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Getting Hotter: The Expected Market Time for sellers is dropping like a rock as demand expands.
Housing demand is surging and now the market is stronger than last year’s spring selling season.
Eagerly digging through a newly opened box of Cracker Jacks to isolate the treasured prize only to find two prizes, that is unexpected. Standing at the Starbucks cash register ready to pay for a Venti® coffee and the barista explains it has already been paid for by the prior customer, that is unexpected. Receiving a love note from a spouse, or significant other, yet it is not a birthday, anniversary, or holiday, that is unexpected.
Surging housing demand amid a pandemic where the overall economy is struggling to come back online, that is unexpected.
In mid-April, the Expected Market Time (the amount of time from hammering in the FOR-SALE sign to opening escrow) was at 121 days, a slight Buyer’s Market (between 120 and 150 days). Since then, it has dropped by 39% and now the Expected Market Time sits at 74 days, a slight Seller’s Market (between 60 and 90 days), totally unexpected. On average, in the past five years, it has increased by 8 days in the same time period.
Last year, the Expected Market Time was at 85 days, slower than today.
There are several factors that have led to the quick recovery in housing. First, housing is coming from a position of strength. Since the Great Recession, credit qualification has been extremely tight. Buyers had to go through a rigorous process of proving that they could afford the monthly payment. Homeowners are sitting on a mountain of nested equity as a result of healthy down payments and steady home value appreciation from 2012 through the start of 2020. And, homeowners did not use their homes as piggy banks like they did prior to the Great Recession when they tapped into their equity to pay for everything from lavish European vacations to erasing ballooning credit card debt from rampant, non-essential spending.
Furthermore, the low mortgage rate environment has enabled homeowners to finance and refinance monthly payments to levels that do not stretch the household budget. And, Freddie Mac just reported that the 30-year mortgage rate across the country just hit another all-time new low, 3.15%. Prior to the Great Recession, mortgage rates were at 6.35%. A $700,000 mortgage payment at 3.15% is $3,008 per month compared to $4,356 per month Prior to the Great Recession in 2007.
That is a savings of $1,348 per month, or $16,176 per year. That is an astronomical savings for a family.
It is no wonder that current demand is pumping on all cylinders and has paved the way to a “V-Shaped” recovery. Home affordability has improved dramatically due to record low rates and buyers want to take advantage of this incredible opportunity. As a result, demand (the number of new pending sales over the prior month) in Orange County has increased by 74% in the past four weeks, rising from 1,172 pending sales to 2,035. Housing has not just awakened, it is roaring back at an unprecedented level. It is as if the Spring Market is coming back online. Current demand is now equivalent to the start of February of this year, right after the Super Bowl. That is typically the best time of the year for sellers, between February and mid-May. It is hard to believe that just six weeks ago, in mid-April, demand hit levels not seen since the Great Recession, inherent, anemic demand.
The COVID-19 pandemic is losing its impact and grip on demand. It is currently off by only 23% compared to last year, 611 fewer escrows, and the difference is diminishing.
COVID-19 Update: Meanwhile, COVID-19 is also losing its grip on homeowners coming on the market.
In the past 4-weeks, 2,763 homes were placed on the market in Orange County. That is 33% less than the five-year average of 4,132.
Six weeks ago, it was a 54% difference. As a result, the active inventory has increased from 4,344 homes in mid-April to 5,044 homes today, a 16% rise. Yet, the active inventory remains at its lowest level for an end to May since 2013, the hottest year during the 8-year expansion from 2012 through the start to 2020. And, there were 33% more homes last year, an extra 2,435.
With surging demand and an anemic active inventory, the Expected Market Time dropped like a rock and the market transitioned from one that slightly favors buyers to one that slightly favors sellers. Sellers get to call more of the shots while home values are not changing much at all.
The market is still ramping up and the momentum is palpable. Housing is not only hotter than last year, it is poised to only get stronger, antagonized by record low rates. As the rise in demand continues to outpace any rise in the supply of homes, the Expected Market Time will continue to fall, and housing will line up further in favor of sellers.
A NOTE TO BUYERS: For homes that come on the market below $1 million in great condition and priced well, expect multiple offers and a lot of competition. Do not expect discounting because of COVID-19. At this point it could not be further from the reality of today’s market. Housing has proved to be the industry that is extremely resilient. The laws of supply and demand have paved the way for a rapidly improving housing market. In a multiple offer situation, the buyer who writes the best offer to purchase a home will become the winning bidder. Everybody else will have to go back to the drawing board.
A NOTE TO SELLERS: Success ultimately boils down to pricing a home according to its Fair Market Value. Even when the housing market lines up in favor of sellers, many homeowners become overly confident and price their homes out of bounds, requiring price reductions down the road. For a seller to get top dollar for their home, they have to take advantage of the initial few weeks of coming on the market, which is when a home procures the most activity and exposure. This can only be accomplished through accurate pricing.
Active Inventory: The current active inventory increased by 4% in the past two-weeks.
