Summer 16 – A Cooling Orange County Real Estate Market
Here’s the scoop, the best time of the year to sell a home is in the rearview mirror, the Spring Market, March through mid-June. That’s the prime time to place a home in escrow in order to close now through mid-August. We hear about tons of closed sales that occurred in May, and, in a couple of weeks, reports of even more sales in June will prompt many to think that “right now” must be the best time to sell. Unfortunately, these are reports of closed sales, homes that have gone through the escrow process, a process that lasts, on average, about 45 days. This time period is devoted to inspections, appraisals, and the buyer’s investigation of all documentation and disclosures. There is a truck load of paperwork to go along with it and it all takes time to sift through.
Homes that close in July were negotiated and placed into escrow in May and June, during the spring. Homes that are negotiated today will not close until August, the end of the second best time of the year to sell, the Summer Market. Housing will then shift to the Autumn Market, mid-August through mid-November. Closed sales will slow from July to August, and will continue to slow each and every month during the autumn.
In order to close in August, sellers only have a few weeks to negotiate a contract and place their homes into escrow. Here’s the “catch 22,” buyers are becoming less flexible and are zeroing in on the Fair Market Value. This can be determined by carefully reviewing the most recent comparable pending and closed sales. This is NOT a time to stretch the asking price as buyers are less inclined to overpay for a home.
Why were buyers more willing to overpay in the Spring Market and not the Summer Market? The answer is simply less competition due to summer distractions. The distractions started a few weeks ago with the graduating class of 2016. With more sunshine and the kids out of school, bring on the family vacations, trips to the beach to play in the surf and sand, refreshing dips in the pool, picnics at the park, a day trip to the local mountains, not to mention the San Diego Zoo, LEGOLAND, Knott’s Berry Farm, Magic Mountain, Raging Waters, the Discovery Science Center, Disneyland, and California Adventure. For some, buying a home takes a back seat to family fun. Many will still purchase, but not at WARP SPEED like the Spring Market.
With less competition, the expected market time (the average time it takes to place a home on the market and into escrow) has increased considerably since the peak of spring, the very beginning of May. It has risen from 55 days to 74 days, adding an additional 19 days to the expected market time. From now through October, it will continue to grow longer and longer. At 74 days, Orange County housing is still a slight seller’s market, which is when sellers are able to call more of the shots during the negotiating process, but appreciation slows considerably. Housing is moving towards a balanced market, one that does not favor buyers or sellers, a market time of 90 to 120 days.
A Summer Approach for Sellers: when buyer traffic is down and market time is rising, now is not the time to overprice. Multiple offers can still be achieved, but pricing is absolutely fundamental in order to achieve success. Ignoring the fundamental shift in activity during the Summer Market will result in wasting valuable market time during the second best time of the year to sell. The housing market downshifts considerably more in September.
A Summer Approach for Buyers: even with less competition, it is still a seller’s market. Buyers are NOT able to call the shots. Orange County housing is not even close to tipping the scales towards buyers. Instead, paying the Fair Market Value determined by recent market activity is key. In some price ranges and neighborhoods the local market may still be really hot. In those cases, pushing the envelope a bit in price may be the winning strategy to stomp out the competition.
Luxury End: Demand dropped by 19% in the past month for homes priced above $1 million.
The summer slowdown has been felt the most in the upper price ranges with demand dropping by 19% in just a month. The active inventory above a million increased by 8% in the past month as well. As a result, the expected market time has risen substantially.
For homes priced between $1 million to $1.5 million, the expected market time has risen from 102 days to 143 in the past month. For homes priced between $1.5 million to $2 million, the expected market time swelled from 137 days to 159 days. For homes priced above $2 million, the expected market time grew from 231 days to 322 days. For proper perspective, 322 days from today is the end of May 2017. That’s nearly a year!
Vice President – Commercial Division and
JerryNewestLuxury Home Specialist
REMAX Prestige Properties