Orange County Housing Report: Inventory Catastrophe

Posted by Hartanov Real Estate Team on Thursday, December 2nd, 2021 at 7:01am.

Orange County Housing Report:  Inventory Catastrophe

 
For years, there have not been enough homes on the market, but the trend has only grown worse with COVID and the historically low interest rate environment.
Inventory Running on Empty: The inventory is at an all-time low and it is only going to drop from here

In climbing into the family car to run errands, there are times when the fuel gauge light is on, a reminder that gas is needed as soon as possible. At this point some people decide to wait to and save a few minutes and get the job at hand completed. Watching the “miles remaining” dwindle on the instrumental panel can be unnerving. When it reaches zero, panic sets in and pushing it any further becomes a gamble. Finally, after waiting until there are drops left in the gas tank, the car rolls into a gas station, running on empty.

The active inventory has been running on empty all year long. There are fumes left in Orange County’s housing market tank. The inventory hit an all time low in June at 2,214 available homes to purchase. It then dropped below that record low at the end of September and has been falling ever since. In fact, it has shed 1,071 homes in the past three months, down an astonishing 42%. In just the past two weeks alone, the inventory plunged by 19%, or 336 homes, the largest drop of the year, and now totals 1,457, signaling the start to the Holiday Market when both supply and demand sink to their lowest point by New Year’s Day.

  

It is challenging to articulate just how dire the current inventory levels are today. In looking at supply and demand, when there is a very limited supply that is matched with insatiable, strong demand, the supply issue not only persists, but it can also become even more severe. That is precisely what has occurred in 2021. It has dropped to an unprecedented point.

Today’s inventory level really is a catastrophe because, given current trends, it appears as if there is no change in site. It is not as if inventory levels will suddenly rise and cool the market. There are a couple of factors that have exacerbated the predicament. The three years prior to COVID, 2017 through 2019, there were fewer homes placed on the market compared to prior years. Building an inventory was already challenging prior to the pandemic. When the pandemic hit, fewer homeowners opted to sell. In 2020, through October, there were 2,545 missing FOR-SALE signs compared to that 3-year average, 7% less. In 2021, through October, there have been 2,245 missing signs, 6% less. That may not seem like that many for a year, but at this point every single missing FOR-SALE sign further intensifies the inventory plight.

 


Further contributing to demand, there are more potential buyers reaching the prime first-time buying age of 32 years old than ever before, millennials. It started last year, this year is even stronger, and it continues for the next several years. It is the strongest first-time home buyer demographic patch on record, and it is occurring right now. Millennials are doing what humans do. They are leaving the family home or the multiple roommate situation, getting married, and having babies. Millenials want a piece of the proverbial “American Dream” just like every generation prior. They are adding pressure to the demand side of the equation for housing.


The Bottom Line: The supply of available homes to purchase is at an all-time low. The inventory gauge is pointing to “EMPTY”, and it does not look like there will be much relief anytime soon. The Orange County housing market has only grown stronger over the past few months and has been at an insane level since August of last year. Do not expect anything less than insane for quite some time.

Active Listings: The current active inventory plunged by 19% in the past two weeks.

The active listing inventory shed 336 homes in the past couple of weeks, down 19%, and now sits at 1,457 homes, the lowest level since tracking began in 2004. It dropped below 1,800 for the first time ever two-weeks ago, and it just dropped below 1,500 homes. At this point, how far it drops from here is anyone’s guess. These are uncharted waters. Since 2015, it has dropped, on average, by 19% from the end of November to year’s end, meaning the inventory could drop to below 1,200 homes upon ringing in a New Year. A dropping inventory, typical for the Holiday Market, only further aggravates the already insane housing market.

For October, there were 441 fewer new FOR-SALE signs in Orange County compared to the 3-year average from 2017 to 2019, 15% less. Every single missing sign magnifies the inventory crisis. 

Demand: Demand dropped by 4% in the past couple of weeks.

Demand, a snapshot of the number of new escrows over the prior month, decreased from 2,322 to 2,221 in the past couple of weeks, shedding 101 pending sales, down 4%. On average, demand drops 8% to start the Holiday Market, yet heightened demand continues even though the holidays are here. Eventually, as the limited supply of available homes to purchase drops even further, the number of new escrows will drop right along with it. It will continue to plunge through the end of the year and fall to its lowest level upon celebrating the arrival of 2022. It will then do an about face and rise along with more homes coming on the market as housing progresses through January.

With an enormous drop in supply compared to the small drop in demand, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) dropped from 23 to 20 days, its lowest level since tracking began 17-years ago. At 20 days, it is an extremely insane, HotSeller’s Market (less than 60 days) where there are a ton of showings, sellers get to call the shots during the negotiating process, multiple offers are the norm, and home values are rising rapidly. The 3-year average prior to COVID was at 85 days, much slower than today, but still a Slight Seller’s Market.

 

 Luxury End: The luxury inventory continues its drop to new record lows. 

In the past two weeks the luxury inventory of homes priced above $1.5 million decreased by 67 homes, down 11%, and now sits at 536, its second largest drop of the year behind two weeks ago, and the lowest level since tracking began in 2004. Luxury demand decreased by 30 pending sales, down 7%, and now sits at 386, its lowest level since February. With a larger drop in the supply compared to demand, the overall Expected Market Time for luxury homes priced above $1.5 million dropped from 43 to 42 days, its lowest level since tracking began and an extremely Hot Seller’s Market for luxury.

For homes priced between $1.5 million and $2 million, the Expected Market decreased from 25 to 21 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 42 to 39 days. For homes priced above $4 million, the Expected Market Time increased from 94 to 103 days. At 103 days, a seller would be looking at placing their home into escrow around March 2022.

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