For the first time since 2011, the Orange County housing market has tipped slightly in favor of buyers and now offers them a smorgasbord of choices.
By Steven Thomas
MEMBER, BOARD OF EQUALIZATION, FOURTH DISTRICT
December is about gathering with the people you love: family, friends, neighbors, and co-workers. We bounce from gathering to gathering to share gifts, raise glasses, and eat to our heart’s content. We load our plates with cheese blintzes, Swedish meatballs, baked brie, spinach artichoke dip, stuffed mushrooms, and plenty of dessert. It’s all about a smorgasbord of choices.
Today’s housing market is shaping up to give buyers a smorgasbord of choices. Many believe the market has slowed because of the holidays or the winter season. Yes, there are a lot of distractions during the holidays, but the housing market had begun to shift gears back in March 2018, and it continued to evolve through the rest of the year.
Typically, during the Autumn Market, both supply and demand drop. The peak in the housing inventory predictably occurs between July and August, and then drops once the kids go back to school. In 2018, the peak occurred in mid- October at 7,292 homes and remained elevated until Thanksgiving (see Figure 1).
Since 2012, the inventory, on average, has dropped from the end of August to mid- November by 17 percent. From the end of August to mid-November 2018, the inventory increased by 3 percent. Similarly, demand, on average, has dropped by 14 percent since 2012. In 2018, it dropped by an astonishing 24 percent.
With a much larger supply of homes (53 percent more than one year ago) and muted demand (24 percent less than one year ago), the Expected Market Time (the amount of time it would take to place a home on the market today and open escrow down the road) has been climbing since August. Typically, it remains flat through the end of the year.
The Expected Market Time eclipsed the 120- day mark in mid-November, signaling a slight move into buyer’s market territory (see Figure 2). We have not experienced this kind of a market in nearly eight years.
What does it mean to be in a slight buyer’s market? First, home values are not dropping like a rock. As a matter of fact, homes that are highly upgraded, in great condition, show like a model, and are priced right will fly off the market within the first few weeks. All the others will sit and wait because there are not enough buyers looking to purchase.
Now, more than ever, price is the most important ingredient in finding sales success. Homes that back to busy streets, need a lot of work, have not been well maintained, or lack updates or upgrades will sit for a very long time unless they are priced appropriately. No longer can sellers simply price a home to equal the price of the last comparable sale. Adjusting for location, view, condition, and upgrades is crucial.
One of every four homes on the market today will not find success. Many sellers simply do not have the stomach for doing what it takes to be successful today, and it all boils down to price. The days of instant multiple offers with buyers tripping over themselves to purchase are quickly becoming a distant memory.
Attention Would-Be Sellers: Today, you must price your home with extreme care and then pack your patience. If your home has been exposed to the market for forty-five days with no sales success, sit with your REALTOR® to analyze all current data and statistics, review buyer-showing and real-estate feedback, and consider adjusting your price considerably to entice a buyer to purchase.
Attention Buyers: It is finally your turn! That does not mean you are able to write offers to purchase that are $50,000 below the last comparable sale. Values are not falling like a rock. It is not 2007 or 2008. The slight buyer’s market simply means that buyers have the upper hand at last. There are a lot more choices, and buyers do not have to feel rushed.
Arriving at a price, considering all comparable pending and closed sales, is crucial so that a buyer can find success and secure a home. Because interest rates are higher, many sellers are willing to pay points and buy down the interest rate, reducing the monthly payment. Yes, buyers, it is your turn, but you must be realistic and approach the market with a sound strategy.
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.