Starting 2025

 

This year’s start is slower than the strong start to 2024 due to an elevated number of available homes, subdued demand, and a higher mortgage rate environment. 2025 so far is similar to many prior years. It is not as slow as some, but certainly not as instant as 2021 and 2022. Last year was a much hotter start with a very limited number of available homes.

 

The 2025 kickoff is different because of a buildup in inventory. The buildup is a direct result of the higher mortgage rate environment. Demand was muted due to affordability constrains. Mortgage rates were stuck above 7% for the better part of last year, throughout the entire Spring Market and most of the Summer Market. The 7% mortgage rate is a psychological barrier to the housing market. It prevents many buyers from pulling the trigger on a home.

 

The Orange County housing market is particularly rate-sensitive. As mortgage rates migrate higher, demand slows, and the market speed slows. When rates fall, demand rises, and the housing market speeds up. In mid-July 2024, mortgage rates did drop below 7% with duration. They even dropped below 6.5% for 42 days from the end of August to the start of October. This resulted in more demand and the housing market heating up. Yet, with stronger economic readings and a change in political parties in the White House, 30-year mortgage rates popped above 7% in late October and November. Today, according to Mortgage News Daily, rates are at 7.1%. They have been stuck above the 7% threshold since December 18th.

 

Today’s inventory may be the third lowest to start a year, yet when it is combined with record low demand levels, the Expected Market Time is far from instantaneous like it was in 2021 and 2022. Instead, it is similar to 2016 through 2018, 2020, and 2023, with an Expected Market Time of 76 days, significantly slower than last year’s 62 days. It would be considered “normal” before COVID, even a bit hotter. The average start from 2013 to 2020 was an Expected Market Time of 91 days, an additional 15 days, nearly two weeks longer. Yet, when the general public anticipates faster markets like 2021, 2022, and 2024, it is best to recalibrate everyone’s housing expectations. If rates remain elevated, expect a substantially slower Winter Market, from mid-January through mid-March, than last year. 

 

ATTENTION BUYERS: The market will heat up as housing transitions to the Winter Market. Expect demand to grow substantially from now until the start of spring, while inventory will only slowly rise. Many homeowners wait until the spring to place their homes on the market, with May being the peak month for the number of new FOR-SALE signs. With demand climbing much faster than supply, the Expected Market Time will drop considerably until reaching a bottom in March or April, the hottest time of the year for housing. Keep in mind that most sellers do not have to sell, so they will be reluctant to give up much on price. 

 

ATTENTION SELLERS: Proper pricing is crucial in securing success. As long as rates remain above 7%, buyers will be unwilling to stretch in price and will carefully examine the pros and cons of every home before even taking a look, most notably the asking price. A realistic price will allow a seller to attract immediate interest. Sellers who overprice will result in wasted market time and less activity before ultimately reducing. Sellers should sharpen their pencils and meticulously scrutinize all recent comparable pending and closed sales to arrive at their home’s Fair Market Value.

• The active listing inventory in the past couple of weeks plunged by 298 homes, down 11%, and now sits at 2,401, its lowest level since last April. It was the third lowest start to a year since tracking began in 2004, behind 2022 and 2024. In December, 20% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 296 less. Yet, 175 more sellers came on the market this December compared to December 2023. Last year, there were 1,785 homes on the market, 616 fewer homes, or 26% less. The 3-year average before COVID (2017 to 2019) was 4,665, or 161% extra.
• Demand, the number of pending sales over the prior month, plunged by 251 pending sales in the past two weeks, down 21%, and now totals 953, its third lowest start to the year since tracking began in 2004 behind 2023 and 2024. Last year, there were 861 pending sales, 10% fewer. The 3-year average before COVID (2017 to 2019) was 1,391, or 62% more.
• With demand falling much faster than supply, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased from 67 to 76 days in the past couple of weeks. The 3-year average before COVID (2017 to 2019) was 104 days, slower than today.
• In the past two weeks, the Expected Market Time for homes priced below $750,000 decreased from 58 to 55 days. This range represents 20% of the active inventory and 27% of demand.
• The Expected Market Time for homes priced between $750,000 and $1 million increased from 46 to 56 days. This range represents 15% of the active inventory and 20% of demand.
• The Expected Market Time for homes priced between $1 million and $1.25 million increased from 45 to 51 days. This range represents 9% of the active inventory and 13% of demand.
• The Expected Market Time for homes priced between $1.25 million and $1.5 million decreased from 55 to 54 days. This range represents 10% of the active inventory and 14% of demand.
• The Expected Market Time for homes priced between $1.5 million and $2 million increased from 70 to 103 days. This range represents 13% of the active inventory and 10% of demand.
• In the past two weeks, the expected market time for homes priced between $2 million and $4 million increased from 96 to 120 days. For homes priced between $4 million and $6 million, the Expected Market Time increased from 204 to 216 days. For homes priced above $6 million, the Expected Market Time decreased from 314 to 294 days.
• The luxury end, all homes above $2 million, account for 33% of the inventory and 16% of demand.
• Distressed homes, both short sales and foreclosures combined, comprised only 0.2% of all listings and 0.6% of demand. Only four foreclosures and two short sales are available today in Orange County, with six total distressed homes on the active market, unchanged from two weeks ago. Last year, ten distressed homes were on the market, similar to today.
• There were 1,583 closed residential resales in November, up 11% compared to November 2023’s 1,427 and down 4% from October 2024. The sales-to-list price ratio was 100.4% for Orange County. Foreclosures accounted for 0.1% of all closed sales, and short sales accounted for 0.1%. That means that 99.8% of all sales were good ol’ fashioned sellers with equity.