The Inventory Crisis

By Steven Thomas

It will not be a buyer’s market anytime soon because of the chronic lack of listings.

For six years now, there have not been enough homes on the market. In Orange County, this trend was reinforced in 2017 with 6 percent fewer For Sale signs than in 2016. Buyers have been tripping over one another in search of their piece of the American Dream. The lower the price range, the harder it has been to secure a home.

Buyers cannot get a break from the relentlessly hot housing market in Orange County. For homes priced below $1 million, there simply have not been enough homes to satisfy the sea of buyers attempting to purchase. Moreover, housing sizzled, even during the holidays.

The New Year brought a housing market that lacks choices and has a razor-thin supply of homes for sale. With fewer than 4,000 homes available to purchase in Orange County, buyers seeking homes in the lower ranges (priced below $750,000) are literally waiting in line for the next home to come on the market. It is a seller’s market for all homes priced below $1.25 million. (During 2017, 88 percent of all closed sales were priced below $1.25 million.)

The active listing inventory in Orange County has been leaning in the seller’s favor since February 2012 (see Figure 1). That was the beginning not only of the recovery but also of a six-year run in housing. And, housing is poised to continue its run for a seventh year because of a chronically low inventory.

For housing to move away from a seller’s market and transition to a balanced market (i.e., one that does not favor either buyer or seller), the active inventory must grow beyond 8,000 homes. When the active inventory remains above the 8,000- home threshold, housing will transition into a buyer’s market; however, that is not going to happen anytime soon.

It occurred for about five months back in 2004, not long enough to move from a balanced market to a buyer’s market. It happened again for a couple of months during the Autumn Market of 2005, one of the worst cracks in the housing market that led up to the Great Recession. The active inventory surpassed 8,000 homes again in January 2006 and remained elevated through September 2009, nearly four consecutive years. Even though the Great Recession started in March 2007, the active inventory signaled throughout 2006 that the market was poised for a change.

The active inventory climbed above 8,000 again in February 2010 and remained elevated through January 2012, an additional two years. From there, it dropped like a rock, and housing transitioned seemingly overnight from a buyer’s market to a seller’s market. It has been a seller’s market ever since and has surpassed the 8,000-home threshold for only four weeks during the summer of 2014, not long enough for anybody to notice (see Figure 2).

The bottom line is this: the 8,000- home mark is a level that establishes which way the market is heading. With fewer than 5,000 homes on the market, the inventory is nowhere close to that mark. In fact, 2018 started with fewer homes than in 2017, a year that was de ned by a lack of homes for sale, especially below $750,000.

Everybody is wondering, “When will Orange County housing become a buyer’s market?” The answer is, quite simply, “Not anytime soon.”

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