Luxury housing emerged from the lockdowns of COVID-19 with unbelievable strength and has reached unprecedented levels.
A Hot Luxury Market: In 2021, one in six closed sales were luxury.
In 2021, the real estate marked evolved further, from red hot to white hot. Overnight, the real estate industry had become accustomed to throngs of showings, multiple offers, and homes selling for more than their asking prices. A surprising twist was that the luxury housing market surged right along with the lower price ranges and at a record pace.
What sparked the wave of luxury sales? The run-up on Wall Street has certainly helped. After the S&P plunged 32% at the beginning of the pandemic in March 2020, it nearly doubled since, swelling by 94%. It surpassed the prior, pre-COVID, record height in August 2020. The record low interest rate environment is a key factor in luxury’s elevated demand as well. And, the inventory crisis does not only include the lower ranges, luxury buyers have been confronted with an extremely limited supply of available homes to purchase.
The luxury home market in Orange County, defined as the top 10% of all closed sales, moved from $1.25 million in 2020 to $1.5 million at the start of 2021. In September, there were 524 luxury closed sales. That would be a record level in any other year, but not this year. April through August were all higher, with a 672-peak reached in June. Last year’s record, 420 luxury sales, was achieved in September and surpassed the prior annual record set in June 2017 by 39%. Even with September’s slight seasonal dip in home sales above $1.5 million, it is still 25% higher than last September.
At the current pace, sales in 2021 are the highest since 2005, prior to the Great Recession. A deeper look reveals that the higher ranges are performing stronger than the entry level. For homes priced below $750,000, year over year there were 588 fewer closed sales, 6% less. For homes priced between $750,000 and $1.5 million, there were 4,537 additional closed sales compared to last year, 54% higher. And for the luxury range, over $1.5 million, year-over-year there were 2,348 additional closed sales, a shocking 102% more, double last year’s record pace.
There are more closed sales in the luxury range than ever before. The torrid pace does not look like it going to abate anytime soon based upon current luxury supply and demand. The supply is down by 45% year-over-year, demand is up by 8%, and the Expected Market Time is down from 101 days last year to 51 days today. Last year’s low, 95 days, was achieved in September and, at the time, was the lowest market time level ever for homes priced above $1.5 million in Orange County, extremely hot for luxury. That puts today’s 51-day level into proper perspective. The pace of luxury is mind-blowing.
A warning to luxury sellers: luxury may be hotter than ever before, but it still is not as hot as the lower price ranges. It takes a little bit longer to sell homes priced above $2 million. It is not an “instant market” like everything priced below $2 million. There are not as many multiple offer situations, there are fewer showing, and fewer homes sell above their asking prices.
Active Listings: The current active inventory plunged by 6% in the past two weeks.
The active listing inventory shed 137 homes in the past couple of weeks, down 6%, and now sits at 2,042 homes, the lowest level since tracking began in 2004 and poised to drop below 2,000 homes in the coming weeks. There are fewer homes right now than there were at the start of this year, one of the craziest years for Orange County real estate on record. The supply crisis will only become more acute and intensify as the year rolls to an end. November and December are cyclically the lowest months of the year for the average number of homes placed on the market, and this year will not be an exception. Plus, many unsuccessful sellers will throw in the towel and choose to enjoy the holidays. How many unsuccessful sellers are there in today’s insanely Hot Seller’s Market? Surprisingly, 852 sellers, 42% of the active inventory, have been on the market for over a month. They are prime candidates to throw in the proverbial towel.
For September, there were 314 fewer new FOR-SALE signs in Orange County compared to the 3-year average from 2017 to 2019, 10% less. Every single missing sign just adds to the inventory crisis.
Demand: Demand was nearly unchanged in the past couple of weeks.
Demand, a snapshot of the number of new pending sales over the prior month, decreased from 2,521 to 2,515 in the past couple of weeks, shedding 6 pending sales, nearly unchanged. Demand typically drops about 2% during this time of the year. Today’s strong demand reflects the low mortgage rate environment. According to Freddie Mac’s Primary Mortgage Market Survey®, mortgage rates have been hovering around 3% for a few weeks now. Low rates continue to juice the market. Despite demand remaining elevated, as fewer homes enter the fray, expect demand to drop with fewer opportunities to purchase. It will slowly drop from now through mid-November, prior to Thanksgiving, and then it will plunge during the Holiday Market and reach its lowest level of the year upon ringing in the New Year.
Last year, demand was at 3,153, 25% more than today due to a delay in the Spring Market because of COVID.
Luxury End: The luxury market slowed slightly with a drop in demand in the past couple of weeks.
Expect the luxury market to slightly cool as housing transitions further into the Autumn Market.
For homes priced between $1.5 million and $2 million, the Expected Market remained unchanged at 29 days. For homes priced between $2 million and $4 million, the Expected Market Time increased from 41 to 49 days. For homes priced above $4 million, the Expected Market Time decreased from 135 to 129 days. At 129 days, a seller would be looking at placing their home into escrow around February 2022.