Now, what does that mean for Orange County real estate?
First, let us look back at what happened in 2020 in terms of the inventory, demand, luxury properties, and the Expected Market Time.
After starting the year with a record low number of available homes to purchase, the inventory did not increase like it typically does, and ultimately plunged to new record lows.
The year started off with an active inventory of 2,522 homes, the lowest level to start a year since tracking began in 2004. Typically, the inventory continuously climbs until peaking between July and August, but not this year. The inventory peaked on January 8th at 2,633 homes, dropped to 2,214 at the start of June, and then climbed slightly to 2,537 at the end of July, not much of a change for the first 7-months of the year. The 5-year average peak prior to COVID was 7,077, an astonishing 179% higher than this year. From August through year’s end, the number of available homes continuously dwindled down to unprecedented levels. The year finished with 1,072 homes, 60% lower than last year’s 2,675 record low level. The 5-year average end of December reading prior to COVID was 4,414, a mind-blowing 312% higher than 2021, quadruple today’s level.
With fewer homes coming on the market and soaring demand, the active listing inventory reached record low levels. It dipped below 3,000 homes for the first time ever at the end of 2020. It then dropped below 2,000 homes at the end of October. The inventory is poised to drop below 1,000 upon ringing in the New Year.
COVID-19 suppressed the inventory in Orange County in 2020, but this year the lack of homes available to purchase sidelined many homeowners contemplating making a move. They did not want to participate in a market fraught with tremendous competition, multiple offers, and purchase prices way above their asking prices. From January through November, there were 7% fewer homes placed on the market compared to the 3-year average prior to COVID (2017 to 2019), 2,517 fewer. Including 2020, there were 5,129 missing FOR-SALE signs. That may not seem like a lot, but every single missing sign just magnifies the inventory crisis.
The “supply problem” that everybody talks about is due to heightened buyer demand fueled by historically low mortgage rates matched with an inventory that was already trending lower prior to COVID. The inventory crisis is so acute that it has limited the number of closed sales in Orange County. There is plenty of excess demand from buyers unable to isolate a home to purchase.
Demand has been elevated all year long with buyers lining up to see every new home in a market plagued with not enough homes for sale.
Demand for Orange County homes (the number of pending sales over the prior month) followed a normal strong housing pattern. The Spring Market was the hottest, followed by the Summer Market, then the Autumn Market, and, finally, the Holiday Market. Demand followed this seasonal pattern which mirrors when homes are placed on the market. The most come on during the spring and the least come on during the holidays.
At the beginning of the year, demand for Orange County homes (the number of pending sales over the prior month) was up 32% compared to the start of 2020, prior to COVID impacting housing. Demand was at the hottest levels since 2013 for the first six-months of the year but dropped below 2020 readings by the end of June. Demand was limited due to the inventory catastrophe that became extremely acute this year. Demand is measured by recent escrow activity, but is not a reflection of true demand, the number of buyers in the marketplace. True demand is a lot higher yet is impossible to gauge. The throngs of showings for just about every home that hits the market combined with the sheer volume of multiple offers generated illustrates that there is a vast pool of buyers looking to secure a home.
Even though home values have far surpassed 2007 record levels, homes are still much more affordable due to record low interest rates and much higher household incomes. After 16 record breaking new lows in 2020, the start of January 2021 was greeted with a 17th record low, 2.65%, according to Freddie Mac’s weekly Primary Mortgage Market Survey®. Rates climbed to 3.18% by March, but then dropped. They have bounced between 2.77% to 3.14% since. Even at this year’s 3.18% height, it would still be a record in comparing it to any time prior to the start of the pandemic in March 2020. As of December 23rd, rates were at 3.05%. This low-rate environment continues to instigate tremendous buyer demand despite rising home values. Household incomes have been methodically rising over time, which will most likely surpass $100,000 in Orange County this year, rising 38% since 2007. The current low-rate environment, coupled with higher incomes, continues to entice a flood of buyers to pursue the purchase of a home.
Within the past two weeks, demand dropped by 353 pending sales, or 18%, and now sits at 1,591 pending sales, the lowest reading since January 2020. Last year at this time, demand was at 2,195, or 38% more pending sales. Year over year statistics are not really comparable though. Demand was hit hard initially last year when COVID hit due to lockdown protocols. The Spring Market was delayed by four months and remained elevated through year’s end.
The luxury home market surpassed last year’s record levels by an additional 89%, nearly double.
2020 was a record-setting year, providing the most sales ever above $1.5 million, 26% more than 2019, which happened to be a record-setting year as well. In 2021, Orange County reached for the stars and was up by 89% compared to 2020, shattering the prior record by over 2,500 closed sales. There were 6,109 closed luxury sales this year compared to 3,372 in 2020.
The luxury home market started off extremely strong. In the first quarter of 2021, there were 86% more luxury sales year over year. The second quarter of 2021 was up 262% due to last year’s lockdown measures at the start of the pandemic. It was up by 45% during the third quarter, and up by 30% during the fourth quarter.
It has been an unprecedented year for the luxury market. Market times dropped to a Hot Seller’s Market level in March, a first for luxury since tracking began. It has remained hot through year’s end. As of the end of December, luxury demand is up year-over-year by 10 pending sales or 4%, and the active luxury listing inventory is down by 571 homes or 57%. Similar to the overall housing market, the luxury inventory is starved for homes and buyers looking to purchase are eagerly waiting for additional homes to hit the market.
Expected Market Time
The amount of time it takes to sell a home dropped to insanely low levels in 2021.
The Expected Market Time, the amount of time it would take to place a home listed today into escrow down the road (based upon current supply and demand), started the year at 42 days, a Hot Seller’s Market (less than 60 days), its hottest level since tracking began nearly 18-years ago. It dropped below 30-days in February and reached all time record low at the end of November at 20-days. With a very limited inventory and white-hot demand fueled by a historically low mortgage rate environment, market time has been extremely fast.
The Expected Market Time is the speed of the market, the lower the number, the faster homes are being placed into escrow. Anything below 60-days is considered a Hot Seller’s Market where there are plenty of showings, multiple offers, sellers call the shots, and home values are on the rise. A new level emerged to adequately describe this year’s torrid pace, market times below 40-days. Anything below this level is considered an Insane Seller’s Market. That is a market with a flood of showings, an overwhelming number of multiple offers, sellers get just about everything their hearts desire in calling the shots, and home values soar.
Surprisingly, it has not let up at all during the Holiday Market, foreshadowing an incredible start to 2022 and a sizzling hot Spring Market. In the past two weeks, the Expected Market Time for all of Orange County dropped from 21 to 20 days, matching the record low in November.