Did we have “Dog days of summer” this year? (And what are “dog days” anyway?)
Ancient Greeks coined this expression, referring to the dog star “Sirius” within the constellation Canis Major. When Sirius appeared to rise just before the sun, the hottest days were sure to follow – “dog days”. In ancient Greece, that was in July and August.
Applying this to real estate, were our “Dog days of summer” the “hottest days” in Orange County? And with autumn just around the corner, what’s coming next? Are we balanced atop another peak, prepping for a sudden fall?
Pun aside, I don’t think so. And I’m in good company.
July and August again set records for how quickly homes sold and the average contract prices. In most communities homes sold within a few weeks with multiple competing offers. Yet, there were fewer homes sold overall versus years prior.
There were 7% fewer homes listed for sale at the beginning of summer, versus 2016. Now at summer’s end, there are only 5639 homes for sale. That’s 20% fewer homes available than last year, when there were 7,040 on the market at this time. So yes. Fewer homes were sold, because fewer homes were available to buy. And it’s only getting worse.
Proof positive – mid September marked the first increase in the average OC home price seen since November 2016. For the prior nine months the average price held steady at $1.6 million. Now it’s $1.7 million. Let’s see what happens at year end.
Today’s buyers span all demographics, from Millennials to Boomers, low to high income earners, first timers to seasoned buyers. The desperation years of 1997 – 2006 are gone, when a fair amount of smoke and mirrors fed buyer frenzy and real market data was hard to get and harder to disseminate. Today, buyers are armed with sophisticated market analysis tools, and know what they’re doing. They’re literally watching sales happen in real time. They will eat your lunch if you are not on top of your game. This means knowing your numbers.
I’m including agents and brokers in this. If a Realtor is not watching the market data daily, or at least weekly, they will not be able to compete for their clients. The game has changed. And more changes are coming. SOON.
I about died laughing when my own friend tried to write a $750,000 offer on one of my listings, which was priced at $959,000. He thought there was a chance that my seller might be uninformed. Obvious offense to me aside, that’s simply not possible these days. Anyone with a pulse can learn what nearby homes have recently sold for. This includes both buyers and sellers.
So what’s coming?
Inventory levels are expected to remain lower than historic averages for the foreseeable future. In my opinion, this is the new “normal” for Orange County. As a result, prices should remain stable. Interestingly, instead of huge escalations in prices based on pent up demand, we’re seeing modest gains as buyers are holding their ground, fearing a market correction and are unwilling to move far from their target prices.
According to Nela Richardson, chief economist at Redfin, “The market is expensive, competitive and unaffordable. But there’s no evidence of a bubble.”
CNBC reported in July that JP Morgan “Hints to Low Risk of US Price Correction”. Using data from 14 developed countries dating back to 1950, JPMorgan’s research found that sharp price corrections have been relatively uncommon, even following large price increases.
“Everyone has been talking about tight inventory but I think we are OK calling it a straight up inventory crisis at this point,” says Svenja Gudell, chief economist at Zillow. “We just don’t have enough homes.” According to a Zillow analysis, the current number of homes for sale is about equal to the housing supply in 1994. The trouble is, 63 million more people live in the United States than did 23 years ago. So it’s not that there aren’t any new listings, but there aren’t nearly enough. This is exactly what we’re experiencing here.
Gudell says, “If you spent a huge amount of time and stress and heartache trying to find an entry level home over the past couple years, once you were successful at it, I can easily see a lot of reluctance in getting up from it a few years later and trying to find another place – even if you could afford one.” Hence, fewer resale homes going up for sale.
Should I buy now?
Absolutely yes. Particularly if you’re on the borderline of qualifying. Now, thankfully some buyers are distracted by kids going back to school, planning for the year end holidays, etc. so you may actually get a shot at a home you can afford. There won’t be many. So you’ll need to be vigilant and decisive.
Buyers won’t be the only ones impacted once interest rates inevitably rise. Many sellers who would normally have put their homes on the market to downsize or move to a more desirable area will pause, considering that another smaller or similar home will cost them more, due to the higher costs to finance.
That will additionally exacerbate the already limited supply of homes.
So start looking for your new home immediately. Do your homework, get your finances in order and be prepared to pounce. There are already 20% fewer homes to pick from. When these numbers shrink farther, you’re going to wish you’d started looking now. Hind sight is always 20/20.
Call me if you want help learning how to make your own plan. It’s what I do best.