In a couple of weeks spring will arrive and that is when more homeowners place their homes on the market than any other time of the year.
New FOR-SALE Signs
Nearly a third of all homes that enter the fray during the year come on the market over the course of the next three months.
Spring is not only a season of flower blossoms, butterflies, and new life, it is a time when more real estate activity occurs than any other time of the year. It is when the inventory rises and demand surges and peaks. Many mistaken the summer as the best time of the year for real estate, but it is second to spring. During the spring, more homes are listed, there are more new escrows, and there are more closed sales than any other season.
The spring of 2021 will be no different. The issue right now is that there are simply not enough homes available to satisfy today’s insatiable buyer’s demand. With only 2,366 homes on the market, the lowest level since tracking began in 2004, it is as if the family car’s low fuel light is “on” and everyone crosses their fingers and toes that there are enough fumes in the gas tank to safely arrive at the closest gas station. There are 43% fewer homes available to purchase compared to last year’s 4,161 homes to start March. That is 1,795 fewer FOR-SALE signs. Making matters worse, there were 447 fewer homes placed on the market in January and February compared to the prior 5-year average, 7% fewer. While that may not seem like a lot, ask any buyer if they want to see more homes placed on the market. At this point, every additional home is a welcome relief.
The big question right now is “when are there going to be more homes coming on the market, and how many?” In analyzing the data, it starts in March, the beginning of spring. An elevated number of homes hit the market from March through July, peaking in May. According to the 5-year average, the difference between March and May is only 216 homes, 5%, while the difference between February and March is 744 homes. On average, there are 23% more homes in March compared to February. Everyone can be rest assured that the welcome sight of more homes entering the fray has finally arrived and will remain at nearly the same elevated level through July.
Today’s ultra-low active listing inventory is due to surging demand that started last year as mortgage rates continued to descend to uncharted levels. From the start of the pandemic to the first week of January rates reached 17 record lows. Soaring demand is the largest contributing factor to today’s anemic supply of available homes. Further exasperating the situation is that the fewest number of homes to come on the market from October through January. Buyers who were swarming listed homes at the end of 2020 were not getting much help from homeowners. More homeowners skip the months of November and December, the Holiday Market, than any other time of the year. For perspective, there are 63% fewer new FOR-SALE signs in December compared to May. The Bottom Line: Finally, more homes will come on the market starting this month, and the spigot will remain fully opened through July.
The current active inventory dropped another 3% in the past couple of weeks.
There are fewer homeowners coming on the market compared to the 5-year average. During February, there were 319 fewer new FOR-SALE signs in Orange County, 10% less. This trend continued from January when there were 128 fewer homes, or 4% less. Many think this trend is due to the persistence of COVID-19 and the enormous surge in new cases during the second wave of the pandemic. Yet, in December, there were 30% more homes placed on the market, an extra 464 homes. Ultimately, it is the lack of available replacement homes that have many spooked about selling. Homeowners are fearful that there will be “nothing to buy,” limiting the number willing to participate in a market with such an anemic level of available homes to purchase. There are great strategies to counter this argument. Enlisting the help of a professional REALTOR® is the best bet in navigating today’s crazy market.
Demand increased by 3% in the past couple of weeks.
Demand, a snapshot of the number of new pending sales over the prior month, climbed from 2,863 to 2,958 in the past couple of weeks, adding 95 pending sales, up 3%. This is the strongest start to March since 2012. According to Freddie Mac’s Primary Mortgage Market Survey®, rates have been climbing since the first week of January, increasing from 2.65%, a record low, to 3.02% as of last week. Rising mortgage rates will eventually slow demand a bit, but it has a lot more climbing to due before it starts to noticeably divert demand. The last time rising rates slowed demand was at the end of 2018 when they rose from 4.5% in September to 5% in November. Today’s 3% rate is nowhere close to those levels. Mortgage rates are anticipated to rise to between 3.5% and 3.75% by year’s end. That will slow the market a bit, but it will still be a Hot Seller’s Market. It would be like decelerating on the freeway from 130 miles per hour to 80 miles per hour. While it may be slower, it is still speeding.
In the past two-weeks the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) dropped from 26 to 24 days, its lowest level since tracking began in 2004, and is a very 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 fast. Last year the Expected Market Time was at 48 days, slower than today.
The luxury market continues to get hotter.
In the past two weeks the luxury inventory of homes priced above $1.5 million shed 43 homes, down 5%, and now sits at 880. At the same time, luxury demand continued to surge, adding 54 pending sales, up 13%, and now sits at 480, its strongest level since tracking began in 2004. With the inventory dropping and demand rising, the overall Expected Market Time for luxury homes priced above $1.5 million decreased from 65 to 55 days in the past couple of weeks, its hottest level since tracking began in 2004. Luxury is hot and it will continue to remain hot through the Spring and Summer Markets.
Expect the luxury market to continue to improve over the next couple of months, peaking from mid-April to mid-May during the Spring Market.
For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 39 to 31 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 60 to 55 days. For homes priced above $4 million, the Expected Market Time decreased from 147 to 117 days. At 117 days, a seller would be looking at placing their home into escrow around July 2021.