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Potential buyers have been listening to plenty of negative social media channels that have been steering unsuspecting consumers in the wrong direction. Ignore all the consistently negative social media channels and stick to the facts and data.
It is hard to sit on the sidelines and watch housing prices skyrocket at an alarming pace from 2020 through the first half of 2022 in the midst of a once-a-century pandemic that temporarily shut down the economy. Home values reversed course for the second half of 2022 as mortgage rates ballooned higher, yet prices have been on the rise ever since. The dream of owning for many has been out of reach. As a result, the negative narratives blossomed. It is challenging to sift through all the headlines to determine what is true and what is fiction. Yet, the answer is straightforward in examining all the facts. It is time to bust through the myths that have developed about housing.
The myths:
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Housing is in a bubble and about to crash. This could not be further from the truth. When home values plunge, as they did during the Great Recession, it is important to consider supply, demand, and the overall health of the housing stock. Today’s chronically low inventory is matched up against weak demand, a much better balance than the bubble years of the Great Financial Crisis.
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Housing inventory is just as bad as last year. Economists and housing analysts consistently point out the lack of available homes to purchase, a depleted inventory with no hope of turning around. While it is true that there is a definitive scarcity of supply, a trend has emerged that sets the housing market apart from last year: the inventory is rising.
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When rates drop, prices will drop. Currently, the high mortgage rate environment is preventing many homeowners from selling. With a drop in rates, the increase in demand will outpace the improvement in the number of homeowners willing to sell. Many will still opt to stay put and continue to enjoy their fixed low rates.
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With unemployment rising, there will be a lot more foreclosures. The unemployment rate has risen from a 50-year low of 3.4% in April 2023 to 3.9% in April this year. Yet, 3.9% is still a historically low rate. The Orange County housing stock is strong and resilient, able to endure economic swings, including 2022's largest increase in rates since the 1980s.
The bottom line: ignore all the housing myths and social media channels devoted to negative narratives. Instead, stick to the facts and data. The data does not lie.
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 2,620. In April, 32% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,272 less. 604 more sellers came on the market this April compared to April 2023. Last year, there were 2,190 homes on the market, 430 fewer homes, or 16% less. The 3-year average before COVID (2017 to 2019) was 6,370, or 143% extra, more than double.
- Demand, the number of pending sales over the prior month, decreased by 109 pending sales in the past two weeks, down 6%, and now totals 1,650. Last year, there were 1,665 pending sales, 1% more. The 3-year average before COVID (2017 to 2019) was 2,738, or 66% more.
- With supply rising and demand falling, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased from 42 to 48 days in the past couple of weeks. It was 39 days last year, faster than today. The 3-year average before COVID (2017 to 2019) was 70 days, slower than today.
- In the past two weeks, the Expected Market Time for homes priced below $750,000 increased from 31 to 39 days. This range represents 18% of the active inventory and 22% of demand.
- The Expected Market Time for homes priced between $750,000 and $1 million increased from 23 to 36 days. This range represents 15% of the active inventory and 20% of demand.
- The Expected Market Time for homes priced between $1 million and $1.25 million decreased from 28 to 27 days. This range represents 8% of the active inventory and 14% of demand.
- The Expected Market Time for homes priced between $1.25 million and $1.5 million increased from 28 to 38 days. This range represents 10% of the active inventory and 13% of demand.
- The Expected Market Time for homes priced between $1.5 million and $2 million decreased from 46 to 37 days. This range represents 12% of the active inventory and 15% of demand.
- In the past two weeks, the expected market time for homes priced between $2 million and $4 million increased from 66 to 76 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 167 to 154 days. For homes priced above $6 million, the Expected Market Time decreased from 413 to 384 days.
- The luxury end, all homes above $2 million, account for 37% of the inventory and 16% of demand.
- Distressed homes, both short sales and foreclosures combined, comprised only 0.2% of all listings and 0.2% of demand. Only five foreclosures and one short sale are available today in Orange County, with six total distressed homes on the active market, up one from two weeks ago. Last year, 14 distressed homes were on the market, similar to today.
- There were 1,968 closed residential resales in April, up 16% compared to April 2023’s 1,696, and up 10% from March 2024. The sales-to-list price ratio was 100.4% for Orange County. Foreclosures accounted for 0.05% of all closed sales, and short sales accounted for 0.15%. That means that 99.8% of all sales were good ol’ fashioned sellers with equity.