Overall Orange County home sales remain strong. We’re not seeing the incredible surge in home prices that’s plaguing buyers in San Francisco communities. Instead we’re seeing moderate 3-6% increases in values year over year. What I find interesting is that homes are selling progressively faster than in prior years. Yet, bizarrely, we’re not selling any more homes. The volume of homes sold has been incredibly consistent for years, with a slight lull at year end as we’re beginning to see now.
Yet data varies wildly for homes in differing price ranges. Homes priced below $500,000 are becoming extinct as values continue their 68 month streak of gradual, steady gains. For example, YTD there were 10,315 homes* priced at or below $500,000 available for sale. This represents a roughly 60% reduction from 5 years ago when cumulative inventory peaked at 30,628 homes.
The volume of slightly higher priced homes sold, between $500 – $750,000, peaked in 2014 at 29,388, probably because buyers were starting to get squeezed out of the under $500K range. Since then, inventory at this price level has also gradually waned, shrinking roughly 25% since 2014.
Things get a little weird within higher price ranges. The race is definitely on with more closed sales this year for homes priced from $500,000 – $3 million, where buyers compete to win an “affordable” home while they can still find one.
Between the $3 -$5 million mark, however, the number of sales remains stubbornly consistent month over month in spite of steadily growing inventory. Homes priced above $5 million are a surprisingly hotter commodity, and the number sold is ticking upward for the first time in a very long time. The super luxury buyers appear to know something average buyers don’t.
The good news for Orange County home sellers is that regardless of value, when priced correctly, homes are selling relatively quickly and within 2% of asking price. The bad news is that there are still fewer buyers overall than prior to 2014. At the risk of sounding redundant, I truly believe this suppressed volume of resale homes is our new “normal”.
Quantitative Economist Steven Thomas says that Orange County’s tipping point has been when we’ve seen more than 8,000 homes for sale. Then the market has flipped from a Seller’s Market to a Buyer’s Market. If prior history is a reliable measure of future performance, we’re a long way off from this. However, we may see pockets of homes in various value ranges starting to favor Buyers.
For example, if Chinese or Iranian buyers decide not to invest in US real estate for political or other reasons, the pool of buyers for super luxury homes could be in critical jeopardy. To date, in spite of immigration reform fears, foreign investment remains strong, particularly in coastal areas.
Overall, in spite of a stabilized local economy with moderate population and job growth, we’re still seeing less household formation than in the past, which again impacts the number of homes resold.
Yes, Millennials still hold essentially the same view that their parents and grandparents did, that renting is a waste of hard earned cash. And they’re diligently saving money toward a future down payment. What this is translating into, however, is younger generations staying at home with Mom and Dad longer, delaying their first purchase and preventing the parents from downsizing at the same time. What used to be a traditional “two-fer” (a first timer and an empty nester both entering the market at the same time) is morphing into a delayed first time buyer and empty nesters who are hesitant to let the nest go at all, for fear of adult children returning home again later.
And our oldest generations are also staying put. More and more I see elderly home owners aging in place, whereas prior generations more commonly moved into smaller homes or assisted care facilities. Today adult children or grandchildren more often move back in to provide daily care, again reducing household formation.
At the end of the day, the total number of Orange County homes sold remains shockingly, boringly consistent. By all accounts we should have seen an increase in the number of homes selling. But we’re not. We appear to be witnessing a cultural shift.
Lately everyone is asking me what to do.
If you want to make a smart investment, I suggest you buy the newest property you can afford, as close to work centers and well rated schools as possible, regardless of price range. Make sure the tax rates and maintenance fees are also low for the best cash flow.
If you’re a seller with property valued below $500,000 or above $5 million, this may be your market. But watch your budget carefully and do not overspend on improvements before putting your home up for sale. Every dollar counts!
No two real estate transactions are the same. Your family and portfolio is uniquely yours. Call me for help building a great investment strategy.
It’s what I do best.