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Prospective home buyers are perplexed at today’s competition to purchase, which will only amplify when rates drop in the future.
When it comes to this year's housing market, expect the unexpected. Nobody anticipated buyers bumping into each other with very few homes to purchase, or busy weekend open houses, bidding wars that resulted in multiple offers, or sales prices above their asking price. With today’s high mortgage rate environment, values were expected to continue to fall throughout 2023. That is precisely what occurred in the second half of 2022 when mortgage rates continued to soar higher. Buyer demand plunged, and the inventory climbed and peaked at its highest level in two years. But that all changed as the inventory plunged to crisis levels.
The high mortgage rate environment affected both supply and demand. Naturally, everyone anticipated that high rates would enormously impact affordability and weaken buyer demand. Yet, very few anticipated that high rates would inhibit so many homeowners from listing their homes for sale.
At this point, the lack of home sellers impacts the housing market more than diminished demand, which explains the return of multiple offers and sales prices above the asking prices. Where will the market go from here? It all depends upon mortgage rates.
The window of opportunity to purchase is right now, before rates fall further, igniting demand. While the market may be unexpectedly hot right now, even with high rates, it can grow hotter with even more competition to purchase as rates eventually ease.
WHAT WE'RE SEEING:
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Relatively flat inventory
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Variable mortgages
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Cash purchases
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Active, healthy market
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Sellers not moving due to low-interest rates on their homes
WHAT WE CAN EXPECT:
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Slight increase in inventory going into summer
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Interest rates will taper down end of year
ORANGE COUNTY HOUSING MARKET SUMMARY:
- The active listing inventory in the past couple of weeks decreased by 26 homes, down 1%, and now sits at 2,142, the second-lowest end-of-March level since tracking began in 2004 behind last year. In March, 39% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,346 less. Last year, there were 1,552 homes on the market, 590 fewer homes, or 28% less. The 3-year average before COVID (2017 to 2019) was 5,533, or 158% more.
- Demand, the number of pending sales over the prior month, decreased by 7 pending sales in the past two weeks, nearly unchanged, and now totals 1,560. Last year, there were 2,286 pending sales, 47% more than today. The 3-year average before COVID (2017 to 2019) was 2,668, or 71% more.
- With the inventory falling and demand unchanged, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, decreased from 42 to 41 days in the past couple of weeks, its lowest level since May of last year. It was 20 days last year, much stronger than today.
- For homes priced below $750,000, the Expected Market Time increased from 31 to 32 days. This range represents 22% of the active inventory and 29% of demand.
- For homes priced between $750,000 and $1 million, the Expected Market Time decreased from 28 to 26 days. This range represents 17% of the active inventory and 27% of demand.
- For homes priced between $1 million to $1.25 million, the Expected Market Time decreased from 33 to 31 days. This range represents 9% of the active inventory and 13% of demand.
- For homes priced between $1.25 million to $1.5 million, the Expected Market Time decreased from 39 to 33 days. This range represents 9% of the active inventory and 12% of demand.
- For homes priced between $1.5 million to $2 million, the Expected Market Time increased from 51 to 56 days. This range represents 12% of the active inventory and 9% of demand.
- For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 72 to 76 days. For homes priced between $4 million and $6 million, the Expected Market Time increased from 151 to 210 days. For homes priced above $6 million, the Expected Market Time increased from 254 to 308 days.
- The luxury end, all homes above $2 million, account for 30% of the inventory and 11% of demand.
- Distressed homes, both short sales and foreclosures combined, comprised only 0.5% of all listings and 0.4% of demand. Only three foreclosures and seven short sales are available today in Orange County, with ten total distressed homes on the active market, unchanged from two weeks ago. Last year there were three total distressed homes on the market, similar to today.
