The eight-year seller drought is a relentless trend that has significantly contributed to Orange County’s hot market. Fewer homeowners have opted to sell for years now in spite of massive appreciation and excellent conditions to sell.
The storyline has remained the same for years now, there simply are not enough homeowners electing to sell their homes and make a move. It’s not just a local phenomenon, nor a Southern California phenomenon; it’s a national issue that has been juicing the 5-year seller’s market. Lack of supply, that’s the story. Ask any buyer or any REALTOR® what is the biggest challenge in today’s housing market and the instant response would unanimously be “there aren’t enough homes on the market.”
It makes perfect sense that homeowners were not in a rush to sell from 2008 through 2011. Those were the years where home values took a pounding and homeowners watched their equity vanish seemingly overnight. However, since 2012, those same homeowners watched their equity return nearly as fast as it disappeared. The relentless appreciation has continued and resulted in a record high median sales price. Orange County is back to where it was prior to the Great Recession, yet sellers have still not returned in the same numbers.
From 2000 to 2007, there were an average of 1,500 additional homeowners opting to sell every single month compared to the past five years. That’s an additional 18,000 homes per year. More homes on the market would be a welcome relief to today’s frustrated buyers.
Based upon 2016 closed sales, the turnover rate for the Orange County housing stock is once every 21 years. I’ll say that again, once every 21 years. That’s an improvement over 2015’s… once every 23 years and 2014’s… once every 24 years, but not by much. The markets with the best rates can be found in areas with relatively newer homes (Laguna Woods being the only exception): Talega, Newport Coast, Coto de Caza, Foothill Ranch, and Rancho Santa Margarita. And, the top turnover rate can be found in Ladera Ranch and Rancho Mission Viejo, once every 10 years.
The lowest turnover rates can be found in more established cities: Fountain Valley, Los Alamitos, Seal Beach, Villa Park, and Westminster. The lowest rate in Orange County can be found in La Palma where homeowners are moving once every 41 years.
So, what gives? Why aren’t homeowners moving like they did before? Some think it is because too many millennials are delaying the purchase of their first home and are shacking up with their parents. Others think it is because financing is too tight and that Dodd-Frank regulations are hurting housing. Both issues would have a negative effect on demand; however, housing does not have a problem with demand.
One of the key issues that has impacted the Orange County housing market has been the lack of affordable new housing. Today’s builders have been focusing on catering towards the higher end. The Orange County new home market used to create a lot more local real estate activity as many local homeowners bought new and had to sell their existing homes first. With the county running out of vacant land, this will be an ongoing issue.
Many homeowners are not moving because owning a home long term is now in vogue. The Great Recession rattled our collective psyche and people came out of it changed, looking at homeownership differently. Many are looking to hang onto their homes and dig in their roots, similar to the Midwest philosophy.
Still, the biggest factor preventing many would be sellers from placing their homes on the market is the fear that there will be nothing to buy after successfully selling their homes. This is one of the most prevalent, undermining market forces. Essentially, the low inventory is preventing homeowners from entering the fray. Collectively, they would significantly increase the inventory if they all gave it a shot and marketed their homes subject to finding a replacement property. A seller can accept an offer to purchase their home with the condition that they would be able to find a replacement property within a specific time period, 30-days being most common. If they are unable to find a replacement home within the given time period, then the contract is cancelled or additional time may be negotiated.
Another way around this dilemma is the dreaded “double move” where a homeowner sells their home, moves into a monthly rental, and then takes their time to isolate the most ideal home for their family. There are plenty of moving companies that actually cater to this scenario and can crate and store whatever will not be used at the short term rental.
A lack of inventory coupled with a low housing turnover is a persistent trend that is not going to change in the near future. Buyers, sellers, and homeowners with any desire to make a move need to realistically approach the market and plan accordingly.
Let’s take a look at the numbers…