Orange County Housing Report | September 24, 2017

Orange County Housing Report:

My Home’s Not Selling!!!

September 24, 2017 Good Afternoon!

Even though the housing market is hot, there are plenty of homes that are sitting with no success.

Sitting on the Market: 43% of the active listing inventory has been on the market for over two months.

The excitement is in the air. A homeowner sits across from a REALTORÂŽ and signs all of the contracts. Their home is officially on the market. With eager anticipation, they clean their home from top to bottom and turn on all of the lights; the first potential buyer is coming to look. After the buyer tours the home, the sellers return and wonder whether the buyers liked it enough to bring an offer. After all, the market is incredibly hot, right? Yet, there is no offer. Showing after showing, day after day, week after week, there are no offers. Moreover, the number of showings has trickled down to only a couple per week after three months of market exposure. What is going on?

Everybody has been talking about how Orange County housing has been red-hot; however, many sellers are not finding success. An incredible 43% of all homes that are on the active listing inventory have been exposed to the market for more than two months. Of course, this is standard for luxury real estate, but there are plenty of homes in the lower ranges having trouble as well. Nearly a third of all homes priced below $750,000 have been FOR SALE for more than two months and are still waiting for the right buyer to bring a mutually acceptable offer to purchase. For homes priced between $750,000 and $1 million, it grows to 36%; the higher the price, the harder it is to sell.

What gives? If housing is so unbelievably hot, why are many sellers struggling to hit pay dirt? Of course, most everybody immediately thinks it is the price. In most cases, that is only part of the issue.

Buyers are human. They like to purchase new. They prefer a home that is truly “turnkey” where all they have to do is move in. The reality is there is not enough brand new product in Orange County. Yet, even brand new is not turnkey. They have to decide on upgrades through the builder, and, after the closing, they have to purchase and install window coverings and design and complete all of the landscaping. There is a lot of effort that goes into a new home purchase.

All of the HGTV programs, from Flip or Flop to Property Brothers, have helped create an expectation and desire for buyers to purchase homes that look like a model. As long as the price is right, the closer a home looks to model perfect with all of the bells and whistles, the faster the home will fly off the market. Unfortunately, not every home shows like a model.

Many homes are dated. If a home has a kitchen that is more than 10 years old, it is starting to look worn and dated. If the grass has brown patches and the planters are sprouting weeds, the yard is looking worn and dated. Vinyl flooring, popcorn ceilings, stained carpet, single paned windows, scuffed walls, aluminum blinds, ceramic tile in the kitchen, original bathroom hardware, water stained cabinets, etcetera, all contribute to a home feeling used and worn. Throw in a pet with all of the odors, hair, and damage, and it is no wonder that sellers are having a hard time selling.

Many investors have flipped homes for a profit. How do they do this? They do this by purchasing a home for a low price that needs quite a bit of work, and then fixing it up and selling it for much more, making a handsome profit. They install new granite counters, flooring, paint, light fixtures, cabinets, scrape popcorn ceilings, and install new sod, plants, flowers, and mulch. Basically, they make a residential resale look and feel like a model. A little professional staging and the investor is able to make a healthy profit.

In order to compete and fetch top dollar, a good ol’ fashioned homeowner who has lived in their home for years must invest in their home by approaching selling like a flipper. They too can make their home look like a model. Taking care of deferred maintenance will afford buyers the ability to visualize moving in right away. They will not have to address cosmetic issues after closing. Buyers are willing to pay a premium for homes that are turnkey and look like a model. The sellers will net more money by addressing the deferred maintenance and their home will fly off the market.

If a seller does not address the deferred maintenance, then the price must be adjusted accordingly. Buyers subtract a lot more than it costs to take care of any deferred maintenance, which ultimately nets the seller less money in the sale of their home.

WARNING TO SELLERS: price is the most important factor in successfully selling. Overprice in a hot seller’s market, and you still won’t sell. Instead, you will waste valuable market time. Success takes into consideration price, condition, and location. Sellers are able to control both the price and condition in order to achieve their goal in selling.

Active Inventory: The active inventory dropped by 3% over the past couple of weeks.

The active listing inventory shed 146 homes in the past two weeks and now sits at 5,493. The inventory has not been this low since the start of May; and, for this time of the year, the start of autumn, it has not been this low since 2012. The active inventory will continue to trend down through the remainder of the year, picking up steam after Thanksgiving, the start of the Holiday/Winter Market.

