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Orange County Housing Report: June 10, 2019

Mortgage interest rates have dropped from 4.9% in November 2018, to 3.75% today. Conforming loans up to $484,350 are available at 3.5% with zero points. These are historically very low interest rates and have been a factor in lower home inventory levels over the past week.

“Top 5” current Orange County housing trends:

  1. There are more homes for buyers to choose from. Orange County home inventory levels in May were the highest active inventory level since 2011. There are 27% more homes available compared with the same time last year. The year started with nearly double the active home inventory of the previous year, so this trend has diminished. The big rumor is that there are a lot more homeowners opting to sell and flooding the market. The reality is that there are nearly the same number of sellers coming on the market year after year. In 2017, from January through May, 18,264 homes were placed on the market. In 2018 there were 18,199. And, there were 18,180 this year. No flood. Instead, fewer and fewer listings have been converted to sales due to softer demand. Allowing inventory to grow. That could change again with the recent extreme interest rate drop. Home buyers will want to take advantage of this opportunity.
  2. Demand has been softer compared to 2012 through the 2017. This trend emerged last year in the fourth quarter when interest rates rose from 4.25% to 4.9%. In 2018, through May, demand (the number of new pending sales in the prior 30-days) was down by 13% compared to 2012 through 2017. In 2019, it is down 20% compared to those same years. Positive for buyers, homes are not appreciating like they used to. The rise in incomes coupled with inflation has not been able to keep up with home prices. Year over year, current demand looks a lot similar, off by only 19 pending sales for all of Orange County.
  3. Softer demand has put a damper on closed sales. The number of closed sales through May is down 9% compared to last year and off by 12% compared to 2017. When there are fewer pending sales, that translates to fewer successful closed sales. If the very low interest rate trend continues in the second half of 2019, expect buyers to take advantage. Pending and closed sales will rise compared with last year.
  4. Home appreciation is now flat, so careful pricing is crucial. The Expected Market Time has increased this year. Currently, it is at 85 days, a slight Seller’s Market. 2012 through 2018, housing enjoyed a Hot Seller’s Market January through May. This year it has been a slight Seller’s Market – one where homes are not appreciating much. Expect this trend to continue through the remainder of the year.
  5. Interest rates have dropped dramatically over the past 6 months, improving affordability substantially. After nearly reaching 5% back in November, mortgage rates have dropped below 4% today. They have not been this low since January 2017. With level appreciation compared with last year, this has increased affordability greatly. For a $750,000 mortgage, the monthly payment difference between 4% and 5% is $445. That is an annual savings of $5,340, or $26,700 in five-years. Even with the return of historically low interest rates, demand remains softer than the market recovery through this time last year. With the Spring Market in the past, there are only a couple of great months left in the meatiest time of the year to sell. Once the market rolls into August, housing will start to transition to the Autumn Market where demand softens along with the active inventory. It will be interesting to see if the expected low interest rates extends summer buyer demand for homes.

Active Inventory: The current active inventory is at its highest point since September 2014.
In the past two weeks, the active listing inventory in Orange County is up 1%, and now totals its highest level since September 2014. This is the time of the year when the active inventory climbs until it peaks in the middle of the summer, most likely mid-August. This occurs due to all of summer’s distractions creating softer demand while more homes enter the market. It may eclipse the 8,000-home level for the first time since 2014.

Demand: In the past four weeks, demand was nearly unchanged.
Demand, the number of new pending sales over the prior month, has remained nearly unchanged in the past four weeks. Demand has been softer for the past 16-months. With summer distractions, demand tends to be softer compared with the Spring Market. The current Expected Market Time increased from 84 days to 85 days in the past two weeks, still considered a slight Seller’s Market. Last year, the Expected Market Time was at 66 days.

Expected Market Time by Price Range

$300k-$750k: 60 days compared with 43 days last year. 39% of homes on the market
$750k-$1M: 67 days compared with 55 days last year. 18% of homes on the market
$1M-$1.25M: 108 days compared with 92 days last year. 9% of homes on the market
$1.25M-$1.5M: 107 days compared with 95 days last year. 8% of homes on the market

Homes priced between $1.5 million and $2 million, the Expected Market Time is 167 days.
For luxury homes priced between $2 million and $4 million, the Expected Market Time increased is now 302 days.
For luxury homes priced above $4 million, the Expected Market Time is 419 days.
The luxury end, all homes above $1.25 million, accounts for 34% of the inventory and just 14% of demand.

Distressed homes, both short sales and foreclosures combined, made up only 0.9% of all listings. There are only 23 foreclosures and 42 short sales available today in all of Orange County.

There were 2,558 closed residential resales in April, 2% fewer than April 2018’s 2,614 closed sales. April marked a 13% increase from March 2019. The sales to list price ratio was 97.9% for all of Orange County. 99.3% of all Orange County home sales were sellers with equity.