Low Orange County Housing Supply reduces Pending Sales: The number of pending sales over the past month dropped by 7% due to a supply of homes that is now dropping as well.
Homeowners have been behaving differently ever since the Great Recession began a decade ago. A trend evolved and it has not changed since 2008. That trend is a drought of homeowners opting to sell their homes. In fact, this year it has been even more pronounced.
The number of homes placed on the market this year is the second lowest level this century behind 2012. The lack of homes FOR SALE back then was understandable as home values were only starting to rise and many homeowners were upside down in their homes, owing more than their homes were worth. Flash forward five years later to today and home values have appreciated substantially (the median value of a resale home has increased by more than 60%). Even with the extra equity, homeowners are opting to stay put and are not moving. The trend continues.
This year, there have been 7% fewer homes that have come on the market compared to last year, 2,055 fewer to be exact. For perspective, there have been 18,000 fewer FOR SALE signs this year compared to 2004. This lack of inventory has hurt the true potential for closed sales. With interest rates below 4%, buyers have been chomping at the bit to purchase; yet, they face stiff competition due to a lack of supply.
Today there are 20% fewer choices on the market compared to last year, 5,639 versus 7,040. As a result, the number of pending sales over the prior month (how Reports On Housing gauges demand), dropped in the past couple of weeks by 7%, with 201 fewer pending sales, now totaling 2,624. Today’s demand is 3% off of last year’s 2,719. The lack of supply is truly cutting into the number of pending sales and has undercut demand.
True demand, buyers ready, willing and able to buy today, is much higher than the pending sales count is showing simply because of not enough choices. There are insufficient homes FOR SALE in the lower ranges, homes priced below $750,000. This range accounts for 39% of the inventory and 60% of demand. If there were more homes available within this range, the number of pending sales, and ultimately closed sales, would skyrocket. This price range is underserved as fewer and fewer homeowners are electing to sell. There are 41% fewer active listings available today below $500,000 compared to last year, and the expected market time (the amount of time it will take a home placed on the market today to open escrow) is a blistering hot 36 days. There are 22% fewer homes available between $500,000 and $750,000, and the expected market time is a hot 46 days. These hot markets are a direct result of a skimpy supply all year long.
There are 25% fewer homes on the market between $750,000 to $1 million, yet the expected market time is at 56 days, not as hot as the lower price ranges. Even though there are fewer choices for buyers, sellers better be priced on the money or they won’t be successful. For homes priced above $1 million, there may be slightly fewer homes on the market compared to last year; however, the expected market time runs from 93 days ($1 million to $1.25 million) to 460 days ($4 million and up). These sellers not only need to be priced precisely on target, they must pack their patience as well.
The bottom line: the Orange County housing market could use more homes on the market, especially in the lower ranges. This lack of inventory has diminished the number of pending and closed sales and has prevented local housing from reaching its full potential.
Active Inventory: The active inventory dropped by 4% over the past couple of weeks.
The active listing inventory shed 223 homes in the past two weeks and now sits at 5,639. It is the lowest level for this time of the year since 2012. The active inventory is falling as expected now that the Autumn Market is here. It will continue to trend down through the remainder of the year, picking up steam after Thanksgiving, the start of the Holiday/Winter Market.
Last year at this time, there were 7,040 homes on the market, 1,401 additional homes or 25% more than today.