As much as I like to be right about everything all the time, I have to own that my predicted bump in the number of Orange County homes sold in December turned out to be, well, wrong. Only 11 more homes sold in December than in November, which was already soft. No bump.
None of the experts believe southern California real estate is in a “bubble” either, in spite of the many rumors floating around. Friends and associates, who do not work in real estate, frequently say that “we’re in another bubble” so it’s a bad time to buy. While bizarre, this type of panic rhetoric is hardly new. The brilliant cartoon attached to this post, created by Udo J. Keppler in 1901, speculated that JP Morgan was creating Wall Street bubbles through many investments he made during a rocky market. Apparently we have a long history of fear mongering. Looking back we can see that he was a brilliant strategist.
Regardless of the whispers, one can’t point to any true indication of an artificially inflated real estate market. We’re still selling fewer homes than our historic average, with shockingly consistent sales year over year. There has been no great increase or flattening of purchase volume. Prices are appreciating, yet only nominally. Per Steven Thomas, we’d need to see OC’s housing inventory “eclipse the 8000 mark” and remain at that level for a protracted period of time, before the market “tilted toward a buyers market”. That has not happened in many years. Perhaps the most extraordinary statistic Mr. Thomas cites is that in 2016 we sold more homes priced above $1.25 million than ever in our history. 3229 were sold in 2016, up 10% from 2015. And the prior high was 2857 back in 2005.
Real estate industry experts are saying pretty much the same things for 2017- the number of OC homes sold will be unexceptional and prices will be equally unremarkable, with slowing appreciation throughout the year. From Forbes to Inman to Ten-X (formerly Auction.com) all national reports are the same. The highest growth areas, in terms of units sold and prices, are those that were hardest hit during the recession: Florida, Arizona and assorted other southern and Eastern Seaboard areas. Certainly not California.
Some experts are starting to predict that the San Francisco area may have slight depreciation following their white hot explosion in values over the prior three years. They had insane appreciation that we didn’t see.
Down here in sunny Southern California, the consensus expectation is that not much will change. We’ll continue to have fewer homes sold than our historic norm, in spite of population increases from local job growth. Rising interest rates will perplex buyers — literally pricing those who were already borderline, right out of the market causing fewer sales later in the year.
The recent Fortune article “These 5 Trends Will Shape the Housing Market in 2017” applies perfectly to us here in Orange County. The trends are:
If you need to sell a property this year, I strongly suggest you do it sooner than later. Any increase in interest rates will reduce your pool of qualified buyers.
New conventional loan limits and slightly more relaxed loan guidelines will help more buyers, potentially offsetting the negative impact of rising rates.
More New Homes
We still have new homes being built, which creates a draw for the entire area. Orchard Hills, Portola Hills and Rancho Mission Viejo are still adding sites. Many new home buyers already own a starter home which they’ll need to sell, stimulating additional sales activity.
The Continued Rise of Medium Sized Cities
Orange County is exactly the type of area that Millenials and Boomers alike are craving — now being referred to as “Surban.” Get used to this new buzz word, you’re going to see it a LOT. It means a blend of urban convenience with a suburban flavor. Anaheim’s “Platinum Triangle”, Irvine’s “Parasol Park” and Aliso Viejo’s “Vantis” are prime examples of this. Similar communities are sprinkled throughout Costa Mesa and Irvine. There are certainly more to come.
And of course, foreign buyers are again flocking to the US. They are eager to sink their cash into an investment more stable than they can buy in their home country. The more unstable global markets become, the more we see foreign cash invested along the California coastline.
If you’re a seller and need to wait until later in the year to sell, you’ll want to craft an intelligent sales & marketing strategy, such as paying a higher commission for the buyers agents. Greed motivates the masses, my friends. You may also offer to prepay “Points” for a buyer so they can buy down their interest rate, making the payment for your home lower than for another similar home. These strategies equate to a few thousand dollars spent, rather than tens of thousands of dollars for a price reduction, which is the inevitable result if your home remains on the market for very long.
And if you want to buy a home this year, the same thing applies. Sooner is better than later, because your interest rate will dramatically impact your monthly payment. Unless, of course, you are a cash buyer. Then later in the year may be a better strategy. You’ll likely have less competition and in some cases be able to negotiate a price reduction.
As always call me with your questions. I get some doozies! I’d love to hear yours.