The Coming Change in the Housing Market: The sharp rise in mortgage rates from 2.65% during the first week of January to 3.09% today is just the beginning of rising rates.
Housing is in the midst of its own playoff run and has been a Hot Seller’s Market since June of last year, 9-months straight. It is the longest since the 16-month streak that ran from March 2012 through July 2013. What happened in the summer of 2013 to end the run? The market decelerated because of higher mortgage rates.
In 2013, there was very little supply and low mortgage rates were juicing demand. Doesn’t that sound familiar? A low supply and a truck load of demand? The difference between 2013 and 2021 is that the supply of available homes to purchase today is even lower and demand is a bit higher due to even lower mortgage rates.
Now experts are expecting a robust second half of 2021, just a few months away, the start of the next “Roaring 20’s.” Mortgage rates are projected now to increase anywhere between 3.5% to 4%, depending on the size of the economic boom. That is precisely where they were bouncing around prior to the pandemic, a much more normal range. These higher rates will be the catalyst to the market shift and the market will decelerate.
An Important Notice: It will still be a Hot Seller’s Market. This is NOT a shift to a Buyer’s Market. This a shift from a housing market that is currently nuts, appreciating at about 1% per month, to a regular Hot Seller’s Market with normal, 4% to 5% appreciation per year. Sellers who overprice will sit and languish on the market.
Orange County Housing Market Summary:
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The active listing inventory decreased by 17 homes in the past two-weeks, down 1%, and now totals 2,349, its lowest level since tracking began in 2004. In February, there were 6% fewer homes that came on the market compared to the prior 5-year average, 209 less. Last year, there were 4,159 homes on the market, 1,810 additional homes, or 77% more.
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Demand, the number of pending sales over the prior month, increased by 152 pending sales in the past two-weeks, up 5%, and now totals 3,110, its strongest mid-March level since 2012. The ultra-low mortgage rate environment is continuing to fuel today’s exceptional demand. Last year, there were 2,398 pending sales, 23% fewer than today. Keep in mind, it was the start of the pandemic too, which negatively affected demand.
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The Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, decreased from 24 days to 23, an extremely Hot Seller’s Market (less than 60 days) and the strongest reading since tracking began in 2004. It was at 52 days last year, slower than today.
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For homes priced below $750,000, the market is a Hot Seller’s Market (less than 60 days) with an Expected Market Time of 17 days. This range represents 30% of the active inventory and 41% of demand.
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For homes priced between $750,000 and $1 million, the Expected Market Time is 14 days, a Hot Seller’s Market. This range represents 16% of the active inventory and 26% of demand.
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For homes priced between $1 million to $1.25 million, the Expected Market Time is 19 days, a Hot Seller’s Market.
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For homes priced between $1.25 million to $1.5 million, the Expected Market Time is 21 days, a Hot Seller’s Market.
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For homes priced between $1.5 million and $2 million, the Expected Market Time remained unchanged at 31 days. For homes priced between $2 million and $4 million, the Expected Market Time increased from 55 to 58 days. For homes priced above $4 million, the Expected Market Time decreased from 117 to 116 days.
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The luxury end, all homes above $1.5 million, accounts for 38% of the inventory and only 15% 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 8 foreclosures and 3 short sales available to purchase today in all of Orange County, 11 total distressed homes on the active market, up 4 from two-weeks ago. Last year there were 46 total distressed homes on the market, more than today.
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There were 2,283 closed residential resales in February, 12% more than January 2020’s 2,044 closed sales. January marked a 1% rise over January 2021. The sales to list price ratio was 98.8% for all of Orange County. Foreclosures accounted for just 0.09% of all closed sales, and short sales accounted for 0.17%. That means that 99.74% of all sales were good ol’ fashioned sellers with equity.
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