Orange County Housing Report: V-Shaped Recovery
Demand Spikes: Demand surged in the past couple of weeks with a 38% rise.
Experts have been debating what the economic recovery will look like. Initially, some experts were calling for a quick rebound, a “V-Shaped” bounce. That is when the economy rises nearly as fast as it falls. Yet, with more time to reflect on all the data, most experts now agree that it will be a “U-Shaped” recovery, one that after hitting a bottom will slowly but surely turn upward. The best analogy is a dimmer switch. As the dial is slowly turned, the economy will continue to accelerate until one day it is pumping on all cylinders again.
Housing is proving that it is an exception and is currently experiencing a “V-Shaped” recovery with demand soaring 38% in the past two weeks. How can that be? The sleeping giant has awakened. Even though life as everybody knows it has been turned upside down and California has only moved to “Phase 2,” record low-interest rates are instigating demand. Dawning masks and gloves, buyers are viewing homes again and making offers.
Prior to the “stay at home” order in mid-March, housing was a sizzling hot Seller’s Market with extraordinarily little inventory and unbelievable demand. It was the hottest start to a Spring Market since 2013, a spring to remember for Orange County housing. Low mortgage rates, averaging 3.75%, was stoking the fires of demand. When the virus hit, demand plunged, and the market slowed.
Now that it has been a couple of months, flattening the Coronavirus curve has been successful so far. Slowly but surely more of the economy is coming back online. As a result, eager buyers who had been sitting on the fence waiting to purchase are jumping back in and ready to take advantage of record-low mortgage rates at 3.25%.
In the past couple of weeks, demand (the last 30-days of pending sales) jumped from 1,172 pending sales to 1,622, a 38% rise. It was last at this level in mid-January. Typically, during this time of the year demand has already peaked and it does not change much at all. Not this year. Demand is in recovery mode and the sharp increase indicates that it is “V-Shaped.”
While some thought the housing market would take a major hit because of the Coronavirus, that could not be further from the truth. The low mortgage rate environment is a catalyst that has reignited demand. Despite furloughs and unimaginable unemployment, local real estate is revving its massive engine once again. Many are wondering where the demand is coming from. A lot of people are still gainfully employed, willing, and able to purchase. With rates at a record low, home affordability has dramatically improved from earlier in the year. The market was hot back then and it is no wonder that it is heating up again.
The active inventory climbed by 5% in the past two weeks, close to the 5-year average of 4.4% during this time of the year. The inventory remains at lows last seen in 2013. Surging demand is outpacing the rise in supply, resulting in the Expected Market Time (the time between hammering in the for sale sign and opening escrow) tumbling from 118 days to 90 days, a slight Seller’s Market (between 60 and 90 days). That is a market where sellers get to call more of the shots, yet home values are not changing much at all. Last year at this time, the Expected Market Time was at 84 days very close to today.
Recent weeks have proven that the housing market is extremely resilient and a bright spot in the economy. Buyers can expect housing to improve from here as demand continues to rebound. This is not the Great Recession when real estate was a house of cards ready to collapse. Back then it was a bubble fueled by mass speculation, subprime lending, pick-a-payment plans, a wave of cash-out refinancing, zero down payments, and fraudulent lending practices. Mortgage rates were at 6.35%.
That was then, this is now. The current housing stock was built on tight lending requirements. Buyers have had to prove that they could afford the monthly mortgage payment. There were very few cash-out refinances, large down payments are the norm, and there is plenty of nested equity.
This time around housing is built on a strong foundation. It may prove to be a catalyst to an eventual economic recovery.
Active Inventory: The current active inventory increased by 5% in the past two weeks.
The active listing inventory increased by 242 homes in the past two weeks, up 5%, and now sits at 4,867. It has grown by 523 homes in the past month, up 12%. Demand has not quite recovered and is still off by 39%. Even with a reduction in demand, the overall inventory is not increasing as swiftly as it would have had the typical number of homeowners entered the fray. COVID-19 is suppressing the number of homeowners coming on the market. In the past 4-weeks, there were 38% fewer new for sale signs compared to the prior 5-year average. Two weeks ago, it was a 54% difference, so the gap is beginning to narrow. More sellers are thawing to the idea of selling now as well.
Last year at this time, there were 7,413 homes on the market, 2,546 more than today, a 52% difference. There were a lot more choices for buyers last year.
Luxury End: Luxury demand surged in the past couple of weeks.
In the past two-weeks, demand for homes above $1.25 million increased by 66 pending sales, up 42%, and now totals 223, nearly matching where it was at the very start of the year. The luxury home inventory increased by 98 homes, up 6%, and now totals 1,669. With a 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 300 to 225 days in the past couple of weeks. Four weeks ago, it was at 322 days. The luxury market is thawing.
Year over year, luxury demand is down by 138 pending sales or 38%, and the active luxury listing inventory is down by 814 homes or 33%. The Expected Market Time last year was at 206 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 192 to 129 days.
- For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 229 to 158 days.
- For homes priced between $2 million and $4 million, the Expected Market Time decreased from 418 to 368 days.
- For homes priced above $4 million, the Expected Market Time decreased from 586 to 540 days. At 586 days, a seller would be looking at placing their home into escrow around November 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.
Data and comments provided by Steven Thomas, Reports On Housing – All Rights Reserved. Copyright 2020