The Orange County Housing Update: Cracks in the Housing Run

Steven Thomas
By Steven Thomas

Although sellers are still in the driver’s seat, trends suggest the market is starting to cool.

We have been talking about it for years now: there are not enough homes on the market, and the demand for homes is through the roof. That has been the storyline for the housing market not only here in Orange County but also across the United States. Every city and town is experiencing hot demand and short supply. The story has not changed much for quite some time—that is, until now.

It seems as if this market can go on forever, right? Wrong! That is what everybody thought back in the early 2000s, and everybody was wrong. Housing has hot runs, leaning in the seller’s favor; and it has its cool seasons, leaning in the buyer’s favor. The good news is that, over time, in the long run, housing values continue to reach new record levels. You can count on it. You can also count on the fact that this housing run will eventually turn in favor of the buyer, though not today and not even in the immediate future.

With nearly half the year in the rearview mirror, noticeable cracks have appeared that signal a cooling market. It is not as if housing has suddenly tilted in favor of buyers. No, there are still multiple offers and plenty of homes flying off the market and into escrow just moments after the For Sale sign is pounded into the front yard. Buyers are still frustrated by the lack of homes on the market priced below $1 million. Although sellers are still in the driver’s seat, trends have surfaced that suggest a cooling marketplace.

The active inventory increased by 27 percent during the Spring Market and by 15 percent in the month of May alone. After a rather dismal start to the year, the active inventory in Orange County has been surging, adding 1,265 homes from March 22 to June 1, and 726 homes in May. The May increase was the largest one-month gain during the spring since 2007. At the start of June, there were 5,950 homes on the market, well below the 8,000-home long-term average, yet the current trend is for a rapidly increasing active inventory (see Figure 1).

This is the first time there are more homes on the market than there were in the prior year since August 2016. For twenty consecutive months, the year-overyear active inventory comparison had been less. That changed at the beginning of May with 47 more homes on the market than in the prior year. On New Year’s Day, there were 674 fewer homes on the market than there had been on January 1, 2017. As the year rolled along, the difference diminished. As of June 1, the difference grew to 143 more homes than in the prior year.

Demand was at its lowest Spring Market level this year since 2008. Demand, the number of pending sales over the prior thirty days, has been muted since the start of the year. Typically, during the Spring Market, the busiest time of the year, pending sales activity is firing on all cylinders. Yet, it was down by 9 percent compared with last spring (see Figure 2).

The asking price was reduced on a staggering 11 percent of all active listings each week during the Spring Market and the start to the Summer Market. The Multiple Listing Service (MLS) has a helpful red arrow pointing downward adjacent to the asking price if that price was reduced. In bringing up a list of homes anywhere in Orange County, there are a lot more red arrows pointing down now than there were at any time in the past several years. This phenomenon is indicative of a market in which the property is initially overpriced. Many sellers are arbitrarily pricing and not relying on the expertise of real estate professionals, so, to be successful, they must reduce the asking price—and often more than once.

While there are definite cracks in the more-than-six-year housing run, the market is still a seller’s market. It is simply not as hot as it was in the spring of 2017. These trends have developed only this year. If they continue, the market will cool further, but it will take time. This year still promises to be a very good one for sellers, only a bit more challenging, which necessitates a more cautious, deliberate approach to the housing market.

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