Orange County Housing Report: Out of Control

Posted by Hartanov Real Estate Team on Monday, March 28th, 2022 at 7:35am.

Orange County Housing Report:  Out of Control

With the number of available homes to purchase at extremely low levels, there simply are too many buyers competing against each other.

 

An Insane Market

When the Expected Market Time drops below 40-days, the Seller’s Market shifts from “hot” to “insane,” and today it is at 20 days.

A three-bedroom, two-bathroom, 1,500 square foot home on a 10,000 square foot lot, built in 1972, was placed on the market on the first Wednesday of February at $999,000. There was a line going down the street to view the home during a three-hour window on Saturday and a three-hour window on Sunday. By Sunday evening there were more than 20 offers submitted to the listing agent. The seller countered to all offers and asked them to come back with their highest and best price. The home closed on during the first week of March at $1,200,000, an astonishing 20% above its list price.

Not every home sells 20% above its list price. In Orange County, the sales to list price ratio for detached homes so far in March is 103.5%. That means that the average closed sales price was only 3.5% over the asking price. An unbelievable 73.5% of all closed detached homes sold above their list price during the first few weeks of March. The median days on market is 6 days, less than a week. It would probably be even faster, but there are just too many offers to sift through.

The housing market is out of control as home values continue to soar. At this point, it is like a runaway freight train barreling down the tracks at an unimaginable speed. There really is no end in sight due to the catastrophically low inventory. With such a scarcity of homes available, there are far too many buyers for every home that hits the market. This imbalance can be seen in the sheer number of buyers bumping into each other, eager to view the latest new listing that hits the market.

It is extremely difficult to convey just how devastatingly low the inventory is right now. Today, there are only 1,556 homes available to purchase in all of Orange County. There were 2,349 homes last year, still tragically low, but 51% more than today. The number one complaint last year was that there were not enough homes to purchase, illustrating just how dire the issue has become. The lowest level by far prior to COVID was achieved in 2013 at 3,183 homes. That was more than double the current level. The six-year average from 2014 to 2019 for this time of year was 5,432 homes, an additional 3,876, or 249% extra, more than triple. The current inventory level is severely low and the main reason home values are skyrocketing.

 

With such a limited supply of homes available to sell coupled with tremendous demand, the Expected Market Time (the time between hammering in the FOR-SALE sign and opening escrow) captures best just how insanely hot the Orange County housing market is today. Anything below 90-days is considered a Seller’s Market. There are different levels of a Seller’s Market: slight, hot, and insane. A Slight Seller’s Market is between 60 and 90 days. Sellers get to call most of the shots, home values are slowly rising, and homes generate between one to two offers. An Expected Market Time between 40 and 60 days is considered a Hot Seller’s Market, where sellers get to call most of the shots, home values are rising, and there are a lot more multiple offer situations, especially in the lower price ranges. Anything below 40-days is an Insane Seller’s Market, and the lower the Expected Market Time, the more housing is out of control and unprecedented. This is when sellers get to call all of the shots, home values are surging, multiple offers are the norm, sales prices typically exceed their asking prices, and homes last only days on the market. At 20 days, the housing market is out of control at every price point.

Last year’s 23 day Expected Market Time was very similar to today’s ridiculous 20-day mark. In 2013, the Expected Market Time was at 33 days, the only year prior to COVID that reached the white-hot level for housing. The six-year average from 2014 to 2019 for this time of year was 69 days, much different than the current insane pace. With patience, buyers were able to isolate a home within a reasonable amount of time and were not competing against so many buyers writing offers on the same home.

 

 A simple economic principle of supply and demand does not adequately capture today’s dilemma. There just is nothing available for buyers to purchase right now. Anything that does hit the market is greeted with a deluge of showings and plenty of offers. There really is nothing spectacular about the number of buyers looking to purchase today. That is not the issue. The issue is that there are only 1,556 homes available today in the middle of March, when there are typically around 5,400 (the six-year average between 2014 to 2019). Even with a similar number of buyers searching for a home today compared to past years, there are far fewer choices. This lack of FOR-SALE signs is precisely why the housing market is out of control.

