Peaks and Valleys in Orange County Real Estate

My loosely scientific and somewhat subjective interpretation of the market has shown me year after year that the super active Spring market, characterized by the insurgence of the largest number of qualified and motivated home buyers going after the lowest number of homes listed for sale, begins right after the Super Bowl and peaks at Memorial Day, which marks the start of the summer market lasting until roughly Labor Day, then it’s all downhill through Christmas and New Years.  The line chart of the actual annual statistical data for the last four years on the total number of homes listed for sale and the demand for said homes, as reported by my friend and OC real estate economist Steven Thomas, looks like the outline of Saddleback Mountain and Mount Everest (in reverse), depending on which stats you’re talking about. Here’s the scoop.

Supply/Inventory of Homes for Sale:  The annual ebb and flow of Orange County homes listed for sale follows the outline of the Saddleback Mountains.  The number of homes to hit the market traditionally rises very gradually right after New Year’s Eve, reaching the peak just before Labor Day, then a steady decline, with a slight uptick to complete the saddle in the middle of the picture, then a slow descent all the way to the end of the mountain range to reach the end of the year.    And even though our inventory of homes for sale is lower this year than any year back to 2013, the outline follows the same general shape of peaks and valleys.

Demand for Homes:  This is the number of homes actually placed into escrow. This annual rise and fall of demand, according to the line graph from Reports on Housing, imitates the iconic outline of Mount Everest, with the image reversed so that the steepest ascent to the peak is on the left instead of the right side of the image.Demand for homes rises rapidly from the beginning of the year to about Memorial Day, driven by the frenzy of buyers who’ve paid for all of last year’s Christmas presents, received their W-2 statements from their employer, and have their tax refund money in hand.   They accept the challenge of being one of multiple offers on homes, especially in a year like this one where the supply of homes, while gradually rising through the spring, is lagging behind the number of available homes from the past few years.  They even agree to pay slightly higher than the asking price in order to win the fight, which drives up home values.  And then just like the mountain, demand reaches its peak, which in Orange County means by Labor Day, at which point it begins its descent to the lowest point of all, New Year’s Eve.

The bottom line is that demand rises faster than supply from New Year’s to Memorial Day creating the busy Spring Market, tilted in favor of sellers, then supply builds up as we go from Memorial Day to Labor Day in the still busy Summer Market which is a more neutral market and peaks for supply, then both supply and demand decline back into the valley as we coast into the Holidays.  This year is right on track.