Orange County Housing Market Report: 2025 Forecast
The Orange County housing market enters 2025 with cautious optimism, shaped by two persistent factors: limited inventory and the challenge of affordability. Below is a summary of key trends from 2024 and a forecast for 2025 based on varying economic scenarios.
2024 Recap: Supply, Demand, and Market Trends
Inventory:
Limited supply: The year began with approximately 1,600 homes, one of the lowest starting levels since tracking began in 2004.
Inventory growth: Supply peaked in September with about 3,700 homes, a significant increase compared to 2023 but still far below pre-pandemic averages of 7,000 homes.
Hunkering down effect: High mortgage rates discouraged homeowners from selling, with 41% fewer homes listed compared to pre-pandemic norms.
Demand:
Seasonal patterns: Buyer demand followed the usual spring-to-holiday trajectory but remained muted due to historically low affordability and high mortgage rates.
Peaks and lows: Demand peaked in May at 1,759 pending sales, below pre-COVID averages, but showed improvement late in the year as mortgage rates briefly dipped below 7%.
Luxury Market:
Luxury homes rebounded in 2024, with 32% more sales above $2 million compared to 2023. Despite challenges from rising rates, demand remained strong for high-end properties.
Expected Market Time:
Homes sold faster during the early part of the year but took longer as the year progressed, finishing with an average market time of 67 days.
2025 Forecast: Three Potential Scenarios
The 2025 housing market will depend heavily on the trajectory of mortgage rates, driven by economic conditions:
Resilient Economy (Base Case, 70% chance)
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- Mortgage Rates: Fluctuate between 6.5% and 7%.
- Inventory: Peaks at 4,700 homes, higher than 2024 but well below pre-pandemic levels.
- Demand: Improves, particularly in spring, with multiple offers common for well-priced homes.
- Home Values: Increase by 3% to 6%.
Economic Cooling (15% chance)
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- Mortgage Rates: Drop to 6%-6.5%, spurring stronger buyer activity.
- Inventory: Peaks around 4,000 homes due to increased demand.
- Demand: Significant improvement with competitive bidding and price stretching by buyers.
- Home Values: Rise by 5% to 8%.
Stronger Economy and Inflation Risks (15% chance)
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- Mortgage Rates: Remain above 7% for much of the year, dampening demand.
- Inventory: Peaks at 5,400 homes, driven by slower sales.
- Demand: Sluggish, leading to a more competitive market for sellers.
- Home Values: Range from a 1% decline to a 1% increase.
Key Insights for 2025
- Seasonal Cycles: The spring market will likely lead in demand, followed by slower summer and autumn markets.
- Luxury Homes: Strong activity expected in the first half of the year, with longer market times later.
- Distressed Properties: Foreclosures and short sales remain minimal due to a healthy housing stock.
As Orange County heads into 2025, the housing market remains dependent on the broader economy. Mortgage rates will shape demand, supply, and home values throughout the year.
Let's connect and discuss your real estate plans for 2025!
