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The Orange County housing market experienced a substantial slowdown that is unusual for this time of the year.
Typically, from the start of the year to mid-January, housing heats up, and the Expected Market Time (the number of days it takes to sell all Orange County listings at the current buying pace) starts to drop. This is due to the inventory slowly rising and demand beginning to surge higher. Yet, within the past couple of weeks, the inventory jumped higher, demand rose slightly, and the Expected Market Time surged higher. It is an unexpected development and very unusual market movement.
In the past two weeks, the Expected Market Time grew from 76 to 84 days, adding 8 days, or more than a week, to the market time. Last year, it fell from 62 to 56 days. The 28-day year-over-year difference is very noticeable within the marketplace. Since 2004, the Expected Market Time has increased only one time before. In 2014, it rose from 95 to 98 days. From 2012 through 2020, the average drop was 10 days. The considerable rise within the last couple of weeks is unprecedented.
Even though 45% more homes are on the market this year compared to 2024, an extra 859, it is not translating to an increase in pending sales. The culprit: the higher mortgage rate environment. 30-year mortgage rates have been stuck above 7% since Jerome Powell and the Federal Reserve cut the short-term Federal Funds rate (an overnight banking rate) by a quarter percentage point on December 18th. According to Mortgage News Daily, as of January 16th, mortgage rates are 7.07%. They were at 6.89% last year and 6.15% in 2023. When rates surpass the psychological 7% barrier, the inventory grows. These higher rates prevent many buyers from pursuing a home.
Over the next four weeks, demand is expected to climb rapidly as the market transitions to the Winter Market, now through mid-March. Yet, as the last two weeks' trend has established, it is also imperative to expect more homes to come on the market and accumulate and the inventory to rise. The Expected Market Time should drop, but not as sharply as is customary due to the added inventory. Plan accordingly. There is bizarre market movement.
What we're seeing:
→ Active inventory is largest rise we've seen for this time of year
→ Coastal South OC hasn't seen the same rise as the rest of the county
→ San Clemente average days on market is now 80 days
→ $3 mil+ homes are averaging 121 days on market
→ Pace is starting to pick up for luxury properties
→ Interest rates are over 7%, which affecting buyer interest
→ Pace is starting to pick up for luxury properties
What we can expect:
→ Sellers will have to pay attention to pricing in the spring
→ If Sellers overprice they'll be sitting for a while
→ Buyers will see more inventory the next couple months
→ More competition will be coming on the market
Orange County Housing Market Summary:
- The active listing inventory in the past couple of weeks surged higher by 358 homes, up 15%, and now sits at 2,759, its highest mid-January level since 2020. 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 1,900 homes on the market, 859 fewer homes, or 31% less. The 3-year average before COVID (2017 to 2019) was 4,739, or 72% extra.
- Demand, the number of pending sales over the prior month, increased by 35 pending sales in the past two weeks, up 4%, and now totals 988, its second lowest level for mid-January since tracking began in 2004, only behind 2023’s 939. Last year, there were 1,010 pending sales, 2% more. The 3-year average before COVID (2017 to 2019) was 1,710, or 73% more.
- With the inventory surging higher compared to the slight rise in demand, 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. Last year, it was 56 days, noticeably faster than today. The 3-year average before COVID (2017 to 2019) was 86 days, similar to today.
- In the past two weeks, the Expected Market Time for homes priced below $750,000 increased from 55 to 68 days. This range represents 19% of the active inventory and 24% of demand.
- The Expected Market Time for homes priced between $750,000 and $1 million increased from 56 to 58 days. This range represents 15% of the active inventory and 22% of demand.
- The Expected Market Time for homes priced between $1 million and $1.25 million increased from 51 to 69 days. This range represents 10% of the active inventory and 12% of demand.
- The Expected Market Time for homes priced between $1.25 million and $1.5 million increased from 54 to 63 days. This range represents 10% of the active inventory and 13% of demand.
- The Expected Market Time for homes priced between $1.5 million and $2 million decreased from 103 to 80 days. This range represents 13% of the active inventory and 13% of demand.
- The Expected Market Time for homes priced between $2 million and $2.5 million is 89 days. This range represents 6% of the active inventory and 6% of demand.
- The Expected Market Time for homes priced between $2.5 million and $4 million is 149 days. In the past two weeks, for homes priced between $4 million and $6 million, the Expected Market Time increased from 216 to 272 days. For homes priced above $6 million, the Expected Market Time increased from 294 to 595 days.
- The luxury end, all homes above $2 million, account for 27% of the inventory and 10% of demand.
- Distressed homes, both short sales and foreclosures combined, comprised only 0.2% of all listings and 0.6% of demand. Only three foreclosures and three short sales are available today in Orange County, with six total distressed homes on the active market, unchanged from two weeks ago. Last year, eight distressed homes were on the market, similar to today.
- There were 1,634 closed residential resales in December, up 25% compared to December 2023’s 1,310 and up 3% from November 2024. The sales-to-list price ratio was 99.5% for Orange County. Foreclosures accounted for 0.1% of all closed sales, and there were no short sales. That means that 99.9% of all sales were good ol’ fashioned sellers with equity.