Last year at this time, there were 6,786 homes on the market, 1,293 additional homes or 24% more than today.

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

Demand, the number of homes placed into escrow within the prior month, decreased by 104 pending sales, or 4%, in the past two-weeks and now totals 2,520. The Orange County housing market is experiencing a higher than normal drop for this time of the year because of a serious lack of homes coming on the market right now. Within the last month, 10% fewer homes have come on the market this year compared to 2016. Fewer available homes is cutting into the number of potential pending sales, which is affecting demand.

The expected market time, the amount of time it would take for a home that comes onto the market today to be placed into escrow, rose from 64 to 65 days, a slight seller’s market where housing still tilts in the sellers favor and appreciation slows. Last year’s expected market time was 72 days at the end of September.

Last year at this time, demand was at 2,812 pending sales, 292 more than today, or 12% higher.

Luxury End: Luxury demand tumbled by 11% in the past couple of weeks, while the inventory dropped by only 1%.

In the past two weeks, demand for homes above $1.25 million decreased from 358 to 318 pending sales, an 11% drop, representing a major shift in the luxury market. The luxury home inventory decreased from 1,979 homes to 1,959, a 1% drop. As a result, the expected market time for all homes priced above $1.25 million increased from 166 days to 185 days.

The luxury inventory and demand will continue to drop through the end of the year.

For homes priced between $1.25 million and $1.5 million, the expected market time increased from 90 to 99 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 171 to 169 days. For homes priced between $2 million and $4 million, the expected market time increased from 198 days to 264 days. In addition, for homes priced above $4 million, the expected market time decreased from 460 to 424 days. At 424 days, a seller would be looking at placing their home into escrow around Thanksgiving of next year.

Orange County Housing Market Summary: 

The active listing inventory decreased by 146 homes in the past couple of weeks, and now totals 5,493. The trend is down for the remainder of the year. Last year, there were 6,786 homes on the market, 1,293 more than today.

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There are 43% fewer homes on the market below $500,000 today compared to last year at this time and demand is down by 28%. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly disappearing.

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Demand, the number of pending sales over the prior month, decreased by 104 homes in the past couple of weeks, down 4%, and now totals 2,825. The average pending price is $847,650.

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The average list price for all of Orange County remained at $1.7 million. This number is high due to the mix of homes in the luxury ranges that sit on the market and do not move as quickly as the lower end.

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For homes priced below $750,000, the market is HOT with an expected market time of just 41 days. This range represents 38% of the active inventory and 62% of demand.

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For homes priced between $750,000 and $1 million, the expected market time is 57 days, a hot seller’s market (less than 60 days). This range represents 18% of the active inventory and 20% of demand.

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For homes priced between $1 million to $1.25 million, the expected market time is 97 days, a balanced market that does not favor a buyer or seller.

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For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 93 days to 99. For homes priced between $1.5 million and $2 million, the expected market time decreased from 171 to 169 days. For luxury homes priced between $2 million and $4 million, the expected market time increased from

185 days to 264 days. For luxury homes priced above $4 million, the expected market time decreased from 460 to 424 days. 

The luxury end, all homes above $1.25 million, accounts for 36% of the inventory and only 12% of demand.

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The expected market time for all homes in Orange County increased in the past couple of weeks from 64 days to 65 days, a tepid seller’s market (60 to 90 days). From here, we can expect the market time to slowly rise as housing makes its way through the Autumn Market.

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Distressed homes, both short sales and foreclosures combined, make up only 1.6% of all listings and 2.1% of demand. There are only 35 foreclosures and 53 short sales available to purchase today in all of Orange County, that’s 88 total distressed homes on the active market, increasing by 1 in the past two weeks. Last year there were 120 total distressed sales, 36% more than today.

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There were 3,116 closed sales in August, a 12% increase over July 2017 and a 1.3% increase over August 2016.

The sales to list price ratio was 98% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales and short sales accounted for 0.7%. That means that 98.5% of all sales were good ol’ fashioned equity sellers.

Have a great week.

Sincerely, Steven Thomas Quantitative Economics and Decision Sciences

Copyright 2017 - Steven Thomas, www.ReportsOnHousing.com - All Rights Reserved. This report may not be reproduced in whole or part without express written permission by author.