Orange County Housing Report: Luxury Exposed
The Orange County luxury housing market is completely different than the sizzling hot lower ranges.
Luxury Market Exposed: There simply are not enough buyers compared to the number of sellers in the higher end.
Bloomberg exclaims how homebuyers face bidding wars on “scarcer-than-ever” U.S. listings. CNBC describes spring housing as the “strongest seller’s market ever.” The Wall Street Journal reports that U.S. home resales spiked to hit a 10-year high. It’s no wonder that luxury homeowners list their homes with high expectation. The issue is that none of these headlines applies to luxury real estate.
Bloomberg, CNBC, and The Wall Street Journal are all reporting on the national market. They are illustrating how there is no inventory, that homes are generating multiple offers, that homes prices are rising through the roof. They are NOT reporting on the luxury market; instead, they are reporting the overall market. The national median sales price for a home was $273,000 in March. In Orange County, it was $665,000. These medians don’t even come close to local luxury.
A seller’s market occurs when the expected market time is below 90 days. A sizzling hot seller’s market is when the expected market time falls below 60 days. The overall market in Orange County is currently at 54 days, red-hot. The lower ranges are firing on all cylinders.
In Orange County, luxury housing (defined as the top 10% of recent closed sales) starts at $1.25 million. With the exception of homes priced between $1.25 million and $1.5 million, the upper ranges are actually within “Buyer’s Market” territory. When the expected market time, the amount of time it would take to place a home into escrow if it were listed FOR SALE today, exceeds 120 days, it is considered a buyer’s market.
This chart illustrates how the market slows as the price ranges rise. Homes that are more expensive take a lot longer to sale. This is simply because there are fewer and fewer potential buyers that can afford a home as prices rise. There is pent up demand with not enough homes on the market within the lower ranges. That’s why they entertain multiple offers and home values have been on the rise. Yet, homes in the upper ranges sit and often do not find success. Many luxury homes remain on the market for months, and, in some cases, years.
It all boils down to supply and demand. The lower ranges do not have enough supply, and demand is through the roof. Buyers need to sharpen their pencils and write strong offers to purchase. Buyers have to fight in order to win. They fight by offering the best price and terms.
The opposite is true for the luxury market. There are not enough buyers coupled with plenty of seller competition. Sellers have to fight for the limited number of buyers in the marketplace. They fight by offering the best price and terms. They may need to work with potential buyers who need to sell their home first as a contingency of buying a luxury home. For luxury sellers, if the price of a home is not compelling they will not find success. When a home is priced well, it attracts attention.
In most cases, success is determined by motivation. Many luxury sellers claim that they “don’t have to sell” to help rationalize their price. They stretch their asking price and sit on the market, generating little activity and no offers. Yet, sellers who sharpen their pencil when it comes to price are much more likely to achieve their objective in selling.
Luxury sellers should ignore real estate headlines; instead, they should focus on the data and statistics that are specific to the upper end and rely on the expertise of a professional REALTOR® to help them navigate the challenging luxury home market.
Active Inventory: The active inventory increased by 2% in the past couple of weeks.
The active inventory has not been growing as fast as it had a month ago, but it is still on the rise. The inventory added an additional 124 homes in the past two-weeks, a 2% increase, and now sits at 5,387, levels not reached since last November. For this time of year, the inventory is at its lowest level since 2013. From here, we can expect the active inventory to continue to increase through mid-August where it will peak.
Last year at this time, there were 6,000 homes on the market, 11% more than today.
Demand: Demand is still off by 6% compared to last year at this time.
Demand, the number of homes placed into escrow within the prior month, only grew by 55 pending sales in the past month, or 2%, and now totals 3,012. Demand is above the 3,000 mark for the first time since June of last year. This should have occurred a month ago, but there simply have not been enough homes coming on the market below $500,000. Currently, there are 37% fewer homes on the market below $500,000 compared to last year.
Last year at this time, there were 184 more pending sales totaling 3,196. Current demand is off by 6% compared to last year. The expected market time increased from 53 to 54 days in the past couple of weeks. Last year it was at 56 days, very similar to today.
Luxury End: Luxury demand dropped by 4% in the past couple of weeks while the inventory grew by 2%.
In the past two weeks, demand for homes above $1.25 million decreased from 413 to 398 pending sales, a 4% drop. The luxury home inventory increased from 1,846 homes to 1,887, up 2%.
For homes priced between $1.25 million and $1.5 million, the expected market time is at 89 days. For homes priced between $1.5 million to $2 million, the expected market time increased from 116 to 134 days. In addition, for homes priced above $2 million, the expected market time increased from 189 days to 198 days. At 198 days, a seller would be looking at placing their home in escrow around mid-November.
Orange County Housing Market Summary:
- The active listing inventory increased by 124 homes, or 2%, in the past couple of weeks, and now totals 5,387. Last year, there were 6,000 homes on the market, 613 more than today.
- There are 37% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 22%. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly disappearing.
- Demand, the number of pending sales over the prior month, increased by only 1% in the past couple of weeks, adding 31 pending sales and now totals 3,012, above 3,000 for the first time since last November. Today’s demand is 6% lower than last year when it totaled 3,196. The average pending price is $876,996.
- The average list price for all of Orange County remained at $1.6 million. This number is high due to the mix of homes in the luxury ranges that sit on the market and do not move as quickly as the lower end.
- For homes priced below $750,000, the market is HOT with an expected market time of just 34 days. This range represents 37% of the active inventory and 60% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 51 days, a seller’s market (less than 60 days). This range represents 19% of the active inventory and 20% of demand.
- For luxury homes priced between $1 million to $1.25 million, the expected market time is at 67 days. For homes priced between $1.25 million and $1.5 million, the expected market time is at 89 days. For homes priced between $1.5 million to $2 million, the expected market time increased from 116 to 134 days. For luxury homes priced above $2 million, the expected market time increased from 189 to 198 days.
- The luxury end, all homes above $1.25 million, accounts for 35% of the inventory and only 13% of demand.
- The expected market time for all homes in Orange County increased from 53 days to 54 in the past couple of weeks, a solid seller’s market (less than 60 days). From here, we can expect the market time to slowly rise throughout the Spring and Summer Markets, moving from a deep seller’s market to a slight seller’s market.
- Distressed homes, both short sales and foreclosures combined, make up only 1.5% of all listings and 2.4% of demand. There are only 34 foreclosures and 47 short sales available to purchase today in all of Orange County, that’s 81 total distressed homes on the active market, 8 fewer than two weeks ago. Last year there were 135 total distressed sales, 67% more.
- There were 2,663 closed sales in April, a 5% decrease over March 2017 and a 3% decreased over April 2016. The sales to list price ratio was 98.6% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales and short sales accounted for 1.4%. That means that nearly 98% of all sales were good ol’ fashioned equity sellers.