Data Source: Steven Thomas, Reports on Housing
Appreciation: With more homes on the market and the expected market time rising, the rate of appreciation has slowed. At the start of last year, home values were at lows dating back to 2003. With interest rates at record lows, it didnÃ¢â‚¬â„¢t take long for investors to see the light first; Orange County was priced at fire sale levels. Investors began the run on housing. The entire county looked like a deal.
As 2012 ran along, regular buyers entered the fray and they too were eager to purchase anything that they could get their hands on. At the same time, the active listing inventory was dropping continuously, unabated, and had been since June of 2011. The drop in the listing inventory continued until January of this year. With the inventory dropping and demand rising, prices increased. It was a classic supply and demand issue. When there are too many people looking to purchase a scarce commodity, prices go up.
As the inventory reached record lows at the beginning of this year, there was tremendous pressure on pricing and homes appreciated at a very fast rate. Buyers were willing to pay way above the most recent neighborhood sale. Almost every closed sale was a recent record high. It appeared as if price appreciation was going to continue at a ridiculous pace.
However, change was afoot. First, prices were rising to levels where it did not make as much sense for investors to purchase. The Ã¢â‚¬Å“fire saleÃ¢â‚¬Â prices were gone; homes had appreciated considerably. What looked like a tremendous deal a year earlier looked more like normal pricing for Orange County housing. Investors looked elsewhere, Riverside and San Bernardino counties.
The other major change in the housing market was the increase in the active inventory. After dropping for 19 months straight, the active listing inventory bounced along a ridiculous low level from January through March 2013. From mid-March to today, the inventory has ballooned from 3,183 homes to 5,965, an 87% gain. The increase was not because the market had cooled; instead, the increase came as a direct result of overpriced, overzealous sellers placing their homes on the market at prices significantly higher than the last neighborhood sale, a formula that had worked. But, the fire sale was over and buyers simply did not want to participate in paying too much for a home.
Overpriced homes were selling fast and furiously from March 2012 through March 2013, because they still looked like a deal and were affordable. Interest rates were also at insane, unfathomable levels, bouncing around 3.5%. Rates have since jumped a point and have taken a bite out of home affordability.
Today, the true Fair Market Value of a home is where buyers are comfortable paying for a piece of the American dream. The Fair Market Value is not what a seller wants to net from the sale of their home; it is the value of a home based upon the cold hard facts: the most recent pending and closed sales. There is still a very anemic level of properly priced homes on the market today. That is easy to correct though, sellers need to reduce their asking prices or pull their homes off of the market.
So, the market has changed. Housing values have risen and are no longer a fire sale where buyers are willing to overpay for a home. Also, the inventory has increased substantially on the backs of overpriced sellers. From month to month, appreciation will slow for the remainder of the year. Expect year over year appreciation to look very strong, but that is only because values were much lower a year ago. It is not an indicator that homes are currently appreciating.
Provided by Orange County Gay Friendly REALTOR, Todd Moeller
Seven Gables Real Estate
BRE License Number: 01762788