Residential Buyer Demand Remains High in Orange County
Ron Garafalo | September 12, 2017
As September begins and we look back at the summer of 2017, I do hope that all of you had a wonderful summer filled with good times. It was definitely a summer that generated significant real estate activity. The theme that started last year continued into this year where the market featured a significantly lower number of homes for sale, while the number of homes sold and sale prices remained strong.
As our country and Orange County specifically experienced positive news about job creation and interest rates remained at historically low levels, buyer demand remained high. However, with inventory (the number of homes for sale) not keeping up with that demand, this created situations we have not seen for about a decade. Many buyers experienced difficulty finding a home as some properties had accepted offers shortly after they were listed. Other times, buyers were faced with multiple offers on a home they were interested in.
Lawrence Yun, chief economist for the National Association of Realtors, said, “Buyer interest in most of the country has held up strongly this summer and homes are selling fast, but the negative effect of not enough inventory to choose from and its pressure on overall availability put the brakes on what should’ve been a higher sales pace.” NAR recently described overall home sale inventory as “anemic.”
I have spoken to many fellow Realtors that have said they are busier than they have been in many years, and are working very hard to assist their buyers in finding a home, or working with sellers when they have multiple offers on their home. They need to convey to their buyers that it is important to view homes soon after they come on the market, and if interested, many times they must make an offer at or near list price. Once again, even then, agents and buyers are finding that they are in a multiple offer situation. This transition from a buyer’s market to a seller’s market has been occurring for about a year. In 2015, 5,848 homes were sold in our entire MLS in June, July and August. That number increased to 6,682 in 2016 and 6,850 in 2017. During that same time period, the number of homes for sale reached 14,808 units at the end of August 2015 and decreased to 12,213 by August 2016 and to 10,264 at the end of August 2017.
Buying and selling a home is one of the cornerstones of our economy. Home ownership is viewed by many as the “American Dream.” However, the process of buying or selling in this area can be very complicated. For a seller, marketing their home effectively to a large pool of agents and buyers, and pricing the home accurately is critical. For buyers, knowing about properties as soon as they get listed and making an educated offer, based on accurate information, is just as important. For both buyers and sellers, the need to work with an experienced, professional and knowledgeable real estate agent, one who understands the process, pricing and can serve as a calming voice when things get stressful, is more important than ever.
Summer is traditionally the busiest market for home sales. Many buyers and sellers have a shared interest in moving so their children can start the school year in their new home. Also, the summer time is also busier because it is simply easier to move when the weather is favorable. However, it is important to know that home sales remain strong even after the summer is over. There are many buyers and sellers where the above-mentioned situations are not a factor.
This brings us to the question of what does the fall real estate market look like? I believe that the fall market will be very similar to the summer, with the main difference being that the number of homes sold will be less than the summer, but still at very strong levels when compared to similar time frames in previous years. The lower inventory that we have been experiencing will not change dramatically. There will still be many buyers looking for homes. Interest rates will remain low, making it a desirable time to buy a home. We are at a time when pricing has been increasing, and the dialogue on a national level has been that interest rates will be going up in the future. Buyers realize that waiting to buy a home may very well cost more in the years to come, so I don’t see the demand on the buyer side decreasing.
I believe that home prices in Orange County will continue to go up in the coming years, not like they did 10 or 11 years ago, but at a more “normal” level of appreciation—several percentage points a year. At the same time, I believe interest rates will increase as well. If a home were priced at $200,000, and increases in value 3% a year, in two years it would be valued at $212,180. During that time, if interest rates go from 4.25% to 5.25%, a buyer putting down 10% would have a monthly payment on a conventional 30-year mortgage that would increase from $885 to $1,054 buying that $200,000 home. Today’s buyers are aware of this, and I believe this is one of the main reasons we are seeing such strong buyer demand. Of course, these are just projections, as the future of home prices and interest rates are never a certainty.
As we move forward, my hope is that sellers are happy that their home is worth more now than it was several years ago and that they may be in a better position to sell. On the other hand, buyers are pleased that interest rates are still at historic low levels, and home prices, even though they have increased in the last year or two, are still attractive. Together, this would make for a market that gives buyers more homes to choose from and sellers the ability to sell in a positive environment.
Finally, as previously stated, whether you are a buyer or seller, I strongly believe that the most important decision you can make is to contact a real estate professional. When dealing with what is probably the largest financial decision in your life, the importance of working with a real estate professional is critical. As Realtors, we pledge to follow the Realtor Code of Ethics, which obligates us to always do what is in the best interest of our clients. I wish you all a wonderful fall season.
Ron Garafalo is 2019 President of the Hudson Gateway Association of Realtors, Inc