Orange County Housing Report: 2013 Market Recap & 2014 Forecast

by Huntington Beach Realtor Scot Campbell – January 5th, 2014

The New Year always brings new energy and changes, but one thing we can count on is a slew of Market Forecasts.  Below is a 2013 Housing Market Recap and 2014 Forecast written by Steven Thomas of Reports on Housing.  I hope you enjoy it… this is just one of many I hope to share with you in the next few weeks:

What does the New Year mean for housing?  First, let’s take a look back at what happened in 2013 in terms of the inventory, demand, expected market time, and distressed properties.

Active Inventory: The inventory increased despite unbelievable demand.

The year started with an active inventory of 3,161 homes, the lowest point of the year. That level is exceptionally anemic, making the housing market exceedingly difficult to navigate as a buyer. With strong demand, buyers were lining up to purchase anything and everything that came on the market. Homes procured multiple offers and cash was king. Just about every home in a neighborhood sold for more than the last sale. First time home buyers with small down payments simply could not compete and were squeezed out of the market. Values surge in this type of an environment.

The active inventory bounced along the low 3,000’s through mid-March. From there, they increased unabated through October, nearly doubling. The inventory reached a height for the year in mid-October at 6,350 homes. Despite incredible demand, the inventory increased in every price range and every city in Orange County. There was change in the air and, at first, nobody saw it coming. But, sure enough, more and more homes were coming on the market and some were not selling.

The big change in the market was the fact that values had risen to a point where it no longer made sense for investors to continue to participate, so they vacated the market. What had seemed like a HOT deal six months or a year ago, no longer looked as attractive. Sellers had been getting away with listing homes above the last sale. They were able to obtain a higher price because buyers and investors still perceived that they were getting a “deal.” But, as values were skyrocketing, that could only last for so long. Year over year it is estimate that values increased between 17% and 20%, and in some areas and communities, even more. In mid-March, as many values had approached levels where investors were not interested, buyers did not feel compelled to jump at any price. The pendulum began to swing the other direction at that point, and by the end of the summer, there was a palpable change in the market.

The rare open house at the beginning of the year was attended by throngs of people. Some REALTORS® reported over 100 potential buyers in just one day touring an open house. That was not the case in the Fall or Holiday Markets. Instead, only a handful of buyers made their way through an open house. One directional arrow at a busy intersection at the beginning of the year was replaced with a sea of directional arrows. The market had definitely changed.

Since the market had changed, so did the strategy in approaching the market as a seller. Unfortunately, the media had not caught up with the market, as they were busy reporting year over year statistics that were staggering, but month over month statistics were slowly telling a different story. Many homeowners ignored the facts that were presented to them by professionals that were working in the trenches every day. As a result, the inventory blossomed on the backs of overzealous, irrational homeowners with overpriced asking prices.

Buyers were no longer willing to pay thousands of dollars above the last comparable or pending sale. Instead, they wanted to pay the fair market value of a home. So the inventory rose until hitting a peak in October. Typically, the inventory peaks at the end of August, but this year’s delay was due to too many overzealous sellers coming onto the market despite the fact that the Spring and Summer markets had passed. As the market moved deeper into the holidays, the inventory dropped more rapidly with fewer homes entering the fray and many sellers opting to throw in the towel and enjoy the season.

Within the past two weeks, the inventory shed an additional 416 homes, an 8% drop, and now totals 4,733. Last year at this time there were 1,573 fewer homes. There are 50% more homes on the market today.

OC Inventory January 2014

DemandBuying an Orange County home evolved from “must have” to “I am not overpaying.”

At the beginning of the year there simply were not enough homes on the market to feed the seemingly insatiable buyer appetite. Every buyer and every REALTOR® wanted more inventory. Through mid-March, there were 14% fewer homes on the market compared to the same time period in 2012. The inventory tap was left at a trickle.

The market shifted away from the buyer’s attitude of “I will do whatever it takes to purchase,” as values reached a level where they were no longer recognized as a spectacular deal.

Demand, the number of new pending sales over the prior 30 days, peaked in June at 3,154 pending sales. That was much less than the 3,992 peak of 2012. But comparing 2013 demand to recent years was actually pointless because embedded in prior year numbers were a tremendous number of short sales, and about half of all short sales never closed. So, demand in those years was artificially inflated.

There was a noticeable downshift in the Fall Market, as demand dropped by more than 25%. The market slowed further during the Holiday Market, another 25% drop. Compared to 2012 when the market slowed only slightly, 2013 felt completely different. The rush to purchase had been replaced with a more relaxed pace where buyers were willing to take their time to isolate a home that was priced right, at fair market value.

Interestingly, the inventory tap increased during the second half of the year, with 13% more homes placed on the market in the third and fourth quarters of 2013 compared to 2012. There were even more homes to choose from and buyers took their time.

