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Happy New Year! Let's look back at what happened in 2023 in terms of inventory, demand, luxury properties, and the Expected Market Time.
The inventory remained extremely low all year and did not eclipse January levels. The year started with an active inventory of 2,431 homes, the second lowest level to start a year since tracking began in 2004, only behind 2022’s 954 anemic start. After reaching 2,536 homes in mid-January, the inventory did not rise until the end of April after dropping to 2,053, down 19%. The inventory crisis deepened, not because of excess demand, but due to homeowners continuing to “Hunker Down.”
Demand followed the typical seasonality pattern but was severely muted all year. The Spring Market was the strongest, followed by the Summer Market, Autumn Market, and, finally, the Holiday Market. This seasonal pattern mirrors when homes are placed on the market. Even though fewer homeowners opted to sell, the most came on during the spring, and the least came on during the holidays.
The luxury home market was down 19% through November 2023 compared to 2022. And in the past two weeks, the Expected Market Time for Orange County dropped from 59 to 53 days, substantially lower than 2022’s 76 days to end the year.
What we're seeing:
→ People sitting on the fence the last 6-8 months due to interests rates
→ Mortgage applications increasing due to interest rates going down
→ Demand increasing
→ First time buyers waiting for rates to come down
→ Price reductions in luxury market
2024 Forecast:
→ 3 different versions of what might happen
→ Volume in units transacting up
→ Lowest percentage is 10% increase
→ Highest percentage is 15% increase
→ Inventory will free up heading into the spring market
→ Demand will increase
→ Hot spring market
→ If interest rates go down, homes in the 1-1.2 million range will heat up
→ Higher end and luxury market will slowly increase
The 2024 Forecast:
Scenario 1 – Economy Cools During the Spring (50% chance)
- Interest Rates – Look for mortgage rates to drop to between 6% and 6.5% when the economy cools and inflation continues to ease. As the U.S. economy weakens yet does not slip into a deep recession, expect rates to fall below 5% during the year's second half.
- Active Inventory – after starting the year with less than 1,700 homes, the second lowest start to a year since tracking began in 2004, only behind 2022, the inventory crisis will continue. It will reach a low peak of only 2,500 homes during the summer, well below the over 7,000 home peak average before COVID. As mortgage rates improve, the “Hunkering Down” effect, where homeowners opt to stay in their homes due to their underlying fixed low mortgage rates, will diminish. More homes will enter the fray starting in the spring.
- Demand – buyer demand will pick up substantially during the Spring Market. As rates remain below 6.5% with duration, the housing market will heat up, similar to the COVID years between 2020 and the first half of 2022, due to increased affordability. Multiple offers and bidding wars will prevail and buyers will be willing to stretch in price to secure a home.
- Closed Sales - the number of successful closed sales will increase by 16% to 23% compared to 2022, with around 24,000 total.
- Home Values - home values will rise between 4% to 7% for the year
Scenario 2 – Economy Cools During the Summer (45% chance)
- Interest Rates – mortgage rates will bump between 6.5% and 7.5% for the first five months of the year until the economy noticeably cools during the summer. From there, look for mortgage rates to drop to between 6% and 6.5% when the economy cools and inflation eases. As the U.S. economy weakens yet does not slip into a deep recession, expect rates to fall below 5% at the end of the year.
- Active Inventory – after starting the year with less than 1,700 homes, the second lowest start to a year since tracking began in 2004, only behind 2022, the inventory crisis will continue. It will reach a low peak of only 3,000 homes during the summer, well below the over 7,000 home peak average before COVID. As mortgage rates improve, the “Hunkering Down” effect, where homeowners opt to stay in their homes due to their underlying fixed low mortgage rates, will diminish. More homes will enter the fray starting in the summer.
- Demand – buyer demand will be sluggish during the Spring Market as rates bounce between 6.5% and 7.5%. It will pick up substantially during the Summer Market when rates drop. As rates remain below 6.5% with duration, the housing market will heat up, similar to the COVID years between 2020 and the first half of 2022, due to increased affordability. Multiple offers and bidding wars will prevail and buyers will be willing to stretch in price to secure a home.
- Closed Sales - the number of successful closed sales will increase by 12% to 18% compared to 2022, with around 23,000 total.
- Home Values - home values will rise between 1% to 4% for the year.
Scenario 3 – Economy Cools During the Fall (5% chance)
- Interest Rates – mortgage rates will bump between 6.5% and 7.5% for the first eight months of the year until the economy noticeably cools during the autumn. From there, look for mortgage rates to drop to between 6% and 6.5% with a cooler economy and easing inflation. Mortgage rates will remain above 6% for the year.
- Active Inventory – after starting the year with less than 1,700 homes, the second lowest start to a year since tracking began in 2004, only behind 2022, the inventory crisis will continue. It will reach a low peak of only 3,500 homes during the summer, well below the over 7,000 home peak average before COVID. As mortgage rates improve, the “Hunkering Down” effect, where homeowners opt to stay in their homes due to their underlying fixed low mortgage rates, will diminish. More homes will enter the fray starting in the autumn.
- Demand – buyer demand will be sluggish during the Spring and Summer Markets as rates bounce between 6.5% and 7.5%. It will pick up during the Autumn Market when rates drop. As rates remain below 6.5% with duration, the housing market will heat up due to increased affordability. Multiple offers and bidding wars will prevail. Buyers will not be willing to stretch much above the purchase price all year.
- Closed Sales - the number of successful closed sales will increase by 10% to 14% compared to 2022, with around 22,400 total.
- Home Values - home values will drop between 0% to 3% for the year.