Orange County surged again in the fourth quarter of 2015, with sales reaching levels we have not seen in over ten years, but this rising demand has not yet had its expected impact on pricing.

Sales. Orange County sales spiked again, rising 20% from the fourth quarter of last year and up 29% for all of 2015. We have now seen sustained sales growth for more than three years, with transactions up five quarters in a row and 14 out of the last 15. Indeed, we are now seeing sales at historically high levels, with the 2,843 yearly sales the most in any calendar year since 2006, at the height of the last seller’s market.

Prices. Unfortunately, we have not yet seen these sustained increases in buyer demand have an impact on pricing, with the average and median price both finishing the year down from 2014. Prices are now down to 2002-03 levels, having retained the price appreciation enjoyed from 1998-2003, but giving back everything in the “bubble years” from 2004-07.

Negotiability. We measure “negotiability” by looking at the inventory on the market, how quickly homes are selling, and how much sellers are discounting off their last listed price. By those measures, the only clear indication of increasing seller leverage is in the listing inventory, which fell to 10.0 months-of-inventory, the lowest level we have seen in about 10 years. If inventory continues to tighten, we would expect that buyers chasing reduced opportunities will drive prices up.

Condominiums. The condo market also surged, rising 20% for the quarter and up 28% for the year. Even with demand strong, though, we’re seeing even more pressure on prices in the condo market, with prices down again for the quarter and the year. With a narrow gap (about $80,000) between single-family and condo prices, and with rates at their current levels, many entry-level buyers can afford to stretch to get into a single-family home. That’s having a depressing effect on condo prices, and it won’t get better until single-family home prices start to rise.

Going forward, we believe that demand will continue to drive sales up through a robust spring market, but expect that we will need to see continued tightening in the inventory to drive any meaningful price appreciation in 2016.

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