When It Comes To Inventory, Where’s The Beef?


By Steven Thomas
REPORTSONHOUSING.COM

Ever since the housing market took off five years ago, there have not been enough homes to satisfy the demand.

For years now, fewer home owners have opted to place For Sale signs in their front yards. That has been the main trend in the Orange County housing market since the recovery began five years ago; and, if the beginning of 2017 is an accurate indicator of what is to come, this year is not going to be any different.

The average annual inventory dating back to 2005 is 9,237 homes on the market. Over the past five years, it has fallen considerably short of this mark. As a result, the annual inventory height has been significantly short of the 10,820-home average as well. For example, look at last year, where the inventory averaged only 5,965 homes on the market and reached a height of 7,329. There simply were not enough homes for sale to satisfy the demand. And that’s the story dating back to 2012.

To keep it simple, the inventory needs to be above 8,000 over an appreciable period for the market to tilt in favor of the buyer. Yet, the last time that occurred was in 2011. In the past five years, the active inventory has eclipsed the 8,000 mark only once for four weeks during the summer of 2014, not long enough to make a significant impact on housing availability and prices.

This year, the Orange County housing market started with an inventory of 4,071, the second lowest start to a year behind 2013’s anemic 3,161 homes. Compared with last year, the 2017 start is down 7 percent.

One of the main reasons that there is not enough inventory is because of a changed mindset among home owners since the Great Recession. Orange County home owners simply are not opting to sell their homes at the rate that they once did. Moving is no longer in vogue. With a stay-put mindset, home owners are remodeling rather than moving from home to home. Another reason the inventory is extremely low right now is that many would-be sellers are waiting for the Spring Market, traditionally the best time of the year to sell in terms of activity. While that may seem like a logical choice, the facts don’t completely back it up in the lower price ranges.

Where the price is below $750,000, the expected market time, from putting a sign in the ground to going into escrow, is less than sixty days. That is a hot seller’s market, and the year has only begun. There are not a lot of competing sellers in the lower ranges. Later in the spring through summer, there will be more buyers, but there will also be a lot more sellers. Considering the amount of pent-up demand, the most advantageous time to place a home on the market is right now.

Right now, a home that is in good condition, nicely appointed, and priced at or close to Fair Market Value will fly off the market with multiple offers. Fair Market Value can be determined by diligently researching the most recent comparable pending and closed sales and comparing location, upgrades, lot size, and so forth.

Listing at or close to the Fair Market Value does not mean tacking on an additional $10,000, $15,000, or $20,000. In this market, a seller does not need to leave room for negotiating. When a home is priced right, it captures close to the asking price. Intentionally overpricing just to test the market or tacking on extra dollars to leave room for negotiations will result only in the need to adjust the asking price down the road, squandering away the most valuable market time, the first few weeks after the initial listing.

The current market is not as hot as it was in 2012 and 2013, when values were skyrocketing and the expected market time for the lower ranges was about thirty days. Today’s market is appreciating, but at a much slower rate, about 5 percent over the course of a year. This means that it takes 365 days to increase 5 percent. That does not mean pricing a home 5 percent above the most recent comparable sale will result in success. In fact, it will take a year to get there.

To find success today and net the highest amount possible, the bottom line is this: it is all about pricing right initially. If a home is overpriced, the market will speak loud and clear, and the home will sit with no success despite the sizzling temperature of housing.

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.