Orange County Housing Report: Lethargic Luxury
Luxury is Slow: Expected market time for all homes above $1.25 million is 213 days.
There is no line at the deli counter. You walk into your favorite restaurant and get seated right away. At the grocery store, all the check stands are open yet not a soul is checking out. It is sunny with no rain in the forecast, but when you pull up to get the car washed there is no wait. That just about sums up the luxury housing market, there are simply not enough buyers compared to the number of sellers; demand is low. There is no line of buyers waiting for yet another luxury home to come on the market.
Yahoo Finance exclaims how the “Housing market bounces back.” CNBC touts how “Existing home sales at their fastest pace since March 2018.” The Los Angeles Times reports that “Southern California home sales and prices perked up in July.” It is understandable how luxury homeowners who list their homes have high expectations. The trouble is that none of these headlines apply to the luxury market.
The headlines can be confusing. They seem to paint a strong housing market. They are NOT reporting on the luxury market; headlines describe the overall market. For homes priced below $1 million, Orange County real estate is much hotter and quite the contradiction compared to the upper end.
Luxury housing is sluggish. Weekend open houses are not flooded with potential buyers. Multiple offers are extremely rare. It is not uncommon to go a week, or even weeks, without a single buyer touring a luxury home. There is very little buyer competition.
A Seller’s Market occurs when the Expected Market Time (the amount of time it would take from coming on the market to opening escrow) falls below 90-days. Below 60-days, is a HOT Seller’s Market. The overall Orange County Market is at 86-days, a Slight Seller’s Market. That is when sellers get to call more of the shots during the negotiating process, yet homes are not appreciating much at all.
Above $1 million is where housing really starts to slow. In 2019, luxury, defined as the top 10% of closed sales, starts at $1,425,000. It is technically a Buyer’s Market for all homes priced above $1.25 million. That is where the Expected Market Time is above 120 days. Above 150 days is considered a deep Buyer’s Market. All homes above $1.5 million are above that threshold. This chart illustrates how the market slows further as the price ranges rise. Naturally, there are fewer and fewer buyers who can afford higher-priced homes. The buyer pool evaporates at the upper end.
A deep Buyer’s Market is typically characterized by falling prices, but that is not the case in the upper end. Prices do not fall because sellers stick to their guns and do not adjust their asking price as often as the lower ranges. Most of these sellers state that they “don’t have to sell.” It is not uncommon for homes to sit for more than a year without a price reduction.
As in all price ranges, success is determined by motivation. Sellers who are motivated will price their homes according to their Fair Market Value. They are not afraid to listen to the market and adjust their asking price. Sellers who sharpen their pencil when it comes to price are much more likely to achieve their objective in selling.
Luxury sellers have to fight for the limited number of buyers in the marketplace. They fight by offering the best price and terms. A careful analysis of comparable pending and closed sales will go a long way to help diminish the need to be on the market for months. With only a few buyers touring luxury homes, it must be priced right to entice them to write an offer.
Luxury sellers need to ignore real estate headlines. There is no line of buyers waiting for a luxury home to come on the market. Instead, these sellers should listen carefully to the experts, professional REALTORS®, and focus on the data, statistics, and information that will help them navigate the more challenging luxury waters.
Active Inventory: The current active inventory dropped by 2% in the past two weeks.
In the past two weeks, the active listing inventory dropped by 137 homes, down 2%, and now totals 6,860. In the past month, it has dropped by 447 homes, a 6% decline. Expect the inventory to continuously fall through the Autumn Market and then will pick up steam and shed a lot of homes during the Holiday Market, from Thanksgiving through the end of the year.
Last year at this time, there were 7,207 homes on the market, 347 more than today, or a 5% difference. The inventory is MUCH different than last year when it continued to rise through Thanksgiving.
Demand: In the past two-weeks, demand downshifted by 5%.
Demand, the number of new pending sales over the prior month, downshifted in the past two weeks and shed 127 pending sales, a 5% drop, and now sits at 2,401. For the remainder of the Autumn Market expect demand to slowly drop. It too will pick up steam and drop more swiftly during the holidays.
Last year at this time, there were 234 fewer pending sales than today, 10% less.
In the past two-weeks, the Expected Market Time increased from 83 days to 86 days, a slight Seller’s Market (60 to 90 days), where home values do not change much, and sellers get to call more of the shots during the negotiating process. It was at 86 days a month ago as well. Last year, the Expected Market Time was at 100 days, much slower than today.
Luxury End: For the first time since July, the luxury market slowed.
In the past two-weeks, demand for homes above $1.25 million decreased by 18 pending sales, a 5% drop, and now totals 329. The luxury home inventory increased by one home and now totals 2,338, virtually unchanged. The overall Expected Market Time for homes priced above $1.25 million increased from 202 days to 213 over the past two weeks, a bit sluggish.
Year over year, luxury demand is up by 14 pending sales or 4%, and the active luxury listing inventory is up by an additional 184 homes or 9%. That’s a lot more seller competition compared to last year. The Expected Market Time last year was identical at 205 days, slightly better than today.
For homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 146 to 136 days. For homes priced between $1.5 million and $2 million, the Expected Market Time increased from 147 to 155 days. For homes priced between $2 million and $4 million, the Expected Market Time increased from 220 to 278 days. For homes priced above $4 million, the Expected Market Time increased from 527 to 555 days. At 555 days, a seller would be looking at placing their home into escrow around March 2021.
Not sure what this means for your situation? Contact me and we can go over it in as much detail as you’d like.
REALTOR® | Negotiation Expert (RENE)
Data and comments provided by Steven Thomas, Reports On Housing – All Rights Reserved. Copyright 2019.