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After topping 7.5% in April, mortgage rates have declined to the low sixes and have remained there with duration, paving the way for an uncharacteristic late September rise in demand.
Mortgage rates have been stubbornly high this year. For most of 2024, they have remained above 7%, even topping 7.5% several times in April. They have been falling ever since, dropping below 7% in July and below 6.5% at the end of August. Now that interest rates have been dancing in the low sixes for several weeks, it is as if the entire housing industry suddenly went on sale with deep discounts. Buyers who had paused their hunt for a home are coming off the sidelines and reviving their search. Just as consumers look for deals on Black Friday and Cyber Monday, buyers are looking to cash in on favorable rates and significant improvements in affordability.
Ever since the Federal Reserve raised the short-term Federal Funds rate substantially a couple of years ago, rates climbed during the Autumn Market and hit their annual heights, reaching 7.37% in 2022 and eclipsing 8% in 2023. Affordability eroded, and demand slowed. But not this year. Rates recently dropped to their lowest level since February 2023, a considerable improvement from 7.5% just five months ago. They have persisted at these lower levels for several weeks now. This has resulted in a jump in demand and a noticeable drop in the Expected Market Time.
Combine the surge in demand with a slight drop in the inventory, down 1% in the past couple of weeks, and the market is uncharacteristically heating up amid the Autumn Market. The Expected Market Time (the number of days it takes to sell all Orange County listings at the current buying pace) sank from 78 to 71 days in the past couple of weeks, its largest drop at this time of year since tracking began twenty years ago.
This unconventional shift in demand and subsequent drop in the Expected Market Time is a "green shoot" for the Orange County housing market, a positive data point illustrating a new path to an eventual recovery in the lack of home sales. Due to very low demand, closed sales have also been down substantially. Not many homes have exchanged hands.
There is pressure on mortgage rates to fall further with a cooling economy and a slowing job market. Expect demand to continue to push higher in year-over-year comparisons and for closed sales to rise as well.
What we're seeing:
→ Demand went up the last 2 weeks
→ Interest rates lowered
→ People are optimistic with rates continuing to lower
→ Scarcity is increasing with active inventory
→ Buyers- this is an optimal time to purchase
→ Sellers- more buyers in the marketplace right now
What we can expect:
→ Affordability with interest rates and accurate pricing will equate to more homes going under contract
Orange County Housing Market Summary:
- The active listing inventory in the past couple of weeks decreased by 29 homes, down 1%, and now sits at 3,666, its first drop since March and a strong indicator that a peak was reached a couple of weeks ago. In August, 31% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,083 less. Yet, 300 more sellers came on the market this August compared to August 2023. Last year, there were 2,340 homes on the market, 1,326 fewer homes, or 36% less. The 3-year average before COVID (2017 to 2019) was 6,400, or 75% extra.
- Demand, the number of pending sales over the prior month, jumped by 141 pending sales in the past two weeks, up 10%, and now totals 1,554, its largest increase since the start of February and its highest level since the beginning of July. Last year, there were 1,414 pending sales, 9% fewer. The 3-year average before COVID (2017 to 2019) was 2,262, or 46% more.
- With supply falling slightly and demand surging higher, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, decreased from 78 to 71 days in the past couple of weeks, its most significant improvement since the start of February. It was 50 days last year, faster than today. The 3-year average before COVID (2017 to 2019) was 86 days, slower than today.
- In the past two weeks, the Expected Market Time for homes priced below $750,000 decreased from 50 to 49 days. This range represents 16% of the active inventory and 24% of demand.
- The Expected Market Time for homes priced between $750,000 and $1 million decreased from 54 to 47 days. This range represents 14% of the active inventory and 21% of demand.
- The Expected Market Time for homes priced between $1 million and $1.25 million decreased from 62 to 50 days. This range represents 11% of the active inventory and 16% of demand.
- The Expected Market Time for homes priced between $1.25 million and $1.5 million decreased from 75 to 66 days. This range represents 11% of the active inventory and 12% of demand.
- The Expected Market Time for homes priced between $1.5 million and $2 million decreased from 103 to 84 days. This range represents 15% of the active inventory and 12% of demand.
- In the past two weeks, the expected market time for homes priced between $2 million and $4 million decreased from 111 to 108 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 257 to 199 days. For homes priced above $6 million, the Expected Market Time increased from 295 to 391 days.
- The luxury end, all homes above $2 million, account for 33% of the inventory and 15% of demand.
- Distressed homes, both short sales and foreclosures combined, comprised only 0.1% of all listings and 0.1% of demand. Only four foreclosures and one short sale are available today in Orange County, with five total distressed homes on the active market, down two from two weeks ago. Last year, six distressed homes were on the market, similar to today.
- There were 1,877 closed residential resales in August, down 5% compared to July 2023’s 1,979 and down 8% from July 2024. The sales-to-list price ratio was 99.0% for Orange County. Foreclosures accounted for 0.1% of all closed sales, and there were no short sales. That means that 99.9% of all sales were good ol’ fashioned sellers with equity.