Let’s take a look at the Orange County Real Estate Market conditions in February 2022.
If mortgage rates rise above 4% and remain elevated with staying power, then housing will finally slow a bit, shifting from an Insane Seller’s Market to a regular Hot Seller’s Market with longer market times.
A new trend has emerged this year, rising rates. According to Freddie Mac’s Primary Mortgage Market Survey®, 30-year fixed rates have risen from 3.05% on December 23rd to 3.92% on February 17th, nearly a full percent higher in only 8-short weeks.
Yet, the market remains insanely, white hot. In fact, in the past two weeks, the Expected Market Time in Orange County (the time between pounding in the FOR-SALE sign to opening escrow) dropped from 23 to 20 days, matching levels reached in November and December of last year and the lowest level since tracking began 19 years ago.
The market is growing hotter because that is what occurs during the Winter Market, when the inventory does not change much and demand surges. There are plenty of buyers bumping into each other at open houses and property showings, but there are very few homes currently available and not enough homeowners placing their homes on the market right now.
More homes come on during the Spring Market, from mid-March through mid-June.
Mortgage rates cannot substantially drop from here. They must persist at these higher levels, between 3.75% and 4%, and then eventually climb above 4% with staying power. If that occurs, as more homes come on the market during the spring and summer, demand will be muted, and the inventory will substantially climb for the first time in 3-years. Higher rates must endure for that to occur.
Last year mortgage rates started the year at 2.65% and had climbed to 3.18% by April 1st, up a little over a half a percent. The rise was short lived as mortgage rates dropped back down to 3% by the end of April, and to 2.77% in August. Rising rates did not persist and the Insanely Hot Seller’s Market could not be stopped.
The Orange County housing market has been below 40-days since August 2020. At these levels there are a ton of showings, sellers get to call all the shots during the negotiating process, multiple offers are the norm, and home values are rising rapidly. At this point, only higher rates can slow the housing freight train that has been barreling down the tracks for nearly two years.
The current active inventory grew by 7% in the past two weeks.
The active listing inventory increased by 88 homes in the past couple of weeks, up 7%, and now sits at 1,358 homes. It is the Winter Market. Cyclically, that is when very few homes come on the market because it just is not the most favorable time for a family to make a move, during the middle of the school year. That all changes in the spring, but that is still another month from now. Until then, get used to very few new homes entering the fray. Plus, this year is even worse.
In January, there were 703 fewer new FOR SALE signs compared to the 3-year average before COVID (2017 to 2019), or 23% less. For the first two weeks of February, there were 20% fewer signs. The trend of fewer and fewer homes coming on the market is just magnifying the inventory crisis.
Buyers are already sitting on the sidelines waiting for the next new listings to arrive on the housing scene. When there are buyers waiting in the wings, most homes coming on obtain offers in less than a week and are slapped into escrow almost immediately. It is like a revolving door, making it extremely difficult for the inventory to grow.
Last year, the inventory was at 2,438, 80% more, or an additional 1,080 homes. The biggest complaint last year was that there were not enough homes on the market, yet there were more homes available compared to today. The 3-year average prior to COVID (2017 through 2019) is 4,977, an extra 3,619 homes, or 267% more, three-an-a-half times more than today. There were a lot more choices back then.
Demand surged by 19% in the past couple of weeks.
Demand, a snapshot of the number of new escrows over the prior month, increased from 1,683 to 1,998 in the past couple of weeks, adding 315 pending sales, up 19% and the largest gain so far in 2022. Yet, the current demand level is the lowest reading for this time of the year since 2008.
The lack of available homes combined with fewer homes coming on the market is taking a significant bite out of today’s demand readings. Expect demand to continue to rise, but at a slightly slower pace until it peaks sometime between mid-April to the end of May. Lower demand will translate to fewer closed sales compared to last year as well until the trend of fewer new listings subsides. Only time will tell when that will be.
Last year, demand was at 2,863, 43% more than today, or an extra 865. Year over year comparisons will be off through the rest of this month due to market changes because of COVID. A much better comparison is looking at the 3-year average prior to COVID (2017 to 2019), which was 2,393 pending sales, 20% more than today. In Orange County, current demand readings have obviously been muted by a lack of available homes and not enough coming on the market.
With demand surging compared to the smaller rise in the inventory, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) dropped from 23 to 20 days, tying the lowest level ever reached since tracking began 19 years ago in both November and December of last year.
At 20 days, it is an insane, Hot Seller’s Market (less than 60 days) where there are a ton of showings, sellers get to call the shots during the negotiating process, multiple offers are the norm, and home values are rising rapidly. Last year the Expected Market Time was at 26 days, similar to today. The 3-year average prior to COVID was at 64 days, substantially slower than today and a Slight Seller’s Market (between 60 and 90 days).
Luxury demand continued to soar in the past couple of weeks.
The luxury market in Orange County has continued to surge. In fact, luxury demand of homes priced above $2 million in the past couple of weeks increased by 27 pending sales, up 12%, and now sits at 244. The luxury inventory of homes priced above $2 million decreased by 19 homes, down 5%, and now sits at 363. With supply dropping and demand surging, the overall Expected Market Time for luxury homes priced above $2 million decreased from 53 to 45 days, an extremely hot market for luxury.
Year over year, luxury demand is down by 29 pending sales or 11%, and the active luxury listing inventory is down by 360 homes or 50%. The Expected Market Time last year was at 79 days, exceptionally hot for luxury, but slower than today, indicating just how unbelievably hot the luxury market is right now.
For homes priced between $2 million and $4 million, the Expected Market in the past two weeks decreased from 34 to 30 days. For homes priced between $4 million and $8 million, the Expected Market Time decreased from 79 to 58 days. For homes priced above $8 million, the Expected Market Time decreased from 219 to 184 days. At 184 days, a seller would be looking at placing their home into escrow around August 2022.
What does this mean for home sellers and home buyers?
If you’re a potential home seller, it’s an ideal time to put your home on the market before inventory rises during the spring months. However, if you’re a home buyer this market can be challenging. Our team has strategies in place to help you make the most out of the current market conditions and get your offer accepted.
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