The supply of available homes has been experiencing its own severe drought, dropping to levels not seen since records were properly maintained. At this point, any additional FOR-SALE signs hammered into the ground is a welcome relief. In the past two weeks, that is precisely what occurred in Orange County. The active listing inventory rose for the first time since last October, rising from 2,240 to 2,384 homes. The addition of 144 homes was the largest increase since May of last year.
Other than the luxury end, every price range experienced a rise in the number of homes available. The largest increases occurred in the hottest price ranges. Home priced between $500,000 to $750,000 increased by 41 additional homes, up 13%. From $750,000 to $1 million, there were 86 additional homes, up 25%. Below $500,000 and between $1 million and $1.25 million, the price ranges increased by 4%. That may not be a lot of extra homes, but for buyers, it is welcomed with open arms. The luxury price ranges above $1.5 million dropped by 13 homes, or down 1%.
Undoubtedly, for the countless buyers struggling to find a home, the extra inventory is a healthy step in the right direction. It is a new trend that should continue until it reaches a peak later in the year. In Orange County, the inventory typically does not peak until July or August. This year, it may peak even later in the year as mortgage rates are anticipated to rise from 3%, where they stand today, to as high as 3.75% by year’s end. Higher rates will decelerate the housing market and many sellers will languish on the market for a much longer period of time when they overprice. This will ultimately delay the peak. It will remain a Hot Seller’s Market, just not as nutty.
The inventory typically rises during the Spring and Summer market, but that is only part of the story behind the new evolving trend. Demand also dropped in the past couple of weeks. Escalating prices, pending and closed sales fetching values grossly over the list price, and way too many multiple offer situations is starting to influence the psyche of some buyers. The current environment is sidelining some buyers after being on the losing end of multiple attempts at securing a home.
In California, for the month of March, nearly two-thirds of all closed sales sold above their list price. Multiple offers and above list sales prices is now the norm. Watching values quickly rise after writing a dozen offers can be disconcerting. As a result, demand, a snapshot of the last 30-days of pending sales, declined by 92 in the past two weeks, down 3%, dropping from 3,162 to 3,070. With fewer pending sales, the housing market can catch its breath as the inventory rises and homes linger on the market just a bit longer than they have been.
As a result of an increasing supply of homes and a slight drop in demand, the overall Expected Market Time (the time between hammering in the FOR-SALE sign to opening escrow) increased in the past couple of weeks from 21 to 23 days. Currently, the increase may not be that detectable within the real estate trenches, but over time, as more homes accumulate on the market, the market will continue to slowly decelerate. Housing will move away from its crazy, nutty, grossly overheated pace, to a more normal, Hot Seller’s Market. That is a market where sellers need to do a bit more prep work and careful pricing is mandatory.