A client I’ve known for many years reached out to me again last week, saying that he thinks he needs to buy a home now. We first met and started looking for a modest condo for him in 2008, during what can best be described as the market’s “blood bath”. It was a great time to be a buyer.
He searched off and on, never seeming to be truly convinced the market wouldn’t fall farther. In the end, he decided to continue renting and “wait and see what happens”.
We met up again in 2012, when prices were a bit higher than in 2008. He tentatively wrote a few offers at or just below the list prices, only to be shocked when he was beaten out time and again by multiple offers, mostly from cash buyers who asked for no seller concessions and often offered more than the sellers were asking. He didn’t trust me when I advised him to write offers at the very top of his comfort zone. It seemed counter to all that he’d been taught about savvy negotiations. He couldn’t wrap his brain around why anyone would do this.
“Clearly” he said “this must be another bubble”. Prices will surely fall again.
Probably because I have OCD tendencies (of which I am not proud) I held onto the offers we wrote back in 2012. Out of curiosity, I pulled his file and looked at condos in the exact same community to see what the recently sold units went for. Not only was I shocked by the price increases. But I was further surprised by the scarcity of sales.
Back in 2008 and 2012, there were always 5-10 units for sale, usually short sales or foreclosures. If anyone was going to have trouble paying their mortgage, it was these folks at the lowest end of the market. Their loans were often adjusting to higher payments and they had little or negative equity, so they could not refinance out of trouble as they had done in the past.
Fast forward, investor buyers quickly saw that these distress sales would make brilliant rentals because lower earning families were mostly going to become renters once the mortgage industry implemented stricter underwriting guidelines for home loans. It did and they did.
Those investors are not interested in selling their investments yet, which have doubled in value since 2012. That’s right – DOUBLED. And in the most recent 12 months, there was only one condo listed for sale. It was the smallest floor plan – smaller than my client had been willing to consider. It sold for cash within 6 days, above list price, and for double what he’d been offering for larger units a little more than 5 years ago. This chart demonstrates the waning listings and sales in this price range.
It would be the world’s grossest understatement to say that his mind is blown. Sadly, this scenario describes MANY of my past would have been buyers. So today I am writing this market update with them in mind. If they truly want to get into the residential real estate market in Orange County, they absolutely must keep the following in mind:
- Prices continue to rise subtly in all ranges, faster in the lower ranges. So buy sooner than later.
- Interest rates are already climbing. This will not reverse. It will likely worsen. So buy sooner than later.
- There will continue to be far fewer homes for sale versus historic OC levels, meaning that waiting for perfection is not realistic. You must seize what is closest to your ideal as soon as you find it.
- If you can’t afford what you want to live in today, you should adjust your plans and purchase an investment property which will pay for itself and continue to live as a renter in the neighborhood you prefer. The good news is that lower priced homes will have faster appreciation, getting you closer to your goal of owning your home faster.
There is no silver bullet. There is no short cut. I am not overlooking anything. It has been a seller’s market for more then 5 years now. Yes the real estate market has cycles typically 8 or so years in duration, meaning that we’re overdue for a “correction”. Experts agree that this will manifest as far slower rates of appreciation. Some price ranges will plateau for a time. None are likely to reverse. And even if they do, the higher mortgage interest rates will negate any potential reduction in housing payments resulting from slightly reduced prices.
Here’s why they’re saying this:
- The average list price in Orange County is now $1.8 million. (It was $1.4 million in 2014, $1.5 million in 2015, $1.6 million in 2016, $1.6 then $1.7 million in 2017.)
- The average contract price as of Feb. 11th was $909,000.
- 20-25% of all buyers are still paying cash.
- We presently have 456 fewer homes for sale this year than at the same time last year – which was fewer than the year prior, and so on and so on.
- Population and job growth are both slowly on the rise, keeping the pressure on demand for housing.
It’s truly more of the same.
Call me TODAY for help getting your home buying plan in place. There is no time to delay.