Clip from the Orange County Housing Report: Too Much Noise
March 11, 2018
Ignore all of the noise.
There is no major, upcoming downturn larger than the Great Recession. Interest rates would have to rise beyond 5.5% to negatively impact housing. No, real estate recessions do not occur every 10 years like clockwork. The new tax law is not impacting the luxury market. Stock market volatility and the trade war are not influencing housing. It is all just noise.
Some of the buzz may originate from wishful thinking. For others, it may be fear generated from the uncertainty that swirls around the modern economy. Yet, all of the clamor is not based on the facts. Quite simply, nobody can ignore the data. It is a seller’s market with ZERO indicators, or trends, that the market is going to turn in the buyer’s favor anytime soon.
FACT – In the past 15 years, today’s active inventory is at the second lowest level behind 2013. For the market to start tipping in the buyer’s direction, the inventory needs to rise above the long-term average of 8,000 homes for a sustained period of time. Not just exceeding 8,000 homes for a month or two; instead, it must remain elevated for years. During the Great Recession, the inventory exceeded 8,000 homes for six years. The active listing inventory is currently at 4,420 homes and does not look like it will come close to even touching 8,000.
FACT – It is a HOT seller’s market with an expected market time of 55 days. Any time the expected market time, the amount of time it would take for a home on the market today to be placed into escrow, falls below 90-days, it is a seller’s market. When it falls below 60 days, it is considered a HOT seller’s market, one that is pumping on all cylinders and leaning heavily in favor of sellers. Crowded open houses, multiple offers, buyers seemingly tripping over each other to purchase, that has become a springtime norm for Orange County housing and it is no different today.
FACT – More luxury homes have sold so far this year than ever before. Through the first two months of the year, there have been 444 closed sales above $1.25 million, a new record. Last year, the prior record, there were 430 closed sales, 3% fewer. So far, the new tax law has had zero impact on the trend in a record level of closed luxury sales.
FACT – The supply is low and demand is high. One cannot ignore basic supply and demand from Econ 101. When very little supply, a nine-year trend, is matched with very hot demand, a six-year trend, prices rise. Even though interest rates have risen to 4.5%, current rates are still low in historical contexts, making homes more affordable. This is precisely why the rise in interest rates has not adversely affected the market. Instead, it has pushed more buyers to buy before rates continue to rise.