Orange County Market Report | August 2018
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How do you get started? You need to know your market! And, we know the Orange County real estate market. Whether you are an Orange County home buyer or seller, start here. Check back with us every month for your Orange County Market Report. We promise to deliver the stats and facts you need to know your market.
A Balanced Market
The Orange County Market Report is moving from a Seller’s Market to a Balanced Market. The housing market has favored sellers for years with very few homes on the market and tremendous demand. Yet, with more homes coming on the market and gradually falling demand, a hot seller's market is tipping towards a a Balanced Market - a market that does not favor sellers or buyers.
Supply and Demand
Many people have been talking about the fact there are not enough homes on the market, dating back to 2012. That lack of supply has fueled the frenzied real estate market; that is, until 2018. The supply problem has evolved into a demand problem. While the supply of homes has increased quite a bit this year, it still remains below the long term average of 8,000 homes.
The real issue is not that there are way too many homes on the market, as in prior slowdowns. Instead, it is the fact that housing demand has dropped precipitously. Demand, a snapshot of the last month of pending sales, has been off all year, especially from mid-April through today. Surprisingly, that is the majority of the housing market, the Spring and Summer Markets.
In taking a closer look at demand at the end of July, the numbers are staggering. Demand was 18% higher last year. The last time demand was this low dates all the way back to 2007 when the housing market completely fell apart. And, it is interesting to take a look at the differences in context to the mortgage interest rate at the time. Today’s national average interest rate is 4.6%, the highest rate since 2011.
Balancing the Market
As home values have appreciated unabated, the June median sales price reached yet another record level at $739,000. Combining record high values with interest rates that have climbed to heights not seen since 2011, prior to the 6-year housing run, it is no wonder that buyers are not jumping as quickly to purchase. None of this means that the current market favors buyers. It is still an extremely slight Seller’s Market.
The current Expected Market Time (the amount of time it would take to place a home onto the market today and enter escrow down the road) is at 85-days, knocking on the door of a Balanced Market. A Seller’s Market is hot when it is below 60-days. It is a slight Seller’s Market from 60 to 90 days. It is a Balanced Market from 90 to 120 days. Above 120-days is a Buyer’s Market.
Why the change? Let’s take a look at the biggest indicators for this shift in the Orange County Market.
Many mistakenly think that it is either a Seller’s Market or Buyer’s Market. That it has to be one or the other. That is not true. A Balanced Market is one that does not favor a buyer or seller. It is like that metal balance scale when it is perfectly balanced. There has been more supply this year, 13% higher year-over-year, and demand is down by 16% year-over-year. More supply and less demand is balancing the scale.
A warning for buyers: buyers are NOT in the driver’s seat, not even close. It is not a Buyer’s Market. The difference is that there are more choices now. The typical home is no longer flying off the market. Only extraordinary homes that are priced right will sell quickly. Buyers no longer need to trip over themselves to purchase. They are finally able to approach the market methodically and at a much more relaxed pace.
A warning for sellers: accurate pricing is fundamental in order to find success. Ignore the recent headlines of a record median sales price. That does not mean that homes are continuing to appreciate TODAY. The June median is a reflection of homes that were placed into escrow in April and May. That was in the past when the market was much hotter than today. Right now there are a lot more homes on the market, meaning a lot more competition. Also, demand has dropped considerably, meaning fewer showings and fewer potential offers. Overpriced, overzealous list prices result in wasted market time and do not generate offers. Pricing at or close to the Fair Market Value is the wisest formula for success.
The Bottom Line
Best advice for a buyer: you are not in the driver's seat, but you have more choices. Best advice for a seller: accurate pricing is the key indicator, not median sales price. Instead, you should rely on the professional analysis and advice of a seasoned REALTOR®. Approach the market with a deliberate strategy and have a local expert on your side – that’s where we come in!
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