Prices are currently not appreciating despite year over year and month over month increases in the median sales price.
Median Sales Price: Don’t be fooled by reports of the median sales price. Reports of the median sales price for last month are in and in Orange County they are up 21.3% year over year and 1.8% from November to December 2013. As a result, there’s an extra “giddy up” in sellers’ approach to the housing market. If you are a seller or are thinking about selling, please heed the following warning though: hold your horses, values are currently NOT rising like you might think.
The median sales price is up, but values are not rising? Where’s the disconnect? Property values did not recently appreciate, the median sales price did. It is confusing because the median sales price is widely used as an indicator of the direction of values, but it simply is not a precise indicator of exact home value changes.
To understand why the median is not that accurate, let’s dive into Econ 101 and take a look at what it means. When you list all of the sold prices of every home that changed hands in the month of December and sort them from highest to lowest, the exact “middle” value was $570,000, the median sale. That was up from $470,000 in December of 2012, and $560,000 in November 2013. Values had risen dramatically in the past year, but if you ask REALTORS® and sellers who had participated in the housing market during the fourth-quarter of 2013, they would all agree that home values had stalled. Most homes had to reduce their asking price to find success. Here’s a look at the median sales price in recent months:
•August 2013 $560,000
•September 2013 $550,000
•October 2013 $540,000
•November 2013 $560,000
•December 2013 $570,000
So, did values drop $20k from August to October and then rise $30k from October to December? Absolutely not. Instead, the median sales price was skewed by the mix of homes. In the latter months of the year, there were far fewer resale homes sold compared to the same month in 2012. For example, sales were down 19% in December 2013 compared to December 2012. Yet, there were 330 sales over $1 million last month, 14% of all sales, versus 305 a year earlier, 11% of all sales. In sorting the sales from highest to lowest, when there is an increase in the number of higher priced sales taking place, the median is skewed higher.
New home sales have been skewing the median sales price as well. The number of new home developments has skyrocketed and so have the number of new home closed sales. In December new home sales were up 121% year over year. The median sales price for new homes was $707,500. Since they have a higher sticker price, they also skewed the overall median sales price for all of Orange County, significantly.
For real estate professionals and sellers that have been engaged in the market for a while, the reports of increases in the median sales price are extremely frustrating to hear. Recent reports of the median hitting a “six-year high” in December compound the problem by motivating more homeowners to place their homes on the market. With rosy expectations of the Orange County real estate market, most are opting in an aggressive approach by grossly overpricing their homes. This year is going to be all about sellers learning the hard way that the market is not like it was for most of 2012 and for the first half of 2013, when homes flew off the market at seemingly whatever price. Multiple offers, offers over the asking prices, and open houses attended by a steady stream of interested buyers were the norm. That market was driven by lower values, lower interest rates, and fewer homes on the market.
Today, home values are higher, interest rates are higher, and there are more homes on the market. Buyers are much more cautious due to these circumstances and are looking to pay the fair market value for a home, not a made up value $25,000 above the most recent comparable sale. Now, in order to be successful, sellers must rely on the expertise of a REALTOR® to help establish the actual market value of a home.
The bottom line, the next time you read or hear of a change in the median sales price, understand that it is a great gauge of the general housing health, but is not an exact measure of home price appreciation.
Active Inventory: The inventory rose 7% in the past two weeks.
In Orange County there really is not much of a Winter Market, especially this year. With temperatures in the 70’s and 80’s, there is no good excuse to avoid the real estate market. With the holidays in the rearview mirror, it already feels like spring. Our Spring Market actually begins a bit earlier than most of the country due to our incredible weather. There is a noticeable shift in the market right after the Super Bowl, just a couple of weeks away. Cyclically, the inventory rises throughout Orange County, and this year is no exception.
In the past two weeks, the active listing increased by 344 homes and now totals 5,077, the largest increase since August. At this time last year, the inventory only grew by 88 homes and totaled 3,249 homes, 1,828 fewer than today.
Demand: Demand increased by 4% in the past two weeks.
Demand, the number of new pending sales over the past month, increased by 63 and now totals 1,558. Demand will continue to increase and will continue to gain momentum through spring.
Last year demand was at 2,172 pending sales, 614 more than today. Even with fewer homes on the market, demand was much higher and buyers would do whatever it took to isolate a home. The market was soaring at a feverish pace. Flash forward to today and buyers approach the market much more methodically, seeking value, the fair market value.
Distressed Breakdown: The distressed inventory increased by only four homes in the past two weeks.
The distressed inventory, foreclosures and short sales combined, increased by four homes and now totals 275, a 1% increase. Only 5% of the active listing inventory and 12% of demand is distressed. Compare that to last year when it represented 11% of the inventory and 33% of demand, and two years ago when it represented 37% of the inventory and 59% of demand. Today, there are some distressed properties, but they play an overall insignificant role compared to recent years.
In the past two weeks, the foreclosure inventory decreased by 9 homes and now totals 58. 1% of the inventory is a foreclosure. The expected market time for foreclosures is 38 days. The short sale inventory increased by 13 homes in the past two weeks and now totals 217. The expected market time is 49 days. Short sales represent just 4% of the total active inventory.
there are currently 322 active listings and 90 listings went pending in the last 30 days; therefore, we have a 3.58 expected market time (number of months to sell all current active listings).
Two weeks ago the market time was 2.99 months, four weeks ago it was 2.85 months, one year ago it was 1.44 months, and two years ago it was 3.79 months.
Thanks for reading! If you have any questions please feel free to text or call me directly at 714-655-1627