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It is all about rates in the housing market, from the number of homeowners willing to sell to the volume of buyers able to afford to purchase.
When mortgage rates are low, the market heats up with a rise in affordability and buyer demand, along with a surge of homeowners desirous of taking advantage of a great time to make a move. Yet, when mortgage rates substantially rise as they did over the past year, demand diminishes due to affordability constraints, and many sellers opt to “hunker down” as they enjoy their underlying, locked-in, low fixed-rate mortgages.
The pandemic was an enormous disruptor, and housing benefited profoundly due to the involvement of the Federal Reserve and the Federal Government. The Fed brought the Federal Funds Rate to zero and bought trillions of dollars of both mortgage-backed securities and treasuries. Mortgage rates dropped to record low levels, instigating tremendous housing demand. The Federal Government passed stimulus packages that sent checks directly to United States citizens. Bank accounts swelled and enabled many buyers to achieve their dream of homeownership. Mortgage rates remained at unbelievably low levels, and housing benefited with a nearly instantaneous, insanely hot market that lasted for two years, from June 2020 to May 2022. That is when the Federal Reserve stepped in and started hiking rates and reducing the number of mortgage-backed securities on their books. Mortgage rates soared, and the Fed slammed on the housing market’s brakes.
Mortgage rates pave the path for housing. Substantially higher rates have been limiting supply and demand, constraining the number of closed sales. As rates drop, demand rises, more homeowners opt to sell, and more closed sales will occur.
Orange County Housing Market Summary:
- The active listing inventory in the past couple of weeks decreased by 110 homes, down 5%, and now sits at 2,305, the second-lowest mid-February level since tracking began. In January, 45% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,375 less. Last year, there were 1,378 homes on the market, 947 fewer homes, or 41% less. The 3-year average before COVID (2017 to 2019) was 4,977, or 116% more.
- Demand, the number of pending sales over the prior month, soared higher by 237 pending sales in the past two weeks, up 18%, and now totals 1,537. Last year, there were 1,998 pending sales, 30% more than today. The 3-year average before COVID (2017 to 2019) was 2,393, or 56% more.
- With demand soaring and the supply falling, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, plunged from 56 to 45 days in the past couple of weeks. It was 20 days last year, much stronger than today.
- For homes priced below $750,000, the Expected Market Time decreased from 43 to 38 days. This range represents 24% of the active inventory and 28% of demand.
- For homes priced between $750,000 and $1 million, the Expected Market Time decreased from 41 to 32 days. This range represents 19% of the active inventory and 27% of demand.
- For homes priced between $1 million to $1.25 million, the Expected Market Time decreased from 47 to 33 days. This range represents 10% of the active inventory and 14% of demand.
- For homes priced between $1.25 million to $1.5 million, the Expected Market Time decreased from 55 to 45 days. This range represents 10% of the active inventory and 10% of demand.
- For homes priced between $1.5 million to $2 million, the Expected Market Time decreased from 62 to 44 days. This range represents 10% of the active inventory and 11% of demand.
- For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks decreased from 98 to 82 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 225 to 216 days. For homes priced above $6 million, the Expected Market Time decreased from 523 to 347 days.
- The luxury end, all homes above $2 million, account for 26% of the inventory and 10% of demand.
- Distressed homes, both short sales and foreclosures combined, comprised only 0.3% of all listings and 0.2% of demand. There are only three foreclosures and five short sales available to purchase today in all of Orange County, with eight total distressed homes on the active market, up one from two weeks ago. Last year there were three total distressed homes on the market, similar to today.