Many out in the real estate field will think I have lost my marbles, moving sellers from the “Naughty List” to the “Nice List.” For the first 7. months, as a group, they were very naughty; but, for the past three months, they are really showing much improvement and are beginning to behave. Santa is a pretty forgiving man with a very big heart, so there is hope for 2015.
Orange County started the year with 4,733 homes on the active listing inventory. They ignored their REALTORS® and arbitrarily overpriced their homes. One home after another was coming on the market way over the most recent comparable sale. Buyers didn’t even blink, wanting to only pay as close to the Fair Market Value for a home as possible. They ignored these overpriced homes, which languished on the market. The active inventory grew without pause from the beginning of 2014 through mid-August, and it inflated by 71% to 8,084 homes. Economists were forecasting an inventory at anemic levels, but so many homeowners were encouraged and thrilled with the amount of appreciation in just two short years that a flood of new overpriced, overzealous sellers entered the fray. They too wanted to take advantage of much higher values after watching their equity evaporate just a few years ago.
These sellers were very naughty. They were unsuccessful in achieving their goal in selling. Even with price reductions, most values were still too high to attract a willing and able buyer. They heard stories over the past two years where sellers were attracting multiple offers and were able to achieve selling prices way above their asking prices. That came to an abrupt end by July of 2013. In 2013
the active inventory grew through mid-October, two months after the cyclical peak. The inventory should peak and begin to drop at the end of August as the housing market decelerates with kids going back to school. At that point, the Spring and Summer Markets are in the rearview mirror. Sellers typically do not come on the market at the pace that they did during the summer, but that is exactly what happened last year. The inventory ballooned and, as a group, they collectively received coal in their stockings.
This year, sellers thought they knew it all and arbitrarily priced their homes, a recipe for disaster in 2014, ignoring the facts. As a result, 10% of the active listing inventory reduced their asking price each week throughout the year. Appreciation slowed from double digits to about 5% year over year in September. That means that it took an entire year for values to increase by 5%. Many sellers priced their homes 5 or more percent above the last comparable sale. What took a year, sellers were foolishly trying to achieve in just a few short weeks.
But, hope began to blossom after the market peaked mid-August. Finally sellers were coming to the harsh reality that the best of the 2014 market was in the past. They came to a crossroads, reduce their asking prices closer to the Fair Market Value or pull their homes off the market and wait for another day. The inventory dropped from 8,084 homes to 6,010 homes today, on the verge of dropping to below 6,000 home for the first time since March. 37% more homes were pulled off the market this year compared to last year. That’s a definite step in the right direction. These facts got Santa’s initial attention.
The year over year difference in the active inventory peaked in April when there were 82% more homes on the market compared to 2013. That has improved in dramatic fashion and is currently only 8% more than just one year ago, the lowest disparity so far this year. Because homeowners are starting to get it, the expected market time has remained at about 3 months since July. The market appeared to be heading towards a buyer’s market, an expected market time above 4 months, but that just did not materialize. The expected market time takes into consideration supply and demand. Demand may have dropped since the Summer Market, but so has the supply of homes. Santa was very pleased and placed sellers on the “Nice List.”
It is important to note, that at 3 months, the housing market does not favor sellers or buyers, but is balanced. Below 3 months it becomes a seller’s market, the shorter the market time, the hotter the market. It appears as if the inventory is going to continue to drop through the New Year, where it will start 2015 at its lowest point, about 5,200 homes. That will be higher than the start to this year, which could lead to an inventory with a height that exceeds this year’s nearly 8,100 home mark. This will occur if sellers overzealously approach the Spring and Summer Markets. That is a very likely scenario and sellers will again be placed on Santa’s “Naughty List.”
