My name is David Feldberg and I’m a homeowner and and real estate broker of 20 years; and I, just like everyone else, like to know “what did that home go for”? It’s almost a sport here in Orange County seeing how much your home can appreciate in relatively short period of time.
But as I said I have been a homeowner AND real estate broker for 20 years so while I’ve seen many years with double digit appreciation I have also seen a number of years where it stunk to be a homeowner (some more than others).
Whatever the future holds I don’t know (although I have my educated guess) the market is currently shifting from a red hot sellers market to one that is a bit more modest in temperature. Supply is increasing and demand is waning. Let me be clear I’m not saying the sky is falling and the bottom is about to fall out of the real estate market but we are overdue for some balance to return to the housing market. So if the market is shifting and you wanted to get 4 questions answered in this market here is what I think you should be asking.
Is my Approval Still Good?
If you received an approval in March or earlier you should definitely check with your lender to make sure you are still approved up to the same price with a similar payment. Mortgage rates have risen by almost 2% since March so your payment may have changed substantially. If the payment increase is too much you can either drop your approval price OR explore a 5-10 year ARM. The rates here are substantially lower.
How is Supply Trending?
Basic economics fundamentals supply and demand have really been fueling this market the last 18 months. Prior to three months ago the demand for homes (fueled by low interest rates and people needing extra space at home) was through the roof. The supply (number of homes for sale) was at a 40 year low. This is the area where we are seeing most of the evidence of a shift in the housing market. Over the last 3 months rates have increased dramatically thus slowing demand and homes are not selling as quickly at higher prices thus supply is increasing. Should either the demand kick back up OR supply tighten again expect prices to stabilize if not reverse directions pretty quickly.
Should I Buy Now or Wait?
This is the million dollar question these days and I probably get asked it twice a day. I have a few quotes that come to mind here. First is my father in-law who told me that everyone is a payment buyer. They don’t care about the price just the monthly payment. There is definitely some truth to this statement. Over the last 24 months prices have really exploded but demand was still strong, why you ask, low payments. The other is a quote from a fellow agent from about a week ago. She was exhausted and she said my buyers think its 2008 and my sellers think its 2021 and they are both wrong! Again a lot of truth in there. Gone are the days of 30-40 offers in a weekend on a single listing with prices that make you scratch your head BUT this market is not in a free fall nor will it be anytime soon! So should I buy now or wait, I don’t know that you are going to see prices plummet (especially with inflation rearing its head) so as my father in law says if the payment works, then its the right time to buy.
Ps. There was an interesting article in Forbes that I read a few days ago that talks about some of this as well.
Should I Wait to Sell My Home?
Well that’s a loaded question to ask a real estate agent if I have ever heard one. What real estate agent is going to say wait? Its their job to say sell now! So how do you know if you should wait or list now. For me there is a lot to consider if I want to sell my house and buy a new one. My property taxes are most likely going to go up significantly, my payment will probably go up, moving expenses, etc. On the upside I might get a house that fits my lifestyle better, or is in that neighborhood I really want to be in, or maybe it has that extra bedroom for my home office which seems like its going to be a permanent thing now. Whatever your choice there are pros and cons with it and what my advice to you would be if you are going to sell, what’s the reason? Because no one has a crystal ball and I can show you talking heads with impressive credentials that will say the housing market is going up and others to say the housing market is going down. So in my opinion don’t try to time the market just live your life and when the reason is significant enough to move (and sell) you will.
I really enjoy talking housing and economic data and with my clients, friends and family. If you ever have any questions about buying or selling your home in Orange County contact me today.
Welcome to our August newsletter, where we’ll explore residential real estate trends in Orange County and across the nation. This month, we examine the state of the U.S. economic recovery using Real Gross Domestic Product (GDP)1, the potential effects of the Delta variant on the housing market, and the ways in which the homebuyer profile changed over the last year.
In terms of GDP, which is the broadest measure of goods and services produced, our economic recovery stands at about 70% of where we would likely be if the pandemic had never happened. Unfortunately, the Delta variant has diminished the likelihood of the pandemic ending with any sort of speed and caused a return to mask mandates in many parts of the country. Although full lockdowns are unlikely, high case counts and a return to near-universal masks and social distancing will disrupt our economic recovery.
The uncertainty surrounding the Delta variant and its effects on the economy caused rates to fall. Participants in our financial markets know that the Federal Reserve will try to stabilize the U.S. financial markets in times of uncertainty. At this point, it’s a given. The further decline in interest rates reflects that. Mortgage rates are now extremely close to the all-time low. At the same time, however, prices have risen, and the profile of homebuyers has shifted. More homebuyers are investors and full-cash buyers. With low-rate financing and a high number of qualified buyers, the rising prices haven’t reduced the demand for homes as one might expect.
As we navigate this period of high buyer demand and low supply, we remain committed to providing you with the most current market information so you feel supported and informed in your buying and selling decisions. In this month’s newsletter, we cover the following:
- Key Topics and Trends in August: Uncertainty around the Delta variant will keep rates extremely low, which will likely drive up the already-high demand for housing. The number of home sales is on pace to be the largest since 2006.
