July Market Update

The housing boom has everything to do with supply and demand, and those fundamental features are not going to change anytime soon.

With nearly half of 2021 in the rearview mirror, there are noticeable trends that have developed.

It seems as if everyone has an opinion about the future of the housing market. “It’s a bubble.” “The market has peaked.” “I am going to wait for values to come crashing down.” “Housing will continue to be hot for a very long time.” In the end, there is way too much noise that is not supported by facts, ignoring the data. It is time to step aside from the uproar and look at the trends that have surfaced in 2021.

The number of available homes to purchase is finally starting to rise.

The unprecedented, ultra-low inventory has been the story for over a year now. At the start of last year, there already were not enough homes on the market, and then COVID-19 made things worse when many homeowners opted to not sell their homes. Ultimately, that led to this year’s anemic historically low level of available homes. In fact, today’s inventory is 64% less than the 5-year average of 6,702 homes (from 2015 to 2019 excluding 2020 due to COVID skewing the data). Yet, finally, now that summer has arrived with all of its normal, cyclical distractions, the inventory is on the rise, adding 174 homes, up 8%, within the past couple of weeks, its largest gain of the year. This new trend will continue throughout the summer months. 

Demand, the number of new escrows over the prior month, is on the decline after reaching a peak in early spring.

Demand typically peaks between April and mid-May. This year, it peaked at the very start of April in Orange County. Many expect the market to behave differently and ignore the seasons because housing is so hot, yet society seemingly likes its routines. Spring is the hottest time of the year in terms of demand. It downshifts during the summer with the kids out of school, planned vacations, and plenty of fun in the sun. Since peaking on April 1st, demand has dropped from 3,110 to 2,906 pending sales, shedding 204, down 7%. Within the past two weeks alone, it dropped by 151 escrows or 5%, its largest drop of the year. This trend should continue throughout the summer months.

With both the inventory rising and demand falling, in the past two-weeks the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) increased from 22 days to 25 days, its highest level since February. At 25 days, it is still an extremely insane, HotSeller’s Market (less than 60 days) where there are a ton of showings, sellers get to call the shots during the negotiating process, multiple offers are the norm, and home values are rising rapidly. Last year the Expected Market Time was at 47 days, slower than today, but continuing to improve rapidly. The 5-year average from 2015 through 2019 was at 72 days, much slower than today, but still a Slight Seller’s Market.

Credit to Steven Thomas – Quantitative Economics and Decision Sciences.

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