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From the lows of 3.22% in January to a high of 6.7% last week, rising mortgage rates have substantially impacted the housing market in so many ways.
The ultra-low-rate environment and lack of available homes on the market, which reached record low levels in 2020 and 2021, allowed home values to escalate out of control. Mortgage rates remained at record lows from April 2020, after the start of COVID, through the first week of this year, 21-months straight where they ranged between 2.65% to 3.5%. Despite increasing values, payments for the median priced detached home in Orange County increased from $3,509 in January 2020 to $3,561 in January 2021, a rise of only $52 per month.
This year as rates exploded higher, the inventory grew from 954 homes at the start of the year to a peak of 4,069 at the start of August. It stopped rising early and has dropped to 3,646 today. As a result of sky-high rates homeowners are opting to not sell. They do not want to trade their incredibly low monthly mortgage payment where more than two-thirds of homeowners with a mortgage are enjoying a rate at or below 4%. Many homeowners are hunkering down and opting to stay even if they have an itch to make a move.
As long the sky-high mortgage rate environment continues, expect demand to remain muted, values to slowly drop, and fewer homeowners willing to participate in today’s housing market as they continue to hunker down.
What we know:
→ Inventory us tapering off
→ Opportunity for a breather for sellers
→ Sellers can reset days on market
What we can expect:
→ Properties coming off MLS to reset days on market
→ Off market sales in the winter
→ Low inventory will continue to decline
Orange County Housing Market Summary:
- The active listing inventory in the past couple of weeks increased by 8 homes, nearly unchanged, and now sits at 3,646. 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 2,179 homes on the market, 1,467 fewer homes, or 40% less. The 3-year average prior to COVID (2017 to 2019) was 6,400, or 76% more.
- Demand, the number of pending sales over the prior month, plunged by 158 pending sales in the past two weeks, down 9%, and now totals 1,598. It is the lowest reading for a start to October since 2007. Last year, there were 2,521 pending sales, 58% more than today. The 3-year average prior to COVID (2017 to 2019) was 2,262, or 42% more.
- With demand plunging, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased from 62 to 68 days in the past couple of weeks. It was at 26 days last year, much stronger than today.
- For homes priced below $750,000, the Expected Market Time increased from 43 to 51 days. This range represents 21% of the active inventory and 29% of demand.
- For homes priced between $750,000 and $1 million, the Expected Market Time increased from 51 to 54 days. This range represents 23% of the active inventory and 29% of demand.
- For homes priced between $1 million to $1.25 million, the Expected Market Time increased from 54 to 58 days. 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 increased from 62 to 73 days. 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 increased from 85 to 86 days. This range represents 11% of the active inventory and 9% of demand.
- For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 113 to 133 days. For homes priced between $4 million and $8 million, the Expected Market Time decreased from 220 to 215 days. For homes priced above $8 million, the Expected Market Time increased from 325 to 454 days.
- The luxury end, all homes above $2 million, accounts for 23% of the inventory and 10% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 0.2% of all listings and 0.4% of demand. There are only 2 foreclosures and 4 short sales available to purchase today in all of Orange County, 6 total distressed home on the active market, down 2 from two weeks ago. Last year there were 11 total distressed homes on the market, similar to today.