1. The number of available homes to purchase is finally starting to rise. The unprecedented, ultra-low inventory has been the story for over a year now. Today’s inventory is 64% less than the 5-year average. Yet, finally, now that summer has arrived with all of its normal, cyclical distractions, the inventory is on the rise, adding 174 homes, up 8%, within the past couple of weeks, its largest gain of the year. This new trend will continue throughout the summer months.
2. The number of new escrows over the prior month (aka demand) is on the decline after reaching a peak in early spring. Demand typically peaks between April and mid-May. This year, it peaked at the very start of April in Orange County. Many expect the market to behave differently and ignore the seasons because housing is so hot, yet society seemingly likes its routines. Spring is the hottest time of the year in terms of demand. It downshifts during the summer with the kids out of school, planned vacations, and plenty of fun in the sun. Within the past two weeks alone, it dropped by 151 escrows or 5%, its largest drop of the year. This trend should continue throughout the summer months.
3. Closed Sales are at their highest level since 2005. With demand continuing to outpace prior years, 2021 will be the strongest year for closings since prior to the Great Recession.
4. Fewer homeowners are opting to list their homes for sale. When the inventory reached a record low at the start of this year, many homeowners were nervous about selling and worried that there would be nothing for them to buy after selling. Combine that with the knowledge that home values were soaring, many homeowners were more than happy to wait on the sidelines while their equity quickly grew. This trend will continue as long as the inventory remains muted and mortgage rates remain at historic lows below 3.5%.
5. Pressure is building for mortgage rates to rise, which will impact affordability and demand. During the first week of this year, mortgage rates reached an all-time historic low, 2.65%. The U.S. economy is getting a lot hotter, and many are coming to the conclusion that the Federal Reserve needs to slow down its stimulus. They have been purchasing mortgage-backed securities, everyday loans backed by Fannie Mae and Freddie Mac, since the onset of COVID. This has resulted in mortgage rates dropping by an additional quarter percent (approximately). Had COVID not occurred, rates would be around 3.75%. By year’s end, they will rise towards 3.5%, and then settle around 3.75% sometime next year.
In today’s market, it is no secret that buyers are having to pay top market value, offer short inspection and loan contingency timeframes while closing as soon as possible. In some cases, the increase in price is causing buyers to also waive appraisal contingency; pay the difference between appraised value and agreed purchase price. This amount can be thousands of dollars out of pocket beyond a buyer’s down payment. I recently had a buyer who was in escrow at a price that should have had no problem appraising. Not only did the appraisal use incorrect data but it came in a shocking $260,000 less! Naturally, my buyers were extremely disappointed and unable to come in with that amount of money. Instead of moving on, I felt we needed to fight back with an appraisal rebuttal which is no small task. I spent two days crafting a rebuttal outlining all my arguments; correct property comparables, data that was incorrectly calculated when comparing other properties to my clients, and sourcing reliable data representing the percentage increase month after month in that specific city. During the 7 day waiting period, my clients had talked themselves out of the house and why it wasn’t meant to be in an effort to dull the extreme disappointment and the disappointment of their 3 kids who were anxiously awaiting to have a pool in their backyard. Seven days later we got the great news! My lengthy detailed appraisal rebuttal worked and my clients were able to close escrow without any additional money out of pocket. Going above and beyond for my clients especially in a situation like this is always so extremely rewarding and adds just another story in the books.
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