ORANGE COUNTY housing report | January 2018

HAPPY NEW YEAR | 2017 – 2018

Below is the latest from The Orange County Housing Report. For the most up-to-date market data, please Sign Up Now to receive real-time housing reports. We deliver the full/downloadable market reports and charts to your inbox every month.

As always, if you or any of your friends or family have real estate goals for 2018, please don’t hesitate to Contact Us. We are only a call, text or email away!

ORANGE COUNTY Housing Report | January 2018 – Part 2

That was a close one – We are not in 2013 anymore! 2018 is shaping up to be completely different from 2013. After starting the year with nearly nothing on the market, the active inventory is on the rise. The housing market has been on the rise for six years now and is showing no signs of diminishing anytime soon – hot demand combined with a chronic lack of homes on the market.

Demand has been fueled by historically low interest rates for this six-year run. Despite forecasts from the experts, mortgage rates have remained steady. In fact, long-term rates never exceeded 4.5% (reached in September 2013) and today’s rates still fluctuate (close to 4%). Persistent low rates dramatically improve home affordability and fuel demand. The expectation is that rates will not rise much in 2018.

The chronic lack of homes for sale has been the weak point in this housing run. Years of high demand and low supply of homes on the market has resulted in rapid home appreciation, fewer total yearly homes for sale, and frustrated home buyers – especially entry-level and first-time buyers. The new norm for homes priced below $1 million (81% of all closed sales in 2017) has been multiple offers and sales prices at or above the list price. There is not much change on the horizon for navigating this deep seller’s market and harsh buyer’s reality.

The expected market time is 77 days, quite a bit slower than 45 days in 2013. It is not as deep of a seller’s market; homes will not appreciate as fast as they did in 2013. Keep in mind, home prices are a lot higher today than five years ago. Buyers are not willing to dramatically overpay for a home compared to the most recent closed sale. If a home is placed on the market and is not priced to Fair Market Value, it will sit on the market and will not sell.

Active inventory increased by 9% since New Year’s Day. From here, we can expect the inventory to rise continuously from now through mid-summer. It will fall short of the long-term average of 8,000 homes – which is where inventory needs to be for an extended period of time for the market to transition to a balanced market, or one that does not favor buyer or seller.

Demand decreased by 10% in the past few weeks. In the past two weeks, demand (the number of new escrows over the prior month) decreased by 158 pending sales or 10%. This is a reflection of the cyclical nature of our housing market, with the last 30 days sitting at our slowest time of the year. With so few homes still on the market, coupled with very limited choices, it is no surprise that demand has dropped to its lowest level. As more homes hit the market, expect demand to be on the rise by month-end.

If you want to receive real-time housing reports to your inbox every month – for the full/downloadable market reports and charts – Sign Up Now!

ORANGE COUNTY Housing Report | January 2018 – Part 1

First, let’s take a look back at what happened in 2017 – in terms of the inventory, demand, expected market time, luxury properties, and distressed properties.

Active Inventory: A chronic lack of inventory defined 2017 and the year finished at levels not seen since 2013.

The year started with an active inventory of 4,071 homes on the market and ended with 3,560. It was the second lowest start to a year behind 2013. Ever since the Great Recession, the trend has been fewer homeowners selling their homes. Since 2009, the number of homes placed on the market has diminished by 28% compared to the days of 2000 through 2007. In 2017, the issue was magnified with 6% fewer homes coming on the market compared to 2016.

Cutting into the inventory a bit were closed sales. In 2017, closed sales were nearly identical to 2016 despite fewer homes coming on the market.

Demand: With historically low interest rates around 4%, demand continued to thrive in Orange County.

Demand for Orange County homes (the number of pending sales over the prior month) followed a normal strong housing pattern. Interest rates remained low and have not really changed much over the past few years, even dipping below the 4% level for a period of time in 2017. Interest rates have remained at historical lows and do not appear to be changing much anytime soon. Despite higher prices in Orange County, the low interest rates environment has helped home affordability and buyers have been taking advantage of it.

Within the past two weeks, demand dropped by 259 pending sales, or 14%, and now sits at 1,605. Last year at this time, demand was at 1,697, or 6% more than today.

Expected Market Time: Based upon the low inventory and hot demand, it was a solid seller’s market the entire year.

The expected market time (the length of time it would take to place a home into escrow based upon current supply and demand) remained below the 90-day mark all year, continuously tipping in the seller’s favor. It dipped below 60 days, a hot seller’s market where homes appreciate at a faster clip, from February through May, the longest stretch since 2013. Since then, the expected market time has not risen that much. For buyers looking to purchase below $1 million, they simply have not had a break. Multiple offers have been the norm all year long.

The expected market time for all of Orange County grew to 67 days in the past two weeks, but is an excellent start to the New Year. In fact, in the past 13 years, 2018 will have the second-best start. The best start to a year occurred in 2013 with an expected market time of 47 days.

Luxury End: More homes sold in the luxury end this year than ever before.

Orange County’s luxury home market continues to pump on all cylinders. More homes have closed above $1.25 million than ever before in the county. There were 3,895 closed luxury sales compared to 3,249 last year, up 20%. The highest level prior to the recession occurred in 2005 with 2,857 closes sales. It is safe to say that the luxury housing market in Orange County is on solid footing.

Despite the record number of closed sales in the luxury range, the market still felt sluggish compared to the lower ranges. That was simply due to supply and demand.

Distressed Properties: Foreclosures and short sales are nothing more than an asterisk to the 2017 market.

In Orange County, homes have appreciated substantially since the beginning of 2012. With a six-year run in housing, the number of underwater homes has declined to 1.2% of all homes with a mortgage. During the Great Recession, the number climbed to as high as 25%. In 2017, distressed sales were nothing more than an asterisk to an overall healthy, nearly recovered housing market, almost not worth mentioning in reviewing 2017.

The distressed active listing inventory started the year at 112 total foreclosures and short sales, and ended the year at 61, a 44% drop.

Now, let's take a look at what is expected in 2018.

The 2018 Forecast: More of the same.

There have not been many changes to the U.S. economy. That all changed with the new tax bill that was signed into law on December 22. The mortgage interest deduction was lowered from $1 million to $750,000. Equity lines of credit are no longer deductible. State and local property taxes deductions are capped at $10,000. The cards seem to be stacked against Californians and, more specifically, Orange County residents. Yet, with a chronically anemic inventory and demand juiced by historically low interest rates, the tax bill will not have a major impact on the local housing market like so many fear.

The bottom line, 2018 will feel a whole lot like 2017 with not enough homes on the market and buyers tripping over each other to purchase. Multiple offers will be the norm for homes priced below $1 million. Once again, the market will heavily favor sellers and buyers will have to pack their patience in order to isolate their piece of the American Dream.

If you want the full/downloadable 2018 forecast, Sign Up Now!

If you need help preparing to buy or sell in 2018, Contact Us!

If you want to receive real-time housing reports to your inbox every month – for the full/downloadable market reports and charts – Sign Up Now!

The Swan Team | OC Real Estate

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