With such limited supply, this is the hottest November housing market in years.

Hot November Housing: With an expected market time of just 61 days, the Orange County housing market is still firing on all cylinders.

Buyers cannot get a break from the relentlessly hot housing market in Orange County. For homes priced below $1 million, there are simply not enough homes to satisfy the sea of buyers attempting to purchase. Moreover, November 2017 is exceptionally hot for this time of the year.

Just because Starbucks now has festive cups and holiday commercials monopolize the airwaves does not mean that the housing market slows. In fact, during this time of the year, if a home is priced right and in great condition, it will procure multiple offers, often times selling for above its list price. This will continue through Thanksgiving when the market transitions to the slower Holiday/Winter Market.

Within the last couple of weeks, the expected market time dropped from 65 days to 61. Housing is actually getting stronger. It typically does from October through mid-November. The difference this year is that the market was already hot and somebody just turned up the heat.

What is really at play here is that there are plenty of buyers who still want to purchase, yet fewer homes are coming on the market and many homeowners who have been on the market for quite some time are giving up and throwing in the towel in anticipation of the slower holiday season. The active listing inventory drops like a rock and demand remains steady. With a dropping supply and steady demand, the expected market time dips, and the market gets hotter.

Within the past couple of weeks, the active inventory shed 6%, dropping by 337 homes, the largest drop so far this year. On the other hand, demand, the number of new pending sales over the prior month, increased by 16, or 1%. That is precisely why the expected market time plunged from 65 to 61 days in such a short period. The supply of homes dropped and demand increased. At 61 days, this is the hottest the market has been in November since 2012, the beginning of the housing recovery.

Buyers are feeling the pinch too, as the number of homes on the market is evaporating before their very eyes. For the sellers that do remain, open houses are still packed, there are plenty of showings, and attractively priced homes in great condition are entertaining offers within hours of installing the FOR SALE sign in their yards. It is frustrating to be a buyer and glorious to be a seller.

In spite of the fact that Thanksgiving is just a couple of weeks away, November 2017 is going to be very hot for housing.

Tax Reform and Its Impact on Housing: California is going to be hit hard by the proposed tax reform  

Many are asking how the proposed tax reform is going to affect the housing market right here in Orange County. Here’s how it will impact real estate:

  • Lowers the mortgage interest deduction cap from $1 million to $500,000 (on all new purchases)
  • Eliminates the mortgage interest deduction on second homes
  • Homeowners would no longer be able to deduct the interest on home equity loans
  • Eliminates state and local income tax deductions
  • Caps property tax deductions at $10,000
  • Extends the qualification period for exclusion of capital gains tax on the sale of a primary home from two out of the last five years to five out of the last eight years

Remember, at this point this is just a proposal from the House Ways and Means Committee. However, the House is attempting to pass a tax reform bill by Thanksgiving in order for it to move its way through the Senate and onto President Trump’s desk for signing by year’s end.

The tax proposal would hurt homeownership and remove incentives for buyers to purchase. Its impact would be significant and has the potential to shake up the housing industry especially in California and Orange County where the median sales price is much higher than the rest of the country.

Active Inventory: The active inventory dropped by 6% over the past couple of weeks.

The active listing inventory shed 337 homes in the past two weeks and now sits at 4,878, a 6% drop. It is the largest drop so far this year, bringing the inventory to the lowest level since March. The inventory will continue to drop through the end of the year, which will result in a start to the New Year with less than 4,000 homes, the second lowest inventory behind 2013. On January 1, 2013, there were only 3,249 homes on the market. This year started with 4,071 homes.

Last year at this time, there were 5,955 homes on the market, 1,077 additional homes, or 22% more than today.

Demand:  Demand increased by 1% in the past couple of weeks.

Demand, the number of homes placed into escrow within the prior month, increased by 16 pending sales, or 1%, in the past two-weeks, and now totals 2,409. Demand will remain close to this level for the next month before it starts its seasonal drop from Thanksgiving week through the end of 2017.

Last year at this time, demand was at 2,468 pending sales, 59 more than today. That is not that big of a difference considering that there are far fewer choices on the market today compared to one year ago.

The expected market time, the amount of time it would take for a home that comes onto the market today to be placed into escrow, dropped from 65 to 61 days, on the cusp of a hot seller’s market. Last year’s expected market time was at 72 days.

Luxury End:  Luxury supply plummets while demand rises. 

In the past two weeks, demand for homes above $1.25 million increased from 302 to 325 pending sales, up 8%. That is a solid improvement and a clear indicator that the luxury market is making its final push to close out the year strong. The luxury home inventory decreased from 1,818 homes to 1,712, a 6% drop in the past two-weeks. The luxury inventory will continue to drop through the end of the year. Since demand increased and the inventory dropped, the expected market time for all homes priced above $1.25 million dropped from 181 days to 158.

For homes priced between $1.25 million and $1.5 million, the expected market time decreased from 111 to 100 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 173 to 154 days. For homes priced between $2 million and $4 million, the expected market time dropped from 218 days to 164 days. In addition, for homes priced above $4 million, the expected market time increased from 326 to 424 days. At 424 days, a seller would be looking at placing their home into escrow around the start of January 2019.

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Courtesy of the Orange County Housing Report. Written and distributed by Steven Thomas | Quantitative Economics and Decision Sciences