Preface: For those of you who aren’t already aware, I took several months off to get married and then care for my husband before he passed away. It was a rough time, but I’m finally back at work. Please forgive my long period of silence.
Whoa. What’s with all the acrimony, people?
After raging wildfires consuming thousands of acres, fervent midterm elections, epic public rancor over homeless encampments, and the threat of a caravan of immigrants heading toward our southern border, Californians are overwhelmed. We’ve had a lot on our minds lately and we’re pretty much done.
Real estate is no less confusing or divisive. Gorgeous houses have been sitting on the market for months. Buyers can’t seem to keep a deal together. Everyone’s angry.
As already reported, the summer season never materialized. We wondered if, as in years past, the Fall market would make up for some of Summer’s lost momentum. Nope. It hasn’t. In fact, when I review listing inventory and sales this year, I can’t help but notice that this year’s trend is almost the reverse of 2012’s. Which is telling. See below.
Back in 2012, housing inventory steadily fell while sales activity ploddingly crept up, precipitating 2013’s banner year for price increases. This year the opposite has happened. Listing inventory has slowly built up while sales absolutely froze in May and finally began, again ever so slowly, in August. Even though current listing inventory is nowhere near the levels seen in 2012, we’re just not selling it and it would be naive to think that future prices won’t be affected by this slowdown.
2012 2018 ytd
The following chart graphically depicts this latest market shift. Note how in each of the prior four years strong home sales have buoyed steadily higher selling prices, until this year. Suddenly there’s a gap between units sold and average selling prices. Buyers are getting cold feet and it’s slowing our market down dramatically.
While most experts are betting that sales prices in Orange County won’t rise much, or even possibly at all, they do not expect they’ll fall, either. Instead think of great plains-esque flatness as far as the eye can see… That’s 2019 for you. And in spite of the recession that most experts predict for 2020, local housing prices are still not expected to change much.
Throughout the coming year sales will remain slow, which could seem boring. But make no mistake, they will be hard fought. Ugliness is already happening. Tempers always flare like this when markets change. Both buyers and sellers get paranoid delusions, convinced someone is taking unfair advantage of them.
Buyers, hearing that a “correction” is coming are already demanding lower prices for the same homes their friends recently bought. Yet few sellers will allow their precious homes to be sold for less than their neighbors did. It would be an outrage – a matter of pride. Instead, they’ll pull their homes off the market and wait for buyers to “come to their senses” again. This waiting game has already begun. So far this year 5,218 sellers have decided to terminate their listing contracts before they expired, compared to 4,463 in 2017. They’re making their positions quite clear.
Let the standoff begin.
Meanwhile, buyers are gobbling up news about slowing home sales like it’s cake, greedily preparing to write lowball offers, or better yet, waiting for the next wave of foreclosures that they’re sure is “inevitable”. This, in spite of the fact that mortgage delinquencies nationwide were recently reported at a “12 year low” by Corelogic.
And per Corelogic’s report on the 10 most populous statistical areas, Los Angeles and San Francisco ranked with the 3rd and 1st lowest rates for mortgage delinquencies. Another bloodbath is hardly looming on the horizon.
California’s default rate will probably spike in the areas with thousands of fire damaged homes, which is typical after natural disasters. Experts also expect that this will heighten demand for existing housing for displaced residents. Studies of communities devastated by natural disasters indicate that flippers will come in and try to pick off deals on damaged properties to repair and resell, depressing prices there for some time.
Thankfully, Orange County is not in these areas. Thus, we have no reason to expect our mortgage default rates to increase any time soon. Salaries are increasing. Unemployment is down and corporate profits are stable.
Doomsday soothsayers can predict all they like. But a meteor strike, massive plague killing off the workforce or other epic devastation would need to happen to the population in Orange County before mortgage delinquencies rise or home prices fall.
- Stock up on happy pills, book your yoga and meditation classes, or fill the wine cellar. Do whatever it takes to keep yourself calm and in your happy place for the next two years.
- Sellers, price your home at current value not above recent sales. A professionally marketed home will eventually sell.
- Buyers, accept that interest rates are rising. It was inevitable. It won’t get better. Buying sooner is still better than later.
- Get ready for whacky appraisals. When markets shift, appraisals can come in low. That’s normal. Expect it.
- Everyone, do your homework; consult the experts. Do not listen to uninformed gossip about this or any market.
Real Estate Market Tips
Lake Forest, Villa Park and Rancho Mission Viejo are areas with excess housing inventory. Buyers should look there first. Sellers in Anaheim Hills, Foothill Ranch, Tustin and Los Alamitos should get on the market NOW. There’s far less selling competition in these areas.
As always, buy property that you actually like if it’s to be your home. That absolutely matters. And only buy property that pencils out as an investment. In either case, talk to your tax professionals first – the tax codes have changed a lot this year.
Call me with questions. Navigating the tricky stuff is what I do best. I’ll help you make smart choices in a difficult market.