swelled by 30%, rising from an unbelievable low of 3,183 homes to 4,133 today. That’s a 12-week unabated run. The housing market often follows trends. From June 2011 to January 2013, the active listing inventory shed homes unabated. It moved from 11,388 homes to a record low of 3,161. After bouncing across a bottom for a few months, the inventory has shifted directions and is moving up
The upward march is not isolated to just the upper ranges. As a matter of fact, the largest upward tick can be found in the $500,000 to $750,000 price range with an increase of 39%. Even the scorching HOT $250,000 to $500,000 price range has increased by 29%. That is almost hard to believe given that the expected market time for that range is just 24 days. That is correct, there are some sellers trying to push the envelope in terms of price and are languishing on the market until they finally concede that they were a bit too eager. Ultimately, they have to reduce their prices or pull their homes off the market.
Buyers have been bidding up price on homes, but, for the most part, the asking price is within reason. Buyers still recall the mid-2000’s when homes were increasing at an unsustainable pace. They are not willing to repeat history and grossly overpay for a home. Pricing has to be within reason and the market will not allow a seller to arbitrarily pick a price. Values have NOT returned to the highs of 2005 and 2006. Just because the market is hot does not mean that a buyer is going to pay a seller who bought in 2005 that same value. It will take time and could be years before we get to those levels.
As values rise, more and more homeowners are enticed to enter the fray. With all the talk of homes selling for over their asking prices, many people are mistakenly thinking that perhaps the homes were priced too low. So, they place their homes on the market grossly out of bounds. These homeowners are accumulating on the market in all ranges are causing the inventory to rise.
From here, expect the inventory to rise unabated for at least the next several months. As the inventory rises, the number of offers generated for a home will diminish and prices will more accurately reflect the current market value compared to an arbitrary price in anticipation of the overbidding widespread in today’s market.
Buyers still need to understand that the current market remains a very hot seller’s market. The inventory, like interest rates, is still at unprecedented lows. A rise in the inventory ultimately will slow the rate of appreciation in the coming months, but the seller’s market will endure. It just will not be as insane. Double digit appreciation will be replaced with single digit appreciation.
Active Inventory: The inventory increased by 6% in the past two weeks.
In the past two weeks, the active listing inventory zoomed past the 4,000 mark and now sits at 4,133 homes. These levels have not been seen since October of last year, eight months ago. Next stop, 5,000 homes. That level was last reached in August 2012. The inventory appears to be heading to that mark sometime this coming August.
Last year at this time, there were 1,598 additional homes on the market, totaling 5,731. The year-over-year gap is shrinking fast because the inventory was moving in the opposite direction.
Demand: Demand increased by 3% in the past two weeks.
Demand, the number of new pending sales over the past month, has been underreported this year because of the throngs of buyers sitting on the sidelines waiting for fresh inventory. There just simply have not been enough homes coming on the market. True demand based upon buyers willing, able, and ready to buy is a lot higher compared to demand based upon numbers of pending sales. That has been the paradox that has defined the market this year, muted demand due to a lack of inventory.
In the past two weeks, demand has increased by 88 pending sales and now totals 3,144, a 3% increase. Last year at this time demand was at 3,687, but was comprised of an additional 900 short sales, many of which never closed.
Distressed Breakdown: The distressed inventory increased by nine homes in two weeks.
Within the past two weeks, the distressed inventory, short sales and foreclosures combined, increased by nine homes, a 5% increase, and now totals 178. Only 4% of the active listing inventory and 13% of demand is distressed. Compare that to last year when it represented 18% of the inventory and 42% of demand. The current market is no longer defined by distressed homes.
In the past two weeks, the foreclosure inventory increased by 13 homes and now totals 63. Even with the increase, only 1.5% of the inventory is a foreclosure, so buyers should have the expectation that they will most likely not obtain one. The expected market time for foreclosures is 22 days. The short sale inventory decreased by 4 homes in the past two weeks, totaling 115, and has an expected market time of an mindboggling 11 days. The distressed market remains the hottest segment of the Orange County housing market, as everybody is always looking for a “deal,” even if it is just perceived at this point.