Interest Rates Juicing The Market: Historically low rates have led to the Expected Market Time dropping to 23 days, the lowest level for this time of year since tracking began in 2004.
Values have climbed more than 20% year-over-year and the pace of Orange County housing has not slowed much at all this year. The Expected Market Time (the amount of time between hammering in the FOR-SALE sign and opening escrow) is currently at 23 days, an unbelievably Hot Seller’s Market. A Hot Seller’s Market is defined as a market time below 60-days, the lower the level, the hotter the market. At 23-days, the market remains insane with plenty of showings, multiple offers, and sales prices above their list prices. At this point, what will decelerate the market enough to allow housing to transition away from a Hot Seller’s Market to a Slight Seller’s Market, Balanced Market, or even a Buyer’s Market? Rising mortgage rates. That is precisely what occurred in 2013 and 2018.
When rates rise, many buyers turn their collective noses away from pursuing a home because monthly mortgage payments rise, and affordability diminishes. As a result, the inventory rises with fewer buyers in the marketplace, and the Expected Market Time rises as well. It takes longer to sell with increased seller competition. In 2013, demand dropped by 27% in October after peaking in June, the inventory doubled from its March lows, and the market time increased from 33 days in March to 82 days in October, a Slight Seller’s Market. That is a market with an Expected Market Time between 60 and 90 days, there are fewer showings than a Hot Seller’s Market, far fewer multiple offer situations, sellers still get to call the shots, and home values are not appreciating much at all. It is not a buyer’s market, but a market where buyers are not kicking and clawing their way to home ownership.
The light at the end of the tunnel with a shift in the market will not occur until mortgage rates rise substantially. Freddie Mac forecasted a couple of weeks ago that mortgage rates will rise to 3.5% in a year from now. That is not quite enough to slow housing meaningfully. Either rates eventually climb to slow housing, or values will climb to the point that they soften demand. The Orange County housing market is just not there yet.
Orange County Housing Market Summary:
- The active listing inventory shed 178 homes in the past two weeks, down 9%, and now totals 1,864 homes, its lowest level since tracking. In September, there were 10% fewer homes that came on the market compared to the 3-year average between 2017 to 2019 (2020 was skewed due to COVID-19), 295 less. Last year, there were 3,944 homes on the market, 2,080 additional homes, or 111% more.
- Demand, the number of pending sales over the prior month, decreased by 86 pending sales in the past two weeks, down 3%, and now totals 2,429. Last year, there were 3,019 pending sales, 24% more than today due to a four-month delay in the Spring Market because of COVID.
- With a significant drop in the supply and smaller drop in demand, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, decreased from 24 to 23 days in the past couple of weeks, an extremely Hot Seller’s Market (less than 60 days). It was at 39 days last year, slower 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 18 days. This range represents 28% of the active inventory and 35% of demand.
- For homes priced between $750,000 and $1 million, the Expected Market Time is 17 days, a Hot Seller’s Market. This range represents 20% of the active inventory and 27% of demand.
- For homes priced between $1 million to $1.25 million, the Expected Market Time is 17 days, a Hot Seller’s Market. This range represents 9% of the active inventory and 12% of demand.
- For homes priced between $1.25 million to $1.5 million, the Expected Market Time is 19 days, a Hot Seller’s Market. This range represents 8% of the active inventory and 10% of demand.
- For homes priced between $1.5 million and $2 million, the Expected Market dropped from 29 to 24 days. For homes priced between $2 million and $4 million, the Expected Market Time increased from 49 to 54 days. For homes priced above $4 million, the Expected Market Time decreased from 129 to 126 days.
- The luxury end, all homes above $1.5 million, accounts for 36% of the inventory and 16% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 0.5% of all listings and 0.32 of demand. There are only 8 foreclosures and 1 short sale available to purchase today in all of Orange County, 9 total distressed homes on the active market, down 2 from two weeks ago. Last year there were 14 total distressed homes on the market, similar to today.
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