Within the past two weeks, demand dropped by 269 pending sales, or 15%, and now sits at 1,495. In comparing year over year demand, it is currently 26% lower than last year at this time even though there is 50% more homes on the market.

Distressed Properties: Foreclosures and short sales played a much smaller role in the overall market.

OC Distressed Inventory Jan 20142013 was the year that homeowners with equity dominated the market and distressed sales dissipated to the point where there impact was almost unnoticed. There were 71% fewer foreclosures and 61% fewer short sales. In December, 91% of all closed sales were homeowners with equity versus 7% that were short sales and only 2% that were foreclosures.

The distressed inventory started the year at 400 total foreclosures and short sales, and ended the year at 271. It actually hit a low in May, totaling 169. The active distressed inventory grew a bit too during the second half of the year as demand dropped for anything that was overpriced, which surprisingly included foreclosures and short sales as well.

Distressed homes remain one of the hottest segments of the Orange County housing market with an expected market time of 38 days. Within the past two weeks, the distressed inventory decreased by 27 homes and now sits at 271, a 6% drop.

Expected Market Time: the evolution of the housing market in 2013 can be seen in the increasing expected market time.

After starting the year with an expected market time of 47 days, the market sizzled and it dropped to just 33 days in mid-March. By July, the expected market time had grown to 60 days and it hit a high at the end of December of 2.9 months, or 88 days.

As the inventory increased and demand dropped, the expected market time rose.

The expected market time for all of Orange County grew to 3.17 months in the past two weeks. It is the first time it has been over 90 days since January 2012. For homes priced below $1 million, the expected market time is 2.6 months versus 1.4 last year. For homes over $1 million, the expected market time is 8 months versus 5.2 last year.

The 2014 Forecast: the tug of war between overzealous sellers and buyers only willing to pay the perceived fair market value for a home will prevail for most of the year. 

Now that the housing market has been in recovery mode for some time, expect less government intervention, more “tapering,” and increased pressure on interest rates. This will ultimately cut into home affordability here in Orange County. Here’s the forecast:

  • As more overzealous, overly optimistic homeowners enter the fray and overprice their homes, expect the inventory to rise to about 8,500, peaking by the end of August.
  • Demand will ultimately depend upon the number of homeowners who price their homes right according to the current fair market value. Year over year, the first half will be a bit slower and the second half a bit stronger as sellers adjust their expectations.
  • With an increase in the inventory and a push by buyers not to overpay, expect muted year over year appreciation close to zero.
  • The housing market will follow a normal housing cycle.  The strongest demand coupled with a lot of fresh inventory will occur during the Spring Market, followed by slightly less demand and a continued fresh supply of homes in the Summer Market, then another drop in supply and fewer new listings in the Autumn Market, and, finally, all the distractions of the Holiday market will be punctuated with the lowest demand of the year and few homeowners opting to sell.
  • The number of successful, closed sales will decrease slightly with fewer sales in the first six months and a marginally stronger second half of the year. There will be an increase in the number of “move-up” sellers. It is a smart tactic to move-up before interest rates jump higher. In time it will prove to be a very wise decision.
  • The distressed inventory will remain low with a very similar level of successful short sales and foreclosures, representing less than 10% of the overall market. Equity sellers will continue to dominate the scene.
  • Even with the last year’s increase in interest rates, expect interest rates to continue to climb as the Federal Reserve maintains its strategy to taper their involvement in purchasing bonds and mortgage-backed-securities. Their taper will be gradual and so will the increase in interest rates. Interest rates at about 5.25% should not come as a surprise.

The bottom line, 2014 will feel a bit different compared to the past couple of years. The first half of the year will be a learning experience for sellers as they deal with buyers who no longer want to pay a premium over the most recent sale. As the headlines change and sellers begin to shift their expectations, sellers will have a much better strategy during the second half of the year. Until then there will be a tug of war between buyers and sellers. The quicker sellers adjust, the quicker they will achieve success. At the end of the year, when we look back, values will remain somewhat the same, fewer homes will have been sold, and distressed sales will continue to take a backseat to homeowners with equity.

Homesearching has never been easier on your smart phone, iPad/tablet, or computer… simply go to www.ScotCampbell.com on your browser (No App Needed) to see all of the homes listed in the Realtor MLS updated continuously!

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For questions about buying and selling real estate in Huntington Beach and Coastal Orange County, contact Scot Campbell.

Scot CampbellHe is the President of The Scot Campbell TEAM at Coldwell Banker-Campbell Realtors in Huntington Beach, CA. 

Scot is a Previews Property Specialist,  has been a licensed for over 27 years, and has brokered over 1000 homes… including just about every type of transaction imaginable.

Read his profile and client reviews at www.ScotCampbell.com

He can be reached at 714-336-0394 (cell/text) or via email at Scot.Campbell@ColdwellBanker.com

 

photo by: bayasaa

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