While the active inventory did drop over the past month, the rate is still much lower than the annual average for this time of year.
Pricing is Everything: Many sellers are seeing their home sit on the market longer because they want to hold out for a higher price.
Despite ferocious demand, the active listing inventory has nearly doubled since mid-March. Values had increased to the point where buyers were unwilling to pay an excessive amount more than the most recent sale in an area. So, the inventory continuously rose for seven straight months, until now. The active listing inventory dropped by 17 homes in the past two weeks; but, that is still not enough.
In the past nine years, the inventory has dropped an average of 2.3% over this past two-week period. Today, that would represent a drop of 146 homes, not 17. Typically, the active inventory reaches a high point at the end of August or the beginning of September. The average drop over the past nine years from the end of August to the end of October is 6.7%. If that had occurred this year, it would have represented a drop of 424 homes; instead, it increased by 6.2%, or 368 homes.
What’s going on with sellers? Many more homeowners have been coming onto the market after reading or hearing about how much the median has increased year over year. Those statistics describe what has taken place over the course of a year; they do not illustrate what is going on in the trenches of the housing market today where appreciation has come to a grinding halt and the number of pending sales has dropped significantly. It is still a slight seller’s market, but buyers are no longer willing to pay much more than the most recent sale.
It is time for sellers to take a long look in the mirror. Do they really want to sell? If so, they must drop the price to fair market value and wait for a willing and ready buyer to come along. Also, homes are no longer flying off the market like they were last Spring; instead, the expected market time for all of Orange County is 2.74 months. That translates to 82 days, not a week. We are hearing from many sellers that are disconcerted when they don’t receive an offer after being exposed to the market for seven days. Given the current market time, that expectation is irrational.
If sellers are not willing to bring their home in line with the fair market value, then it is time to pull their homes off of the market. Waiting until the Spring Market is not the answer either. That is when everybody waits to place their home on the market. There may be more activity, but there are more sellers competing, so it is essentially a wash. Based on current appreciation, it is not looking like there will be a lot of positive pressure on pricing come this Spring.
Buyers, on the other hand, have been slow to pull the trigger and many have cancelled contracts because of cold feet. Others have been unsuccessful in obtaining an accepted offer to purchase, so have opted to wait until “sellers are a bit more realistic.” Unfortunately, those are not winning strategies either. First and foremost, it is best to pack your patience and wait for the right property. Also, if at first you don’t succeed, try and try again. Buyers that are persistent are finally winning. This is no longer the spring where many buyers never had the winning bid. That market may have been frustrating, but it is in the rearview mirror.
It is also imperative that buyers know that these low, historically low interest rates are going to come to an end soon. Even if values remain the same, as interest rates float upward, affordability drops, and so will a buyer’s purchasing power. For the median priced detached home, $612,000, and 20% down, a 1% increase in interest rates equates to an extra $295 per month. That totals $3,540 in one year and $17,700 in five years. Sometimes it does not pay to wait. Forecasts are calling for a minimum of a 1% increase as the Federal Reserve ends their involvement in the secondary market, known as “tapering” in the mainstream media. Rumors now are that the tapering will now occur during the Spring Market.
For buyers it is wise to pull the trigger sooner rather than later. For sellers it is time to price according to the fair market value or throw in the towel.
Active Inventory: The inventory dropped for the first time in seven months.
In the past two weeks, the active listing inventory dropped by 17 homes and now totals 6,333. It’s only three-tenths of 1%, but a milestone nonetheless, the first drop since mid-March. The drop in inventory is a bit delayed and should have started a couple of months ago. Instead, overly optimistic sellers have flooded the market. Hopefully more and more sellers will come to the realization that they need to be priced at the fair market value or throw in the towel, pulling their homes off the market. This is a cyclical phenomenon for this time of the year. As we roll towards the holidays, sellers will finally figure out that it is going to take a more realistic approach to be successful.
Last year at this time there were 4,043 homes on the market, 2,290 fewer than today.
Demand: Demand dropped 2% in the past two week.
Demand, the number of new pending sales over the past month, dropped by 41 and now totals 2,310. Over the past nine years the average drop has been 1%. Through Thanksgiving, we will continue to see small changes in demand. From Thanksgiving week through the first couple of weeks of the New Year, the Holiday Market, demand will slow to its lowest point of the year.
Last year demand was at 3,145 pending sales, 835 more than today. But, those numbers are a bit inflated as there were 790 additional pending short sales and only about half of short sales ever close. In the end, the discrepancy is large enough that it will equate to fewer closed sales in the coming months in comparing year over year statistics.
Distressed Breakdown: The distressed inventory decreased by 3% in the past two weeks.
The distressed inventory, foreclosures and short sales combined, decreased by 3%, or 8 homes, and now totals 276. Only 4.4% of the active listing inventory and 12% of demand is distressed. Compare that to last year when it represented 13% of the inventory and 35% of demand. Distressed properties today play only a small role in a housing market dominated by sellers with equity.
In the past two weeks, the foreclosure inventory decreased by 2 homes and now totals 57. Only 1% of the inventory is a foreclosure. The expected market time for foreclosures is 34 days. The short sale inventory decreased by 6 homes in the past two weeks and now totals 219. Short sales remain the hottest segment of the Orange County housing market with an expected market time of 29 days. Short sales represent just 3.5% of the total active inventory.
