No Crash Coming: Housing data illustrates that there is not a housing crash on the horizon.
Once again, housing is soaring upward with seemingly no end in sight. Buyers are tripping over each other, willing to pay tens of thousands of dollars above the asking price. Throw in the news of rising inflation and the potential of drastically higher mortgage rates, the madness must come to a screeching halt soon, right? Even though so many are anticipating and reporting that a housing crash is eminent, it simply is not going to occur, not now, not in the next 6-months, and not in the foreseeable future.
There are some naysayers who are calling for a massive spike in mortgage rates due to inflation. Last week’s Consumer Price Index appeared to be soaring out of control with a 4.2% increase over last year. Yet, in taking a closer look at the numbers, the Federal Reserve is correct in their anticipation of “transitory,” or short-lived, inflation. The rise had more to do with short-term supply chain problems in lumber and a global chip shortage. Used cars jumped 10% as car rental companies clamored to restock their depleted inventories. Sporting event prices surged 10.1%, airline tickets climbed 10.2%, and hotel rooms were up by 8.8%. These were all discounted prior because of the pandemic. All other goods were unchanged. As a result, mortgage rates have not moved and remain just below 3%.
Mortgage rates are forecasted to rise to about 3.5% by year’s end due to an improving economy that is emerging from the pandemic. The rise will not dismantle the housing market; instead, it will decelerate the market from an insanely Hot Seller’s Market with an Expected Market Time of 22 days, to a regular Hot Seller’s Market with a market time above 40 days.
The Bottom Line: The housing market is NOT going to crash. The inventory is low, demand is high, market time is at all-time lows, mortgage rates are at record low levels, buyers must qualify for mortgages, subprime, and zero-down loans are not fueling housing, and homeowners have plenty of equity.
Orange County Housing Market Summary:
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The active listing inventory decreased by 27 homes in the past two-weeks, down 1%, and now totals 2,247, its second lowest level since tracking began in 2004 behind 2,240 achieved on April 1st. In April, there were 13% fewer homes that came on the market compared to 5-year average between 2015 to 2019 (2020 was skewed do to COVID-19), 516 less. Last year, there were 4,867 homes on the market, 2,620 additional homes, or 117% more.
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Demand, the number of pending sales over the prior month, increased by 46 pending sales in the past two-weeks, up 1%, and now totals 3,127. Rates remain below 3%, maintaining demand’s current brisk pace. Last year, there were 1,622 pending sales, 48% fewer than today. Keep in mind, it was the start of the pandemic too, which negatively affected demand through the end of May.
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The Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, remained unchanged at 22 days in the past couple of weeks, an extremely Hot Seller’s Market (less than 60 days). It was at 90 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 16 days. This range represents 29% of the active inventory and 38% of demand.
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For homes priced between $750,000 and $1 million, the Expected Market Time is 16 days, a Hot Seller’s Market. This range represents 19% of the active inventory and 25% of demand.
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For homes priced between $1 million to $1.25 million, the Expected Market Time is 15 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 22 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 22 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 46 to 41 days. For homes priced above $4 million, the Expected Market Time decreased from 137 to 114 days.
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The luxury end, all homes above $1.5 million, accounts for 35% of the inventory and 16% of demand.
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Distressed homes, both short sales and foreclosures combined, made up only 0.6% of all listings and 0.4% of demand. There are only 9 foreclosures and 5 short sales available to purchase today in all of Orange County, 14 total distressed homes on the active market, up 2 from two-weeks ago. Last year there were 42 total distressed homes on the market, more than today.
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There were 3,470 closed residential resales in April, 103% more than April 2020’s 1,712 closed sales. March marked an 8% rise over March 2021. It was the strongest closing month since 2005. The sales to list price ratio was 100.3% for all of Orange County. Foreclosures accounted for just 0.1% of all closed sales, and short sales accounted for 0.1%. That means that 99.8% of all sales were good ol’ fashioned sellers with equity.
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