- August Housing Market Updates for Orange County: Single-family home prices fell slightly in July from the all-time highs reached in June. Condo prices rose to an all-time high.
Key Topics and Trends in August
We’re about a year past the initial economic devastation caused by the pandemic. The second quarter of 2020 saw the largest single-quarter drop in GDP in history (-9%). GDP and employment together reveal much about the economic climate and typically trend with housing prices, but they do not explain the current rise in home prices. We’ll still discuss GDP and employment, however, because they are useful longer-term indicators.
The U.S. Bureau of Economic Analysis reported a 1.6% quarter-over-quarter gain to GDP in 1st Quarter (1Q) 2021, which is about 1% higher than the long-term quarterly growth rate of 0.6%. We need to outpace the long-term growth rate to get back to pre-pandemic levels. If it weren’t for the Delta variant, we might actually get there. The substantial infusion of cash into the economy has boosted GDP, but we’re still only at 70% of pre-pandemic levels. At the same time, there are about 10 million fewer jobs due to the pandemic. As the Delta variant runs through the country, our recovery will likely stall and the loss in GDP could be permanent.
The chart below illustrates the cost of a recession. While it depicts U.S. GDP from 2016 to 1Q 2021, it also illustrates economic patterns that occur in all recessions. GDP tends to grow at a fairly consistent rate during economic expansions. The green line illustrates the expected GDP had the pandemic never happened. As that green line shows, we are 30% below where GDP was expected to be in 1Q 2021. In other words, we’re still underwater despite the impressive quarterly increases in GDP.
The fresh uncertainty surrounding the Delta variant caused rates to drop. The Federal Reserve is expected to support the financial markets by infusing money into them, which lowers rates and, in this instance, causes inflation to rise. As shown in the chart below, we’re currently hovering at historically low mortgage rates, which will likely remain for the rest of the year. Low rates and inflation both incentivize buying. When consumers know that the dollar’s purchasing power is diminishing quickly, it makes more sense for them to buy a home sooner rather than later.
As we look at the last 12 months of annualized home sales in the chart below, we can see that sales rose significantly since last June. Although the rate of sales decelerated from January to May 2021, it rose again in June, which is a seasonal norm. More homes are coming to market and being bought quickly due to the excess demand. In 2020, incentives to purchase a home translated to the most homes sold in a year since 2006. Although we’re only halfway through 2021, it’s safe to say that home sales will outpace those in 2020.
Demand for homes hasn’t diminished as prices soared over the last year. In a typical year, we would expect that a 20% increase in home value would price many potential homebuyers out of the market, thereby causing a price correction. In this instance, we’ve found that to be half true. First-time homebuyers are usually the first to get priced out of the market. Over the past year, we are seeing fewer first-time buyers coming into the market. However, even though there may be fewer buyers in one category, there are plenty of buyers in other categories to make up for them. In this case, we are seeing more investors coming into the market. Cash sales have jumped considerably, and homes are selling extremely quickly. As a result, it looks like prices will climb higher in the near future.
While the market remains competitive for buyers, conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure the transition goes smoothly.
August Housing Market Updates for Orange County
During July 2021, in Orange County, the median price for single-family homes fell from the all-time high reached in June. Condo prices rose month-over-month, reaching all-time highs. Year-over-year, single-family home prices rose 23%, while condo prices rose 19%.
Single-family home inventory began to climb in February and March 2021, which is when more sellers typically enter the market, but quickly reversed, declining from April through July. To fully understand current inventory, we must look at it in the context of last year. In 2020, fewer people wanted to leave Orange County than wanted to move to the area, which drove inventory down to record low levels. New listings, therefore, improve the current market conditions. Since the start of 2021, more new listings have been coming to market, but these have not increased total inventory because of the high sales volume relative to the available inventory. In July 2021, Orange County had over 2,000 fewer homes for sale than it did in July 2020: a 31% decline. Furthermore, when we compare the current inventory to July 2019 (pre-pandemic) levels, the number of homes for sale has declined by 47%. The sustained low inventory will likely cause prices to appreciate throughout 2021.
Similar to single-family homes, the number of condos on the market has declined during 2021. Demand for condos has risen as new listings entered the market.
Both single-family homes and condos spent far less time on the market in July 2021 than they did in July of last year. As we’ll see, the pace of sales has contributed to the low Months of Supply Inventory (MSI) over the past several months.
We can use MSI as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three means that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI means there are more sellers than buyers (meaning it’s a buyers’ market). In July 2021, the MSI reached one month of supply for single-family homes and condos, indicating that the market favors sellers.
In summary, the high demand and low supply present in Orange County have driven home prices up. Inventory will likely remain low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period.
We expect that the number of new listings will continue to increase in the remaining summer months. The current market conditions, however, can withstand a high number of new listings coming to market, and more sellers may also enter the market to capitalize on the high buyer demand. As we navigate the summer season, we expect the high demand to continue, and new houses on the market to sell quickly.
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.