Orange County Housing Report: The Golden Opportunity
July 1, 2019
Accurately pricing a home initially to avoid price reductions
is the most lucrative strategy.
Similarly, when a home initially comes on the market, the price will determine whether or not a seller will be raising their arms in the air with delight as they successfully close escrow. Buyers today do not want to pay much more than the most recent closed sale. Prices are a lot stickier. The days of rapid appreciation are now in the rearview mirror. Overpriced homes sit without success. Throwing a price out there just to test the market is not a wise strategy. Instead, carefully and methodically pricing a home is vital to cashing in on the Golden Opportunity, the first few weeks after coming on the market.
It is very telling to look at the sales price to last list price ratio. This refers to the final list price prior to opening escrow. In Orange County, 68% of all closed sales in June did not reduce the asking price at all. The sales price to last list price ratio for these homes was 98.9%, meaning, on average, a home sold within 1.1% of the asking price. A home listed at $600,000 sold for $593,400. In addition, 20% of all closed sales reduced their asking prices between 1% and 4%. The sales to list price ratio for these homes was 97.8%. A home listed at $600,000 sold for $586,800. For homes that reduced their asking prices by 5% or more, 12% of closed sales in June, the sales to list price ratio was 96.6%. A home listed at $600,000 sold for $579,600. Everybody would agree that closing for $593,400 is a lot better than $579,600.
What is so important about the initial few weeks after coming on the market that helps drive success? There are many buyers who have not yet isolated their home and they are literally waiting on the sidelines for something to come on the market that meets their criteria. Every time a home is fresh to the market, there is a flood of initial activity as potential buyers clamor to be one of the first to take a look. There is more activity in the initial two weeks in entering the fray than any other time when a home is marketed. With the Internet, this period is even more important. Most buyers subscribe to a service that allows them to search homes that are on the market. When a home is newly listed, buyers receive email notifications and they are at the top of the list of homes available that match the buyer’s criteria.
With all of the fanfare, it is not a coincidence that the initial listing period is extremely important. Cashing in on the excitement makes a lot of sense; however, many sellers do not understand the significance and waste this GOLDEN OPPORTUNITY. Yes, a seller can always reduce the asking price down the road to be more in line with a home’s Fair Market Value, but the reduction will not be met with the same enthusiasm as the initial first few weeks. There is not as much excitement surrounding a price reduction. When something is brand new to the market, that is exciting. When something has been exposed to the market for a while, it becomes a bit “shop worn” and loses some of its marketing luster.
The bottom line for sellers: spend more time carefully arriving at the asking price, taking into consideration all the pluses and minuses in the home: condition, upgrades, and location. Having the right price to begin with will not only reduce market time, it will result in more activity and a higher sales price.
Active Inventory: The current active inventory increased by 1% in the past two weeks.
In the past two weeks, the active listing inventory increased by only 107 homes, up 1%, and now totals 7,600. As is normal for this time of the year, the active listing inventory continues to grow week after week. This will continue until it reaches a peak most likely in August.
Last year at this time there were 6,362 homes on the market. That means that there are 19% more homes available today. This continues to be the highest level of homes on the market for this time of the year since 2011.
Demand: In the past four weeks, demand dropped significantly by 4%.
Demand, the number of new pending sales over the prior month, dropped by 113 pending sales in the past four weeks, down 4%, and now totals 2,548. It is very telling that demand remains subdued, like last year. However, last year it was due to higher prices coupled with rising rates. Mortgage rates have dropped to levels not seen since September 2016, but even with lower rates, demand remains subdued. This development is a strong indicator that the current housing cycle is nearing its peak. This will develop more in time.