When a home hits the market, it is greeted with throngs of buyers and so many offers to purchase that a bidding war.
It is not uncommon for homes marketed FOR-SALE to procure 5, 10, 15, or even more offers to purchase within a few days of coming on the market.
There are a lot of reasons the market is exceptionally hot today. The leading factor is record low mortgage rates. The monthly and annual payment savings are jaw dropping and has been the catalyst to a tsunami of buyer interest. Another factor is the lack of available homes to purchase. There are fewer homes coming on the market right now because it is still the Winter Market. The vast majority of homeowners opt to “wait until the spring” to market their homes. Spring does not begin until Saturday, March 20th. Until then, there should not be the expectation of a bunch of new homes hitting the market. With demand so hot, many homes are not available to purchase because they are in escrow. With more escrow activity, the supply diminishes. Also, fewer homes came on the market in January compared to the 5-year average, 9% less, or 266 missing FOR-SALE signs. That may not be a ton of missing signs, but it is adding to the problem.
In breaking down the inventory by price range, the lack of available homes to purchase is fairly uniform across the board. There are 1,512 fewer homes on the market compared to last year. In fact, the current inventory is at 2,493 homes, the lowest level since tracking began in 2004. There were 4,005 homes last year. In 2013, the hottest market prior to this year, there were 3,249 homes on the market, 783 more than today. To say that there are not enough available homes to satisfy current demand is an understatement. It is unprecedented.
In looking at demand levels by price range in Orange County, there is not much of a change below $750,000. Yet, it is important to note that despite demand being nearly the same in the lower ranges, it is matched up against far fewer available homes. Demand above $750,000 is considerably higher. For example, between $750,000 and $1 million, there are 28% more escrows compared to last year, an extra 146 pending sales. Match that up with 261 fewer available homes to purchase and the range is nuclear hot.
Luxury homes continue to be extraordinarily hot as well. Luxury demand is up 63% compared to last year, an extra 148 pending sales. With the inventory for homes above $1.5 million down by 26%, 324 fewer homes, and heightened demand, luxury is off to an incredible start this year.
A Tip to Sellers: The best strategy to obtain the top dollar for a home is to carefully price a home according to its Fair Market Value. This current market may be incredibly hot, especially below $1.25 million, that stretching the asking price and even overpricing a home may still result in eventually achieving the ultimate goal in selling; HOWEVER, it will be at the expense of leaving money on the table. Stretching the asking price and overpricing results in fewer offers to purchase and not being able to properly tap into the auction-like atmosphere in selling a home today. When a home is properly priced according to the most recent comparable and pending sales, taking into consideration the location, conditions, upgrades, and amenities, it will procure the most interest and the highest number of multiple offers possible. Pitting all of these offers against each other will instigate a bidding war where one buyer outbids the rest, often for higher than the asking price, and, in some cases, much higher.
The current active inventory plunged another 5% in the past couple of weeks.
The active listing inventory shed 134 homes in the past two-weeks, down 5%, and now sits at 2,493, the lowest inventory level since tracking began in 2004. Unfortunately, this housing scene is not going to change much anytime soon. The market may feel as hot as spring, but it is currently the Winter Market. That is when demand swiftly rises, but the active inventory typically only rises slowly. Homeowners are eyeballing coming on during the spring, not the winter. More homes will come on the market during March. Even more will enter the fray in April. May is the peak month for homeowners coming on the market and it will remain elevated through the end of August, the beginning of the Autumn Market.
There are fewer homeowners coming on the market compared to the 5-year average. During the month of January, there were 266 fewer new FOR-SALE signs in Orange County, 9% less. This new trend is the same across Southern California. It does not appear to be due to COVID-19 suppressing homeowners from selling their homes as there were actually 449 more homes that came on the market compared to the 5-year average in December, an extra 29%. That occurred while COVID-19 cases were spiking during the holiday season. In January, the number of new cases dropped substantially. The phenomenon of fewer homeowners entering the fray may be due to the fact that there are fewer replacement homes to purchase. Many are pointing to the fact that if they sell, there will be “nothing to buy,” limiting the number of homeowners willing to participate in a market with such an anemic level of available homes to purchase. A great strategy to counter this argument is for sellers to agree to an offer to purchase contingent on finding a replacement property within a specified period of time.
Demand soared by 26% in the past couple of weeks.
Demand, a snapshot of the number of new pending sales over the prior month, climbed from 2,055 to 2,590 in the past couple of weeks, adding 535 pending sales, up 26%. This is the strongest demand reading since 2013 when it reached 2,596, virtually identical to today. Yet in 2013 there were more homes available to purchase and more homes that came on the market during the month of January. Today’s incredible demand level is due to a record low mortgage rate environment and will continue to remain elevated as rates remain low. Demand readings will remain limited until more homes are placed on the market. Expect demand to continue to swiftly rise over the coming weeks. It will then slowly and methodically increase until peaking sometime in May.
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 38 to 29 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 55 days, much slower than today.
The Expected Market Time for luxury dropped to its lowest level since tracking began in 2004.
In the past two weeks luxury demand for homes priced above $1.5 million surged, adding 69 pending sales, up 22%, and now sits at 383, its strongest level since September 2020. At the same time, the luxury inventory dropped by 7 homes in the past two weeks, or down 1%, and now sits at 941. With demand surging, the overall Expected Market Time for luxury homes priced above $1.5 million decreased from 91 to 74 days in the past couple of weeks, its hottest level since tracking began in 2004. Luxury is firing on all cylinders and setting the stage for an unbelievable 2021.
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 56 to 48 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 83 to 66 days. For homes priced above $4 million, the Expected Market Time decreased from 220 to 166 days. At 166 days, a seller would be looking at placing their home into escrow around July 2021.