Orange County Housing Report | Low Supply vs Low Demand

Echelberger Group

08/25/22

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In the past week there has been a lot of noise about a “housing recession.” It was revealed that closed sales plummeted in July. In Southern California, sales were off by 37% compared to 2021. As a result, proclamations from experts across the nation exclaimed that the housing market is officially in a recession.
 
Thus far in 2022, the Orange County housing market has slowed from an Expected Market Time of 19 days in early March to 65 days today, yet the slowing has stopped. In fact, the market time has dropped by 7 days since climbing to 72 days a month ago. To understand why housing has shifted but is not on the verge of collapse, look no further than supply and demand.
 
Today’s demand levels are significantly muted due to mortgage rates rising from 3.25% at the start of the year to 5.72% where they stand today, according to Mortgage News Daily. The buyer pool has been impacted and reduced by the massive drop in affordability that accompanies such a steep rise in rates.
 
The giant drop in demand is being matched up against an extremely anemic supply of available homes. There are fewer buyers participating today, just as there are fewer homeowners participating. This will continue until mortgage rates shift either higher or lower. Until then, the battle between supply and demand continues.
 
What we know:
→ Demand dropped 37% in July
→ Inventory tailed off
→ Price adjustments last few months
 
What we can expect:
→ Stable interest rates through January
→ Lots of negotiation
→ Unpredictable inventory
 
Orange County Housing Market Summary:
  • The active listing appears to have reached a peak a couple of weeks ago with a 39 home drop, or 1%, and now sits at 4,030 homes. In July, there were 19% fewer homes that came on the market compared to the 3-year average prior to COVID (2017 to 2019), 721 fewer. Last year, there were 2,528 homes on the market, 1,502 fewer homes, or 37% less. The 3-year average prior to COVID (2017 to 2019) was 6,723, or 67% more.
  • Demand, the number of pending sales over the prior month, increased by 37 pending sales in the past two weeks, up 2%, and now totals 1,849. It is still the lowest reading for mid-August since 2007. Last year, there were 2,694 pending sales, 46% more than today. The 3-year average prior to COVID (2017 to 2019) was 2,574, or 39% more.
  • With supply falling and demand rising, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, decreased from 67 to 65 days in the past couple of weeks, a Slight Seller’s Market (between 60 and 90 days). It was at 28 days last year, much stronger than today.
  • For homes priced below $750,000, the market is a Hot Seller’s Market (less than 60 days) with an Expected Market Time of 47 days. This range represents 20% of the active inventory and 28% of demand.
  • For homes priced between $750,000 and $1 million, the Expected Market Time is 62 days, a Slight Seller’s Market. This range represents 25% of the active inventory and 26% of demand.
  • For homes priced between $1 million to $1.25 million, the Expected Market Time is 60 days, a Slight Seller’s Market. This range represents 12% of the active inventory and 14% of demand.
  • For homes priced between $1.25 million to $1.5 million, the Expected Market Time is 65 days, a Slight Seller’s Market. This range represents 11% of the active inventory and 11% of demand.
  • For homes priced between $1.5 million to $2 million, the Expected Market Time is 75 days, a Slight Seller’s Market (between 60 and 90 days). This range represents 11% of the active inventory and 10% of demand.
  • For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks decreased from 99 to 98 days. For homes priced between $4 million and $8 million, the Expected Market Time decreased from 179 to 159 days. For homes priced above $8 million, the Expected Market Time decreased from 320 to 225 days.
  • The luxury end, all homes above $2 million, accounts for 21% of the inventory and 12% of demand.
  • Distressed homes, both short sales and foreclosures combined, made up only 0.2% of all listings and 0.3% of demand. There are only 5 foreclosures and 2 short sales available to purchase today in all of Orange County, 7 total distressed home on the active market, unchanged from two weeks ago. Last year there were 12 total distressed homes on the market, similar to today.

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