By Steven Thomas
The Orange County housing market is strong during the summer but not as sizzling as it was in the spring.
It’s summer!!! Grab the sunscreen, beach towel, shovel, and pail. All of the summer distractions are here. The distractions started with the graduating class of 2017. With more sunshine and the kids out of school, bring on the family vacations, trips to the beach to play in the surf and sand, refreshing dips in the pool, picnics at the park, a day trip to the local mountains—not to mention the San Diego Zoo, Legoland, Knott’s Berry Farm, Magic Mountain, Raging Waters, the Discovery Science Center, Disneyland, and California Adventure. For some, buying a home takes a back seat to family fun. Many will still purchase, but no longer at warp speed, as they did during the Spring Market.
While the Summer Market may be the second busiest time of the year for real estate, buyers, sellers, and real estate professionals feel a palpable shift. The active listing inventory slowly and methodically grows from now through mid- August (see Figure 1). At the same time, demand softens slightly from the peak of 2017, which occurred in late April.
Many mistakenly believe that right now is the absolute best time to come on the market. But that is simply not true. The best conditions actually occurred at the beginning of April, when the expected market time hit a low. Since then, the expected market time has been slowly rising and will continue to rise from now through the 2017 peak in active inventory, which typically occurs around mid-August (see Figure 2).
This shift occurs because summer is full of distractions. From the beach, to the pool, to vacations, buyers’ attention is diverted a bit. Not to mention, the number one distraction: everybody’s kids are on summer break, too. It is just not as easy to see homes when the kids are not confined to their school classrooms.
Even though it will continue to be a seller’s market, overall housing moved from a hot seller’s market to a tepid seller’s market. The stark difference in this market can be isolated to a bit less activity with not as many offers generated. This shift is much more dramatic in the higher price ranges, from $750,000 and up.
It is not like the market suddenly transitioned into a buyer’s market. It is more about supply and demand and carefully pricing a home. The supply of homes on the market has been on the rise throughout the Spring Market. It increased by nearly 1,300 homes from the end of February to the start of the Summer Market, the first week of June, a 29 percent rise.
The inventory will continue to grow until it peaks around mid- August. More and more homes will come on the market at a pace similar to what we saw during the spring, yet many unsuccessful homeowners will accumulate on the active listing inventory.
The inventory swells because of this accumulation of unsuccessful sellers, which occurs in every price range, not just at the luxury end. In fact, during the Summer Market of 2016, homes between $500,000 and $750,000 had the largest increase compared with any other price range, growing by 18 percent. The second largest, a 13 percent increase, occurred for homes priced between $750,000 and $1 million.
It may be a seller’s market, but sellers really need to approach pricing with caution. Sellers who aggressively stretch their asking price risk not being successful and missing both the Spring and Summer Markets. Arbitrarily picking a desired sales price while ignoring the closed and pending sales data is a waste of valuable market time and a recipe for disaster.
For example, a home that sold in December 2016 at $800,000 is not worth $900,000 today, over 12 percent more. The market has been appreciating at about 5 percent annually. This means that it takes 365 days for a home to appreciate 5 percent, not three months, not six months, not nine months. It takes a year. On average in Orange County, that $800,000 home would be worth about $820,000 six months later. That is 2.5 percent more.
Of course, this simple example does not work for every property in every neighborhood. The appreciation rate varies from area to area, neighborhood to neighborhood, and sometimes from street to street. A professional REALTOR® can help dissect the recent closed and pending sales data to establish the best price for success.
Sellers absolutely should not utilize Zillow to price a home. Zillow admits it themselves, stating, “The Zestimate® is a starting point in determining a home’s value and is not an official appraisal.” It is just an approximation, and using it leads to inaccurate pricing. Nothing beats carefully looking at the comparable sales data and comparing the property size, bedrooms, bathrooms, location, amenities, upgrades, condition, lot size, and every other nuance that goes into the value of a home.
The bottom line is this: the market is slowly cooling right now, and the window of opportunity to find success before the kids go back to school at the end of August is beginning to close. Sellers find success through accurate pricing. Price out of bounds and risk losing valuable market time during the best time of the year to sell, the Spring and Summer Markets.
Steven Thomas has a degree in quantitative economics and decision sciences from the University of California, San Diego, and more than twenty years of experience in real estate. His bimonthly Orange County Housing Report is available by subscription and provides housing market analysis that is easy to understand and useful in setting the expectations of both buyers and sellers. His website is www.ReportsOnHousing.com.