Final Quarter (Oct.- Dec.) of 2014 Irvine Housing Market Trends & Market Trends for the 1st Quarter of 2015
The Irvine Housing Market has seen a seasonal slowdown in the number of Sellers and Buyers during the months of October through December 2014
The Irvine Market statistics for the months of October through December 2014, has returned to the seasonal slowdown we have not seen in the past few years–both in price appreciation and the number of sellers and buyers entering the Irvine Housing Market with one exception–the new home builders’ market.
The price appreciation in the resale market in Irvine over the last twelve months grew at the slowest rate in the last three years. However, once again, Irvine’s appreciation was higher than the Orange County’s appreciation. Depending upon neighborhood, Irvine’s housing grew at between 5 and 9 percent, while Orange County’s housing appreciation was up by only 4.9 percent.
Our Bold Prediction
Moving forward into 2015 the prices of resale homes will continue to rise, albeit at a slower rate, with the first quarter experiencing the highest rate of growth for the new year. We predict a total appreciation for resale homes during calendar year 2015 to rise at 4 percent. Further, we expect upwards of half of all the appreciation to be in the first quarter of 2015.
As the supply of homes increases, buyers who are optimistic but cautious, will have more choices, stronger bargaining power, and will act to slow the rate of appreciation. In addition, the resale market will have to compete with the new homes market in Irvine, and the ever-increasing inventory by mid-year will impact on the acceleration of prices.
The dominant factor which has been propelling the real estate market these last three years (the all-cash Buyer) will continue to slow down for a number of reasons:
1. The price appreciation which we have already achieved, making the “cheap buys” more expensive, will diminish the all-cash incentive to buy.
2. The strengthening dollar vis a vis foreign currencies, which has already made housing more expensive, will continue to have a negative effect on the purchasing power.
3. The foreign economies weakening will further impact those Buyers’ ability to purchase.
Therefore, having to rely more heavily on the traditional Buyer, who requires a loan to purchase a home, will necessitate keeping loan rates low to propel the market. However, we predict that interest rates will start to climb impacting both price appreciation and the number of Buyers who can qualify.
It is clear that a new pattern is now in place, both locally, county wide and nation wide, indicating a continued slowing of the price appreciation. Although banks are starting to make it easier for Buyers to qualify for a loan, as the rates increase, there will be fewer Buyers and lower purchasing prices for which they will be able to qualify. In addition, the wild card might be that the political climate in Washington will cap the deductible interest for couples at $500,000 of mortgage principal.
The reason: the median price home in the United States is $205,000. A large share of the higher priced homes are in California, New York, Florida, Connecticut, and Colorado. Therefore, it is possible, as part of an overall overhaul of the tax code, lowering the deductible will greatly impact negatively on our real estate market.
Core Logic DataQuick’s latest median home price for December is up 4.1% from a year ago, while total home sales were down 4.9%.
Nationally, the rate of appreciation in the leading cities that the Case-Schiller index tracks, continues to slow. The latest numbers through October shows a price index increase of 4.5%. This is the eleventh straight month of decelerating price gains and the smallest overall gain since October 2012.
The inventory in Irvine on October 5th which had been 686 homes available on the market with 247 homes in escrow, now as of December 28th has 421 homes available on the market, with 213 homes in escrow. Thus, there is 265 less homes in inventory and 34 less homes in escrow. As we can see, while the seasonal demand for Buyers has been diminishing, it is still very strong. The number of available homes on the market has diminished greatly.
This is an indication of the strength of the market which will carry over into the first quarter of 2015. Sellers, who may be considering selling in 2015, should take advantage of the strength of the housing market going into the first quarter.
The closed home sales are still on average recording at over 95% of the listed price, but on further examination, those prices are reduced, revised prices–not original listed prices. This is a trend which indicates a softening of the Irvine housing market. The luxury end of the market, which was leading the recovery, has experienced a softening of demand, increased days on market, and price reductions to attract buyers. This can partially be attributable to the New Homes Market bringing more and more luxury priced homes to the market. The more “affordable” homes, i.e., under $1,000,000, are also experiencing softening of prices.
The strongest area in the housing market in Irvine as well as in Orange County, has and still is the New Home Sales Market.
Year-over-year, the strength can be attributed partially to the increased volume of product being delivered to the consumer. This acceleration of supply is bound to temper both the enthusiasm and the actual growth over the next several months.
We now have 2 months visible supply of inventory in Irvine and it has remained at that level the past 30 days. Consequently, while we see higher prices of homes being listed, homes are staying on the market longer, and some are experiencing price reductions in order to enter escrow.
Sellers are Optimistic ~ Buyers are Cautious
It is clear that the month-over-month comparisons from calendar year 2014 is not looking as optimistic as we had experienced in calendar year 2013. In 2013 we had over a 20% gain in Irvine. The first eleven months of 2014 in Irvine experienced between 5 and 9% price appreciation depending upon the specific neighborhood.
Homeowners who had experienced years of price declines should plan on capitalizing on the price appreciation that we have experienced these past three years if they plan to sell in the near future. The aggregate demand of Buyers each month is more constant than the potential supply of homeowners who choose to put their homes on the market.
Inventory is Diminishing While Demand has Stabilized
While the inventory has decreased by 30% since October 2014, the demand has diminished by 13%.
What can we expect in the New Year 2015?
We expect that most of the gain will be achieved in the first quarter of 2015. We predict a 4% increase in the 2015 calendar year with up to one half of it in the first quarter.
We see the possibility of interest rates moving up by a half of a percent by the first half of 2015. With the interest rate approaching 4.5% for 30 year fixed, we believe that will have an influence on the rate of appreciation. Although the expected rise in interest rates has been postponed in the last several months, it is not whether the interest rates will go up, but rather when. As a result, Buyers should be actively searching for a home at a price point that they feel that they can afford. Better to buy a little bit early (before the rates increase) then be pushed out of the market because the rates have moved up too far, too fast.
We predict that price appreciation over the next twelve months will still increase but at no more than 4-6%. Therefore, sellers who are considering putting their homes on the market, might consider pricing their homes consistent with the recent closed sales. Orange County real estate prices were up over 4.9% year over year. Irvine real estate prices are up between 5 and 9% year over year. However, the Case-Schiller Index continues to show less price appreciation in its most recent survey of 20 cities. It indicates a slowing of macro demand nationwide.
Buyers should not expect that the prices of homes will be lower in 2015 than they are in 2014. Buyers should be selective in their search, but take advantage of lower interest rate cycle before it begins to increase dramatically.
We are including our market report, so that you may keep abreast of the conditions impacting your local neighborhood in Irvine. We believe our city is a unique real estate environment. While macro economic conditions impact our local housing market, we cannot and should not rely solely on National and Countywide news sources for our local housing trends. These broader housing statistics do not accurately reflect what is happening in your local neighborhood.
Our monthly reports track your neighborhood’s inventory, median price, price per square foot, median sales price, average days on market and more. Our market reports are updated regularly, and are FREE to you, so that you can stay “ahead of the curve” as to the direction in which the housing market is heading throughout the year and at absolutely no risk.
Take a look at the current charts below to get a picture of what have outlined for you.
If you are interested in specific communities, zip codes, neighborhoods, you can subscribe to local reports here. We would be happy to provide you with the Market Reports of your choice. We will be following up with you soon. We are grateful for your confidence is us, and supporting our business with your friendship and referrals.
Cheers and best wishes for a Healthy, Happy and Prosperous 2015 from our Home to Yours.