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Unlike the insane, incredible hot starts to 2021 and 2022, this year’s start is much different with very little demand, a muted inventory, and pre-pandemic market times.
The issue is that housing has not had a normal, slow start to the year since 2020. In both 2021 and 2022, the market was insanely hot from day one, plagued with very few homes available and insatiable demand due to an extremely low mortgage rate environment. Buyers were tripping over each other to purchase every single home that came on the market, multiple offers were the norm, homes sold way above their asking prices, and the housing market felt like an out of control train where it was very challenging for buyers to secure a home.
In looking at the details, the about face in housing is due to sky high mortgage rates coupled with a tremendous run-up in home values. In both 2021 and 2022, mortgage rates experienced back-to-back record low starts to the year at 2.65% and 3.22%. Today’s 6.14% is the highest start to a year since January 2008. As a result, demand, a snapshot of the last 30 days of pending sales activity, is at its lowest level to begin a year since tracking began in 2004 at 900 pending sales. It is slightly lower than demand level in 2008.
Sellers:
→ Set expectations
→ Things will take longer to sell
→ Buyers will be critical on properties
→ Pricing is a big factor
Buyers:
→ Don't lowball properties
→ No panic in the market, people are comfortable
→ Sellers more willing to negotiate
→ Sellers want a fair price
Orange County Housing Market Summary:
- The active listing inventory in the past couple of weeks decreased by 112 homes, down 4%, and now sits at 2,530, the second lowest level to start the year behind last year. In December, there were 32% fewer homes that came on the market compared to the 3-year average prior to COVID (2017 to 2019), 483 less. Last year, there were 1,100 homes on the market, 1,430 fewer homes, or 57% less. The 3-year average prior to COVID (2017 to 2019) was 4,506, or 78% more.Demand, the number of pending sales over the prior month, plunged by 138 pending sales in the past two weeks, down 13%, and now totals 900, its lowest start to a year since tracking began in 2004. Last year, there were 1,1298 pending sales, 44% more than today. The 3-year average prior to COVID (2017 to 2019) was 1,349, or 50% more.
- With demand dropping faster than supply, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased from 76 to 84 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 increased from 58 to 62 days. This range represents 23% of the active inventory and 32% of demand.
- For homes priced between $750,000 and $1 million, the Expected Market Time increased from 66 to 69 days. This range represents 22% of the active inventory and 27% of demand.
- For homes priced between $1 million to $1.25 million, the Expected Market Time increased from 64 to 73 days. This range represents 12% of the active inventory and 13% of demand.
- For homes priced between $1.25 million to $1.5 million, the Expected Market Time increased from 64 to 79 days. This range represents 9% of the active inventory and 10% of demand.
- For homes priced between $1.5 million to $2 million, the Expected Market Time decreased from 122 to 117 days. This range represents 11% of the active inventory and 8% of demand.
- For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 100 to 144 days. For homes priced between $4 million and $8 million, the Expected Market Time increased from 483 to 518 days. For homes priced above $8 million, the Expected Market Time decreased from 258 to 227 days.
- The luxury end, all homes above $2 million, accounts for 24% of the inventory and 11% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 0.5% of all listings and 0.2% of demand. There are only 8 foreclosures and 7 short sales available to purchase today in all of Orange County, 15 total distressed homes on the active market, up 1 from two weeks ago. Last year there were 9 total distressed homes on the market, similar to today.