The Orange County Housing Report

June 19, 2016

Market time is growing due to an increasing inventory and a

decline in demand as housing transitions to summer.

Expected Market Time: It’s still a seller’s market, but there is a dramatic cooling trend.

REALTORS® on the streets of Orange County are describing a housing market that is obviously in transition. Some

homes fly off the market in seconds, while others sit with very few showings. Some buyers are starting to take their time

as summer distractions set in, yet others are chomping at the bit and are ready to jump at a moment’s notice. What is

going on? This is the time of the year where the market seems a bit like Dr. Jekyll and Mr. Hyde.

An ominous sign of a market in flux are the growing number of open house directional arrows sprouting up at busy

intersections. Typically, more open house signs mean that homes are not flying off the market as quickly as they once did.

This is due to a combination of reasons.

The number one reason that homes are sitting a bit longer right now (and they will sit even longer as the Summer Market

evolves) is that sellers are not getting away with overpricing and stretching the asking price. Demand falls at the end of

the Spring Market during the graduation season, and it falls further as all of summer’s distractions set in. With demand

falling, buyers start to bump into each other less and their mindset changes as well. They are no longer willing to overpay

for their home; instead, they pursue the Fair Market Value for a home.

Many ask how the Fair Market Value is determined for a home. Quite simply, it can be determined by carefully analyzing

all of the comparable pending and most recent closed sales. Many sellers fall into the trap that their home is better than all

the comps, which is why it is important to lien on a professional REALTOR®. As humans, it is very difficult to separate the

emotions of a home from the real factors that determine the true value.

In the past month, the expected market time has increased from 60 days to 69 days and that trend does not look like it will

slow anytime soon. It is a seller’s market, but it is weakening and evolving into a slight seller’s market where appreciation

slows. The number of showings drops as does the potential for multiple offers. This is precisely why pricing is so crucial at

this stage of the market. Overprice and a seller can sit on the sidelines all summer. And, the Autumn Market is even

slower. The expected market time is going to push its way to a “Balanced Market,” one that does not favor a buyer or

seller, in August. That occurs when the expected market time is between three and four months. For those buyers holding

out for a buyer’s market, it does not look like that is going to occur in 2016. The expected market time needs to push past

four months to tilt in the buyer’s favor. That would require an enormous increase in the inventory, which will not occur this

year.

In the past month, the active listing inventory, “supply,” has risen from 6,267 homes to 6,868, a 10% increase. “Demand,”

the number of new pending sales over the prior month, decreased from 3,144 to 2,989 in the past month, a 5% drop.

Basic Econ 101 tells us that when supply increases by 10% and demand drops by 5%, the pace at which homes sell

cools. As a result, homes are not selling like hot cakes like they were a month ago.

Luxury End: The luxury ranges are slowing right now as well.

For homes priced between $1 million to $1.5 million, demand dropped by 10% in the past two weeks and the inventory increased by 5%. As a result, the expected market time grew from 102 days to 119. Many sellers are wondering why they are not getting as many showings right now; it’s because their market is cooling.

For homes priced between $1.5 million to $2 million, demand dropped by 6% in two weeks and the inventory increased by 6%. As a result, the expected market time swelled from 137 days to 152 days. For homes priced above $2 million, demand fell by 8% and the inventory increased by 1%, so the expected market time moved from 231 days to 249 days. For proper perspective, 249 days from now is the end of February 2017.

Active Inventory: The inventory increased by 4% in the past two weeks.

The active inventory increased by 265 homes in the past two weeks and now total 6,868, its highest level since September of last year. The inventory will continue to climb during the Summer Market and will peak in mid-August, much higher than last year’s peak of 7,167. The inventory could stretch all the way to 8,000 homes if the current accelerated trend of new homes hitting the market continues.

Last year there were 334 fewer homes on the market, 5% less.

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