The active listing inventory INCREASED by 177 homes in the past two-weeks, up 4%, and now sits at 5,044. COVID-19 is suppressing the number of homeowners coming on the market. In the past 4-weeks, there were 33% FEWER new For Sale signs compared to the prior 5-year average, that is 1,369 FEWER homes. Four weeks ago, it was a 54% difference, so the gap is NARROWING. Slowly, more homeowners are warming to the idea of selling now that the market is tilting further and further in favor of sellers.
Last year at this time, there were 7,479 homes on the market, 2,435 MORE than today, a 48% difference. There were a lot MORE choices for buyers last year.
Demand: In the past two-weeks demand surged by 23%.
Demand, the number of new pending sales over the prior month, INCREASED from 1,622 to 2,035, an additional 413 pending sales, up an INCREDIBLE 23% in just two weeks. In the past 4-weeks, demand has ADDED 863 pending sales, a 74% RISE. With mortgage rates DROPPING to 3.15%, an all-time record low, MORE buyers are entering the market, eager to take advantage of extremely favorable home affordability. Expect demand to continue to increase as more inventory comes on the market.
Last year, there were 611 MORE pending sales than today, 23% EXTRA. In mid-April, at the low point of the COVID-19 pandemic, demand was off by 60% year over year. The year over year gap is narrowing as the market continues to heat up.
In the past two-weeks the Expected Market Time dropped from 90 to 74 days, a slight Seller’s Market (between 60 and 90 days), where sellers get to call more of the shots during the negotiating process, yet home values are not changing much. Last year the Expected Market Time was at 85 days, slower than today.
Luxury End: The luxury market is stronger than it was last year.
In the past two-weeks, demand for homes above $1.25 million INCREASED by 90 pending sales, up 40%, and now totals 313, BETTER than levels reached in January. The luxury market has had an ASTOUNDING turnaround, changing from a market that was brought to a near standstill six weeks ago, to one that has been rapidly coming back online in recent weeks. The luxury home inventory INCREASED by 94 homes, up 6%, and now totals 1,763. With another dramatic improvement in demand, which is outpacing the rise in the inventory, the overall Expected Market Time for homes priced above $1.25 million decreased from 225 to 169 days in the past couple of weeks. In mid-April, it was at 322 days. The luxury market is not quite where it was on March 5th, 121 days, but it is on the right track.
Year over year, luxury demand is DOWN by 76 pending sales, or 20%, and the active luxury listing inventory is DOWN by 745 homes, or 30%. The Expected Market Time last year was at 193 days, slower than today.
For homes priced between $1.25 million and $1.5 million, in the past two-weeks, the Expected Market Time decreased from 129 to 98 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 158 to 116 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 368 to 258 days. For homes priced above $4 million, the Expected Market Time decreased from 540 to 455 days. At 455 days, a seller would be looking at placing their home into escrow around August 2021.
Orange County Housing Market Summary:
- The active listing inventory increased by 177 homes in the past two-weeks, up 4%, and now totals 5,044. In the past four-weeks, 33% fewer homes were placed on the market compared to the prior 5-year average; thus, COVID-19 is suppressing the inventory. It was 54% fewer four-weeks ago. Last year, there were 7,479 homes on the market, 2,435 more than today, a 48% difference.
- Demand, the number of pending sales over the prior month, increased by 413 pending sales in the past two-weeks, up 25%, and now totals 2,035. It has grown by 74% in only 4 weeks. COVID-19’s effect on housing is rapidly diminishing. Last year, there were 2,646 pending sales, 23% more than today.
- The Expected Market Time for all of Orange County decreased from 90 days to 74, a slight Seller’s Market (between 60 and 90 days). The drop was due to the surge in demand outpacing the rise in the supply. It was at 85 days last year, slower than today.
- For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of 53 days. This range represents 35% of the active inventory and 50% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 56 days, a hot Seller’s Market. This range represents 19% of the active inventory and 25% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 83 days, a slight Seller’s Market (between 60 and 90 days).
- For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 129 to 98 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 158 to 116 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 368 to 258 days. For luxury homes priced above $4 million, the Expected Market Time decreased from 540 to 455 days.
- The luxury end, all homes above $1.25 million, accounts for 35% of the inventory and only 15% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 0.8% of all listings and 0.9% of demand. There are only 16 foreclosure s and 22 short sales available to purchase today in all of Orange County, 38 total distressed homes on the active market, down 4 from two-weeks ago. Last year there were 65 total distressed homes on the market, slightly more than today.
- There were 1,712 closed residential resales in April, 34% fewer than April 2019’s 2,599 closed sales. This is entirely due to COVID-19 suppressing both supply and demand. April marked a 28% drop compared to March 2020. The sales to list price ratio was 98.3% for all of Orange County. Foreclosures accounted for just 0.3% of all closed sales, and short sales accounted for 0.4%. That means that 99.3% of all sales were good ol’ fashioned sellers with equity.