The first two quarters of 2014 are in the rearview mirror and this year is unquestionably different from prior years.
Mid-Year Update: This year’s market is marching to the beat of its own drum.
From 2007 through 2011, the Great Recession brought housing to its knees. The market was dictated by lenders and their new strict guidelines; plus, they controlled the market with the unbelievable numbers of foreclosures and short sales. Distressed properties were the norm. However, by mid-2011, housing began to mend. It was undetectable to anybody participating in the market, at first, but slowly but surely, the active listing inventory began to drop as fewer homes were placed on the market, including foreclosures and shorts sales.
In 2012 the green light was switched and, initially, investors flooded the market. They were quickly followed by a relentless stream of normal buyers. The inventory continued to drop as demand grew. Multiple offers were generated and cash was king. Homes flew off the market at prices that beat the socks off of the most recent comparable sales. Appreciation was rampant.
The first half of 2013 was nothing short of crazy. The inventory dropped to a ridiculous, anemic level. There were not enough homes coming on the market as most homeowners sat back and watched their homes appreciate, restoring just about all of the losses from the Great Recession. Buyers and investors wanted to take advantage of the incredible values and historically low interest rates; they were willing to pay any price for a home, even if that meant paying thousands more than the most recent closed sales. The uncontrollable appreciation slowed by the midpoint of 2013. Suddenly, homeowners no longer got away with overpricing their homes and they began to sit. By August, buyers were unwilling to pay extra for a home; instead, they wanted to pay as close to the Fair Market Value as possible. The inventory climbed from mid-March through October on the backs of overpriced sellers.
The second half of 2013 paved the way for 2014, a year that has been marked thus far with a relentless increase in the active inventory. Let’s take a closer look at the major changes in 2014 that have differentiated itself as a unique year:
Active Inventory - after starting the year at 4,733, the active listing inventory has increased by 60% and now sits at 7,550 and is still climbing. The long term average for Orange County is about 8,500 homes and within site. Even if that level is not reached this year, the added inventory has created quite a bit of breathing room for buyers. So many homes are overpriced, that buyers’ sense of urgency has just about vanished, unless a home is properly priced. The vast majority of sellers learn the hard way that overpricing is a front row ticket to sitting on the market without success.
Demand - there is demand for housing, but there just are not enough realistically priced homes on the market thus far this year. As a result, demand, the number of new pending sales over the prior month, has been noticeably lower than the past couple of years. Currently, demand is running about 15% less than last year at this time.
Expected Market Time - with an increasing inventory and less demand, the expected market time has been much higher than the last couple of years. Currently it is at 90 days. Compare that to last year’s 49 days and the overall feel in the streets is palpably different. At three months, it is still a seller’s market, but not like 2012 and 2013. Double digit year over year appreciation has been replaced with 3-5% annual appreciation, meaning that any appreciation from month to month is almost undetectable. In other words, sellers can no longer get away with arbitrarily and overzealously pricing their homes. It’s a seller’s market where they get to call all of the shots and may get a few thousand dollars more than the last comparable sale IF AND ONLY IF they price their homes realistically.
