Fierce demand, throngs of buyer tours, bidding wars, rapid appreciation, and limited available homes to purchase are all due to historically low rates.
With a record low supply of homes available to purchase and staggering demand, the market is extremely hot.
When a commodity drops to a price that is too good to pass up, everybody flocks to purchase. That is precisely what is occurring in housing. It is not that home values have plunged by 40%; instead, it is historically low mortgage rates that are the catalyst to surging demand. As a result, buyers are coming out in droves to purchase. It is too good to pass up. For a $700,000 mortgage at last year’s 3.6% fixed rate, the payment would have been $3,183 per month. With today’s 2.77% rate, the payment drops to $2,865, a $318 per month savings, essentially a 10% discount. Comparing today to November 2018 when rates nearly hit 5%, the savings jumps to $893 per month, a 24% savings. It is not a one-time savings either. This savings is every single month for 30-years.
With record low mortgage rates, there is almost too much demand. It is like a pot of spaghetti that is boiling over. A quick fix would be to turn down the temperature. That is not that easy in housing. The only way to turn down the heat is for rates to rise. Buyers may be rooting for an easier market with less competition, fewer competing offers, and a gentler rise in values, but that would come at the expense of higher rates and higher monthly payments.
Because of these low rates, demand is off the charts and everything that comes on the market is gobbled up almost immediately. Today’s demand (a snapshot of the prior 30-days of pending sales activity) is at 2,055 pending sales compared to 1,702 last year, 21% higher. The current active inventory (the number of available homes to purchase) is at 2,627 compared to 4,023 last year. There were 53% more homes available to purchase only one year ago. With rock solid demand and an exceptionally low supply, the market is unbelievably hot and lines up heavily in the seller’s favor. The Expected Market Time (the number of months to sell all Orange County listings at the current buying pace) is at 38 days. Last year it was at 71 days, and in November 2018 it was at 122 days. The bottom line: As rates climb, the market cools, homes take a lot longer to sell, and demand drops. The tradeoff is higher mortgage payments and a steep drop in a buyer’s purchasing power.
The current active inventory was unchanged in the past two weeks.
The active listing inventory shed 6 homes in the past two-weeks, nearly unchanged, and now sits at 2,627, its lowest January level since tracking began in 2004. Many homeowners wait until the spring to place their homes on the market. Spring does not start until the end of March. Yet, demand is already firing on all cylinders. As a result, homes are being placed into escrow as fast as they are coming on. Basically, there are not enough homes coming on the market to satisfy the disproportionate number of buyers lining up to purchase. The unprecedented low supply of homes available to purchase will remain low until the end of March, the beginning of spring. Only then will the supply finally start to rise.
Demand climbed by 8% in the past two weeks.
Demand, a snapshot of the number of new pending sales over the prior month, climbed from 1,895 to 2,055 in the past couple of weeks, adding 160 pending sales, up 8%. Due to record low mortgage rates, demand is currently limited by the number of homes coming on the market. If there were more homes available, demand would rise from where it is at today. The issue is there are not a tremendous number of homeowners interested in selling during the winter months. It is not until the Spring Market, beginning in March, when a lot more homes come on the market, allowing demand to rise. Rates are so low today that the only real limit on demand is the supply. As rates rise later in the year, projected to increase to the mid-3’s by year’s end, demand will eventually slow a bit. Yet, the market will remain a Hot Seller’s Market throughout 2021.
The luxury market is heating up fast.
In the past two weeks the luxury inventory dropped, and demand surged. The luxury inventory for homes above $1.5 million shed 27 homes in the past two weeks, or 3%, and now sits at 948. At the same time, luxury demand rocketed upward, adding 65 pending sales and now sits at 314, up 26%. With demand rising and the inventory dropping, the overall Expected Market Time for luxury homes priced above $1.5 million decreased from 117 to 91 days in the past couple of weeks. Luxury is back online, turning its back on the Holiday Market and setting the stage for an incredible 2021.