As long as the inventory remains at catastrophically low levels, expect more of the same. 

Active Listings

The current active inventory grew by 11% in the past two weeks 

The active listing inventory increased by 150 homes in the past couple of weeks, up 11%, and now sits at 1,556 homes, its second largest gain of the year, but still the lowest level by far for this time of year since tracking began 19 years ago. Spring has officially arrived. More homes come on the market during spring than any other time of year. These homes will be a welcome relief to buyers sitting on the sidelines eagerly waiting for additional inventory. With mortgage rates remaining at elevated levels with duration, fewer buyers will be willing to stretch as the year progresses, allowing the active inventory to finally climb on the backs of overpriced listings that will accumulate over time. For this to occur, mortgage rates must remain high for months.

Last year, the inventory was at 2,349, 51% more, or an additional 793 homes. The biggest complaint last year was that there were not enough homes on the market, yet there were more homes available compared to today. The 3-year average prior to COVID (2017 through 2019) is 5,286 , an extra 3,730 homes, or 240% more, nearly three-an-a-half times more than today. There were a lot more choices back then. 

For February, there were 2,716 new FOR-SALE signs in Orange County, 416 fewer than the 3-year average from 2017 to 2019, 13% less. Every single missing sign magnifies the inventory crisis.

 

Demand

Demand continued its upward trajectory, up 4% in the past couple of weeks. 

Demand, a snapshot of the number of new escrows over the prior month, increased from 2,195 to 2,284 in the past couple of weeks, adding 89 pending sales, up 4%. The current demand level is still the lowest reading for this time of the year since 2008. It is simply a lack of available homes to purchase and a lack of homes coming on the market. Today’s higher interest rates will start to make an impact on the housing market if they persist for several months. According to Mortgage News Daily, mortgage rates hit 4.55% as of today, March 21st, its highest reading since March 4, 2019. If rates remain elevated, buyers will not be as willing to stretch. Overpriced homes will ultimately sit until they recalibrate their expectations and lower the asking price. This change takes time and will not be noticeable in the data for another couple of months. Expect demand to peak between April and May and then slowly fall for the remaining of the year.


Last year, demand was at 3,110, 36% more than today, or an extra 826. The 3-year average prior to COVID (2017 to 2019) was at 2,517pending sales, 10% more than today. In Orange County, current demand readings have obviously been muted by a lack of available homes and not enough coming on the market. 

With the inventory rising faster than demand, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) increased from 19 to 20 days. At 20 days, it is an 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. Last year the Expected Market Time was at 23 days, similar to today. The 3-year average prior to COVID was at 63 days, substantially slower than today and a Slight Seller’s Market (between 60 and 90 days).

 





Luxury End

Luxury slowed slightly in the past couple of weeks. 


Despite the volatility on Wall Street and the increased geopolitical turmoil, the luxury market remains white hot. In the past couple of weeks, the luxury inventory of homes priced above $2 million increased from 393 to 420 homes, up 7%, or an additional 27 homes. Luxury demand increased by 6 pending sales, up 2%, and now sits at 258. With supply increasing faster than demand, the overall Expected Market Time for luxury homes priced above $2 million increased from 47 to 49 days, still an extremely hot market for luxury.

Year over year, luxury demand is down by 32 pending sales or 11%, and the active luxury listing inventory is down by 285 homes or 40%. Today’s lack of luxury homes available is no different than the lower end. There simply are not enough homes available to match current demand. The Expected Market Time last year was at 73 days, exceptionally hot for luxury, but slower than today, indicating just how unbelievably hot the luxury market is right now.

For homes priced between $2 million and $4 million, the Expected Market in the past two weeks decreased from 35 to 33 days. For homes priced between $4 million and $8 million, the Expected Market Time increased from 48 to 75 days. For homes priced above $8 million, the Expected Market Time increased from 166 to 195 days. At 195 days, a seller would be looking at placing their home into escrow around October 2022.

 








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