Rates Rise, Values Slip

As rates surge higher and affordability diminishes even more, smaller changes in market times shift the market in the buyer’s favor. An Expected Market Time of 60 days is considered a Balanced Market today, yet that level used to be a Hot Seller’s Market prior to the run-up in mortgage rates that began in January 2022.

 

Today’s demand levels (snapshot of the number of new pending sales over the prior month) are less than last year, with 1,335 pending sales compared to 1,427, 6% less. Yet, they are matched against inventory levels significantly less than last year, with 2,408 available homes versus 3,656, 34% fewer. The Expected Market Time has been rising since hitting a low of 37 days at the end of April and is 54 days today. A 54-day Expected Market Time would have been considered a Hot Seller’s Market before the high mortgage rate environment, but not today. Today, it is balanced.

 

Mortgage rates have been stuck above 7% since the end of July as the financial markets now believe that the Federal Reserve will keep rates “higher for longer.” Since the Federal Reserve met last month and confirmed that they will keep the short-term rate higher for longer than previously anticipated, rates have climbed from 7.33% to 7.8% today, levels last seen in November 2000.

 

The Orange County housing market is strikingly different now that rates have shifted towards 8%, squeezing home affordability further and, in many markets, starting to favor buyers. As long as the inventory rises and demand falls, the Expected Market Time will climb, and values will eventually slip. 

 

• The active listing inventory in the past couple of weeks increased by 68 homes, up 3%, and now sits at 2,408. It is the second lowest October reading since tracking began in 2004, behind the 2,042 reading in 2021. In September, 37% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,114 less. Last year, there were 3,656 homes on the market, 1,248 more homes, or 52% higher. The 3-year average before COVID (2017 to 2019) was 6,306, or 162% more, nearly triple.
• Demand, the number of pending sales over the prior month, decreased by 79 pending sales in the past two weeks, down 6%, and now totals 1,335, the lowest October reading since 2007. Last year, there were 1,427 pending sales, 7% more than today. The 3-year average before COVID (2017 to 2019) was 2,206, or 65% more.
• With the inventory rising and demand falling, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased from 50 to 54 days in the past couple of weeks, its highest level since the start of February. It was 77 days last year, slower than today.
• For homes priced below $750,000, the Expected Market Time increased from 33 to 36 days. This range represents 17% of the active inventory and 25% of demand.
• For homes priced between $750,000 and $1 million, the Expected Market Time increased from 31 to 35 days. This range represents 16% of the active inventory and 25% of demand.
• For homes priced between $1 million and $1.25 million, the Expected Market Time increased from 36 to 41 days. This range represents 10% of the active inventory and 14% of demand.
• For homes priced between $1.25 million and $1.5 million, the Expected Market Time increased from 47 to 54 days. This range represents 10% of the active inventory and 10% of demand.
• For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 59 to 57 days. This range represents 14% 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 increased from 92 to 95 days. For homes priced between $4 million and $6 million, the Expected Market Time remained unchanged at 171 days. For homes priced above $6 million, the Expected Market Time increased from 260 to 326 days.
• The luxury end, all homes above $2 million, account for 34% of the inventory and 14% of demand.
• Distressed homes, both short sales and foreclosures combined, comprised only 0.2% of all listings and 0.1% of demand. Only four foreclosures and one short sale are available today in Orange County, with five total distressed homes on the active market, own one from two weeks ago. Last year, three distressed homes were on the market, similar to today.