It's all about Rates in the Housing Market

Low mortgage rates increase buyer demand and motivate sellers to make a move, while high rates limit affordability and cause many to "hunker down." The pandemic led to historically low rates and high demand, but rates have since risen substantially. A decrease in rates would increase affordability and demand, while also motivating more sellers to list their homes. High rates limit both buyers and sellers, resulting in a low supply of homes despite lower demand levels, creating an exceptionally hot market.

Active Listings

The active listing inventory has decreased by 5% in just the past couple of weeks, indicating a fast-paced market. The current active inventory is at its lowest level since April of last year, with only 2,305 homes available for purchase. Interestingly, this trend is following the post-pandemic pattern of declining inventory in 2021, with the surging demand only slightly contributing to this decrease. The primary culprit behind the dwindling supply is the lack of homes coming on the market.

Shockingly, January saw only 1,680 new sellers come on the market in Orange County, which is a 45% decrease from the 3-year average before COVID (2017 to 2019). As a result, the inventory is struggling to grow meaningfully, with missing sellers causing a significant gap. Nevertheless, in March, as housing transitions into the Spring Market, more sellers will come on the market. Although it will be a bit muted as homeowners remain reluctant to move due to their current underlying, low fixed-rate mortgage. Keep an eye out for the exciting developments in the real estate market!

Last year, the inventory was 1,358, 41% lower, or 947 fewer. The 3-year average before COVID (2017 through 2019) is 4,977, an additional 2,672 homes, or 116% extra, more than double today. 

Demand

Demand surged 18% in the past couple of weeks, hitting its highest level since September of last year. However, higher mortgage rates have taken a bite out of demand, eroding it until rates ease again. The lack of available homes to purchase is also limiting demand. With fewer sellers listing their homes, buyers are unable to secure a home. This is the lowest mid-February reading since tracking began in 2004, but demand is expected to grow more until it peaks sometime between March and mid-May.

Last year, demand was at 1,998, 30% more than today, or an extra 461. The 3-year average before COVID (2017 to 2019) was 2,393 pending sales, 56% more than today, or an additional 856.

The Orange County housing market is heating up! With the demand for homes surging and supply falling, the Expected Market Time has dropped significantly from 56 to 45 days in just a couple of weeks - its lowest level since June 2022. In comparison to last year's Expected Market Time of 20 days, the current pace may seem slower, but it's still faster than the 3-year average of 64 days before the pandemic. As the market continues to shift, expect the Expected Market Time to remain low and home values to continue rising.

Luxury End

Over the past couple of weeks, the luxury real estate market has shown continued improvement. The inventory of homes priced above $2 million has increased by 2%, and luxury demand has surged by 21%, with 26 pending sales, bringing it to 150, the highest since October. As the supply has only slightly increased, the Expected Market Time for luxury homes priced above $2 million has dropped to its strongest level since September, plummeting from 143 to 121 days. Even though the luxury market is not as fast as it was before COVID, it is showing signs of improvement, and this trend is expected to continue over the next several weeks.

Compared to last year, luxury demand is still down by 39%, with 94 fewer pending sales, while the active luxury listing inventory is up by 67%, with an additional 243 homes. Last year, luxury homes spent just 45 days on the market. For homes priced between $2 million and $4 million, the Expected Market Time has decreased from 98 to 82 days, and for homes priced between $4 million and $6 million, it has dropped from 225 to 216 days. For those priced above $6 million, the Expected Market Time has gone down from 523 to 347 days, meaning that a seller can expect to place their home into escrow by February 2024.