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As the Federal Reserve pushed harder and harder on the economic brake pedal by increasing the Fed Funds Rate at the fastest pace in recent history, the housing market has slowed to a crawl.
In June the Federal Reserve announced that they had plans to “reset” the U.S. housing market, and that is precisely what is occurring today. All year long the Federal Reserve has been in the news. Inflation had become enemy number one and they were going to do everything in their power to tamp down out-of-control inflation. Prices of goods, services, food, and energy were climbing at an unhealthy rate. Home values had soared by over 40% in just two years.
Even though the supply of homes remains muted, uncharacteristically weak demand has resulted in the Expected Market Time climbing from a low of 19 days at the start of March to 87 days today. Today’s buyers are sophisticated and cautious in their approach to the housing market. They are unwilling to stretch and will not overpay for a home. It all boils down to value and they will patiently wait for the right home to come along.
For sellers, it is imperative to recognize that the Federal Reserve’s housing “reset” has arrived. Be prepared for mortgage rates to remain elevated until inflation moves in the right direction. Until then, demand will remain sluggish, market times will grow longer, and home prices will slowly and methodically decline.
What we know:
→ Inventory low
→ Demand low
→ Active inventory on the rise
→ Active buying & selling community
→ No competition in Talega under 2.3
→ Low competition in general
What we can expect:
→ An end to the swift rise in home prices
→ Supply and demand more aligned with home values
→ Home prices more in line with rent & housing fundamentals
→ Housing market will go through a correction to become balanced
Orange County Housing Market Summary:
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The active listing inventory in the past couple of weeks increased by 21 homes, up 1%, and now sits at 3,677. In September, there were 24% fewer homes that came on the market compared to the 3-year average prior to COVID (2017 to 2019), 728 less. Last year, there were 1,864 homes on the market, 1,813 fewer homes, or 49% less. The 3-year average prior to COVID (2017 to 2019) was 6,010, or 63% more.
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Demand, the number of pending sales over the prior month, plunged by 157 pending sales in the past two weeks, down 11%, and now totals 1,270, its lowest reading since April 2020, the initial lockdowns of the pandemic. It is the lowest level for mid-October since 2007. Last year, there were 2,429 pending sales, 91% more than today. The 3-year average prior to COVID (2017 to 2019) was 2,180, or 72% more.
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With demand plunging, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased from 77 to 87 days in the past couple of weeks, its highest level since mid-May 2020. It was 23 days last year, much stronger than today.
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For homes priced below $750,000, the Expected Market Time increased from 59 to 64 days. This range represents 21% of the active inventory and 29% of demand.
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For homes priced between $750,000 and $1 million, the Expected Market Time increased from 64 to 65 days. This range represents 22% of the active inventory and 29% of demand.
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For homes priced between $1 million to $1.25 million, the Expected Market Time increased from 71 to 82 days. This range represents 12% of the active inventory and 13% of demand.
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For homes priced between $1.25 million to $1.5 million, the Expected Market Time increased from 73 to 97 days. This range represents 11% of the active inventory and 10% of demand.
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For homes priced between $1.5 million to $2 million, the Expected Market Time increased from 93 to 131 days. This range represents 13% of the active inventory and 9% of demand.
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For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks decreased from 123 to 121 days. For homes priced between $4 million and $8 million, the Expected Market Time increased from 284 to 360 days. For homes priced above $8 million, the Expected Market Time increased from 308 to 484 days.
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The luxury end, all homes above $2 million, accounts for 21% of the inventory and 10% of demand.
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Distressed homes, both short sales and foreclosures combined, made up only 0.5% of all listings and 0.2% of demand. There are only 4 foreclosures and 2 short sales available to purchase today in all of Orange County, 6 total distressed homes on the active market, up 3 from two weeks ago. Last year there were 9 total distressed homes on the market, similar to today.