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First-time home buyers are not only getting squeezed by higher mortgage rates, there are also fewer homes coming on the market in the entry-level price ranges.
In taking a careful look at the upper ranges, anything above $1 million, has had a lot more activity than last year. There are more homes coming on the market and more closed sales. Yet, for starter homes, anything below $1 million, it is an entirely different story. There are not as many homes coming on the market, and there are far fewer closings. There is a noticeable squeeze on the starter home market.
The data illustrates the stark differences between starter homes and the rest of the market. In 2024, through March, an extra 613 homes were placed on the market, 11% more compared to 2023. Yet, there were 8% fewer, or 211 missing FOR-SALE signs below $1 million. On the other hand, 29% more homes were placed on the market above $1 million, or an extra 824 signs. The entry-level market is already suffering from a chronically low supply. There is plenty of buyer competition due to the scarcity of available homes. As a result of the limited inventory of starter homes, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) for all homes below $1 million is a scorching 29 days.
The entry level will improve once mortgage rates eventually ease to the mid-6s. Many economic experts believe the U.S. economy will cool sometime this year. Rates drop with a cooling economy. If the economy downshifts enough, rates could fall to the low 6s or even into the upper 5s. The lower mortgage rates fall, the more inclined homeowners will be to move. It will also result in a spike in demand. With more homes available and more demand, the housing market would begin to thaw.
What we know:
→ Very few properties under 1 mil
→ The few that do come on have multiple offers
→ Higher price points this year
→ 2024 has more 2 mil+ on the market
→ People stuck in low interest payments aren't moving
→ Higher end market have more cash on hand and can move
What we can expect:
→ The trend we're seeing now will continue
→ This could be 2-4 years depending on interest rates
→ Inventory will be low
→ Demand is strong heading into summer
Orange County Housing Market Summary:
- The active listing inventory in the past couple of weeks increased by 174 homes, up 9%, and now sits at 2,184. There are more homes on the market than the prior year for the first time since last April. In March, 42% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,623 less. 149 more sellers came on the market this March compared to 2023. Last year, there were 2,053 homes on the market, 131 fewer homes, or 6% less. The 3-year average before COVID (2017 to 2019) was 5,780, or 165% extra, more than double.
- Demand, the number of pending sales over the prior month, increased by 25 pending sales in the past two weeks, up 2%, and now totals 1,642. Last year, there were 1,663 pending sales, 1% more than today. The 3-year average before COVID (2017 to 2019) was 2,777, or 69% more.
- With supply rising faster than demand, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased from 37 to 40 days in the past couple of weeks. It was 37 days last year, similar to today. The 3-year average before COVID (2017 to 2019) was 62 days, slower than today.
- The Expected Market Time for homes priced below $750,000 increased from 30 to 33 days. This range represents 19% of the active inventory and 23% of demand.
- The Expected Market Time for homes priced between $750,000 and $1 million remained unchanged at 24 days. This range represents 13% of the active inventory and 22% of demand.
- The Expected Market Time for homes priced between $1 million and $1.25 million increased from 24 to 26 days. This range represents 10% of the active inventory and 15% of demand.
- The Expected Market Time for homes priced between $1.25 million and $1.5 million increased from 29 to 34 days. This range represents 11% of the active inventory and 12% of demand.
- The Expected Market Time for homes priced between $1.5 million and $2 million increased from 35 to 36 days. This range represents 11% of the active inventory and 13% of demand.
- In the past two weeks, the expected market time for homes priced between $2 million and $4 million increased from 60 to 64 days. For homes priced between $4 million and $6 million, the Expected Market Time increased from 109 to 138 days. For homes priced above $6 million, the Expected Market Time increased from 238 to 247 days.
- The luxury end, all homes above $2 million, account for 36% of the inventory and 15% of demand.
- Distressed homes, both short sales and foreclosures combined, comprised only 0.2% of all listings and 0.2% of demand. Only four foreclosures and one short sale are available today in Orange County, with five total distressed homes on the active market, up two from two weeks ago. Last year, ten distressed homes were on the market, similar to today.