As is common for this time of year, the amount of homes for sale has increased and demand has decreased. In Orange County we have seen a 23% increase in inventory since this past Spring. There are presently 7,070 homes for sale as compared to 5,730 in May. Before you start thinking the bottom is going to drop out, keep in mind the historical average is 8,000. It is taking 98 days for a home to go in to escrow. We have moved from a hot seller’s market to a balanced market. (When the expected market time is between 90-120 days, we are considered to be in a balanced market where it doesn’t favor buyers or sellers.)
While there has been a recent shift in the market, most economists are not predicting price declines in California. Residents are feeling more confident about their jobs, which is needed to make a large purchase such as a home. In fact, California had a year-over-year 3.4% change in per capita income, which was the strongest in the nation.
There is presently more competition for homes under $1,000,000 in Orange County, as compared to the luxury market. This theme will likely continue, as there is a lack of new home construction for this price point. The Federal Reserve Bank of Kansas City said the nation is at its lowest level of new homes constructed per household in 60 years of record keeping. This is especially true for “entry level” homes due to builders focusing on luxury homes. The entry level home is less profitable due to higher costs for lots, labor, lumber and development costs. Another reason for the lack of entry level homes is because homeowners are not trading up as frequently as in years past. Many people have interest rates at historic lows and are reluctant to give up their low rates and payments. This has caused the lower end of the market to see more competition and rise faster than the upper end. The recent market shift is showing signs of affordability reaching a point where rapid appreciation can no longer be sustained due to rising interest rates and prices. A moderation of house prices is more likely than a steep decline at this point in time, as we continue to experience a balanced market, but move toward a buyer’s market.