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While it is true that the Orange County housing market has been resilient despite higher mortgage rates, this year’s market speed is much different than the past several years.
The Orange County housing market is experiencing more traffic with extra FOR SALE signs and only slightly better buyer demand. The result is a much slower market that nobody had been anticipating. Housing is much different than the hot markets from 2020 through 2024. It takes longer to sell. Sellers need to recalibrate their expectations and spend more time preparing their homes for sale and methodically and carefully arrive at their asking price, the Fair Market Value of their home.
This is the third year where demand (a snapshot of the number of new pending sales over the prior month) has been stuck at very low levels, the lowest since tracking began in 2004. These low-demand readings are a direct result of unaffordability. When mortgage rates increased from 3.25% in January 2022 to over 7% in October, just nine months later, demand collapsed. The payment, principal and interest, on a $1 million home with 20% down grew from $3,481 per month at 3.25% to $5,322 at 7%, an increase of $1,841 monthly or over $22,000 annually. The current demand is at 1,569 pending sales, 6% higher than last year and 4% stronger than in 2023. Yet, it is 34% less than the 3-year average before the pandemic (2017 to 2019) of 2,422 pending sales.
The market is substantially slower in matching the higher inventory with anemic, low demand. The Expected Market Time (the number of days it takes to sell all Orange County listings at the current buying pace) is 61 days, its highest level since 2019’s 84-day reading. Last year, it was 40 days, three weeks faster than today. In 2023, it was 44 days, also significantly quicker. Today’s housing market is far from instant. Since 2017, only 2019 has been slower.
The current trend is for the active listing inventory to continue to grow. It will grow at an even faster velocity during the Spring Market. As spring progresses, the number of homes coming on the market will outpace demand, and the Expected Market Time will rise. The only caveat is if rates continue to fall. Mortgage rates were stuck above 7% from mid-December through mid-February. Yet, with economic growth slowing, according to Mortgage News Daily, rates have dropped to 6.74% to start March, their lowest level since the start of December. If they fall further with duration, demand levels could rise. As a result, the Expected Market Time would not climb at a slower pace.
Nonetheless, today’s housing market is much slower than many have become accustomed to. Orange County housing is far from instant. A traffic jam is forming with a much higher active listing inventory and more sellers coming on the market each month. It is a sound strategy to expect even more brake lights ahead.
What we're seeing:
→ Demand is on the rise
→ Active inventory slower than expected
→ Spottiness and uncertainty in the market
→ Some homes are getting offers right away
→ Some accurately priced homes are sitting longer than expected
What agents look at when pricing a home:
→ Comps- easier to compare for tract homes than custom
→ Price per square foot
→ Pulse of the market
Orange County Housing Market Summary:
- The active listing inventory in the past couple of weeks increased by 150 homes, up 6%, and now sits at 3,183. In February, 21% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 673 less. Yet 394 more sellers came on the market this February compared to February 2024. Last year, there were 1,992 homes on the market, 1,191 fewer homes, or 37% less. The 3-year average before COVID (2017 to 2019) was 5,119, or 61% extra.
- Demand, the number of pending sales over the prior month, increased by 72 pending sales in the past two weeks, up 6%, and now totals 1,569, its highest level since October. Last year, there were 1,476 pending sales, 6% less. The 3-year average before COVID (2017 to 2019) was 2,422, or 54% more.
- With supply and demand rising at a similar pace, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, remained unchanged at 61 days in the past couple of weeks. Last year, it was 40 days, substantially faster than today. The 3-year average before COVID (2017 to 2019) was 64 days, similar to today.
- In the past two weeks, the Expected Market Time for homes priced below $750,000 decreased from 51 to 46 days. This range represents 17% of the active inventory and 22% of demand.
- The Expected Market Time for homes priced between $750,000 and $1 million decreased from 41 to 39 days. This range represents 13% of the active inventory and 20% of demand.
- The Expected Market Time for homes priced between $1 million and $1.25 million decreased from 46 to 39 days. This range represents 9% of the active inventory and 15% of demand.
- The Expected Market Time for homes priced between $1.25 million and $1.5 million increased from 39 to 52 days. This range represents 10% of the active inventory and 12% of demand.
- The Expected Market Time for homes priced between $1.5 million and $2 million increased from 62 to 69 days. This range represents 14% of the active inventory and 12% of demand.
- The Expected Market Time for homes priced between $2 million and $2.5 million remained unchanged at 75 days. This range represents 7% of the active inventory and 6% of demand.
- In the past two weeks, the Expected Market Time for homes priced between $2.5 million and $4 million increased from 112 to 113 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 166 to 159 days. For homes priced above $6 million, the Expected Market Time decreased from 208 to 197 days.
- The luxury end, all homes above $2 million, accounts for 30% of the inventory and 13% of demand.
- Distressed homes, both short sales and foreclosures combined, comprised only 0.2% of all listings and 0.4% of demand. Only three foreclosures and two short sales are available today in Orange County, with five total distressed homes on the active market, down one from two weeks ago. Last year, six distressed homes were on the market, similar to today.
- There were 1,268 closed residential resales in January, up 7% compared to January 2024’s 1,182 and down 22% from December 2024. The sales-to-list price ratio was 99.14% for Orange County. Short sales accounted for 0.1% of all closed sales, and there were no foreclosures. That means that 99.9% of all sales were good ol’ fashioned sellers with equity.