Orange County Housing Report: Ch-Ch-Ch-Changes

Posted by Hartanov Real Estate Team on Monday, April 11th, 2022 at 7:58am.

Orange County Housing Report:



With rates inching their way up to 5%, the housing market is slowly changing and trends are emerging that illustrate a shift in the insanely hot housing market.

New Trends Emerge

As rates zoom upwards, home affordability is beginning to impact the housing market in several profound and meaningful ways.

The scent of orange tree blossoms is captivating. It is just the beginning of the slow metamorphosis from flower to fruit. After the flower blooms, it takes navel oranges seven to 12 months to mature. It is far from instant, but as the petals drop, it reveals a tiny, green fruit that will eventually become a juicy, ripe orange.

Similarly, the evolution of the housing market is far from instant. It does not change like a snap of the fingers. Higher rates are like the orange blossom, just the beginning of a slow metamorphosis from an insane, out-of-control housing market to a slower, more balanced, normal housing market. It takes time, but new trends are already emerging. 

  1.       Rapidly rising rates mean affordability has taken a dramatic hit so far this year. According to the Mortgage Bankers Association®, interest rates have risen from 3.31% on December 29th to 4.8% on March 30th, representing a 45% increase. The purchasing power for buyers has rapidly eroded in such a short period of time. For a buyer looking to put 10% down and desiring a $4,000 per month payment, at the end of December they were looking at a $1,013,333 home. Today, that same buyer is now looking at homes just below $850,000. Another way of looking at it is how much more the payment is on a $1 million home. At 3.31% with 10% down, the payment would be $3,947 per month versus $4,772 per month at 4.8% today. That is an additional $884 per month, or $10,608 per year. Persistent higher rates will eventually diminish demand and, ultimately, throttle back the housing market. The pool of buyers able to purchase shrinks as rates rise.

  2.      Significantly fewer homes are being placed on the market this year compared to the average prior to COVID. Last year there were 2,368 missing FOR-SALE signs in Orange County compared to the 3-year average between 2017 to 2019, 6% less. Yet, through the first three months of 2022, there are 1,866 missing signs, down 18%. Originally, the extremely anemic inventory was preventing homeowners from entering the fray. Today, it is more than that. Owners are more than happy staying put in their homes. They are acutely aware that home values are continuing to rise, that mortgage rates have substantially climbed, and that the underlying mortgage loan on their home is substantially lower than today’s 4.8% rate. In doing the math, homeowners are opting to stay put. Many homeowners who purchased several years back have refinanced to below 3% and have realized substantial appreciation. Yet in calculating their monthly mortgage payment and property taxes if they sell and purchase a larger home, the monthly difference can be staggering. As a result, many homeowners are opting to stay.


 3.      Demand, a snapshot of the number of new escrows over the prior month, has been substantially muted this year. Today’s demand is at 2,286 pending sales. So far this year demand has risen from 1,295 during the first week of January to 2,286 today, an increase of 991 pending sales. The 3-year average rise in demand prior to COVID (2017 to 2019) was 1,277, or 29% higher than today. Last year’s demand reading was at 3,162 pending sales, 38% higher than today. Today’s level is the lowest reading to start the 2nd quarter of a year since 2007. Demand has been muted all year. A big reason for muted demand readings is the acute lack of homes available to purchase. Simple economics: “You cannot buy what is not for sale.” True demand, the number of buyers in the marketplace, is considerably higher than tracked demand based upon escrow activity, yet is impossible to gauge other than home showing activity and the number of offers generated on homes today. Anecdotally, reports from the real estate trenches detail a reduction in the number of multiple offers real estate agents are receiving. Over time, if mortgage rates persist at these higher levels with duration, then demand will continue to remain muted compared to prior years even with more homes coming on the market. It is important to note that the strongest demographic patch of first-time home buyers ever, millennials, is making its way through the real estate market


right now. The surge of prime first-time home buyers aged 32 years old occurs between 2020 and 2024. That demographic was added on top of an increase in buyer activity during COVID thanks to record low mortgage rates. Those record rates are gone, but there are still an astonishing number of millennials contributing to demand. 

The Orange County housing market has been running at an insane pace since July 2020. Yet, with mortgage rates climbing from 3.31% at the end of December to 4.8% today, new trends have emerged that will ultimately lead to a market downshift as long as higher rates endure. 

Active Listings

The current active inventory remained nearly unchanged in the past couple of weeks.

The active listing inventory decreased by 4 homes in the past couple of weeks, nearly unchanged, and now sits at 1,552 homes, its lowest level for this time of year since tracking began in 2004. The 3-year average change in the inventory prior to the pandemic (2017 to 2019) for the same two-week period was up 5%. The limited number of homes coming on the market has substantially impacted the ability for the number of available homes to rise. In March, there were 685 fewer new FOR-SALE signs compared to the 3-year average, 18% less. Thankfully more homes are coming. On average, May is the number one month for homes coming on the market and April is a close second. It remains elevate through July. There is relief coming in the weeks and months ahead. Now that the Spring Market is underway, expect the inventory to rise with diminished demand, as long as higher mortgage rates persist.

Last year, the inventory was at 2,240, 44% higher, or an additional 688 homes. The biggest complaint last year was that there were not enough homes on the market, yet there were more homes available compared to today. The 3-year average prior to COVID (2017 through 2019) is 5,533, an extra 3,981 homes, or 257% more, more than three-an-a-half times today. There were a lot more choices back then.



Demand remained unchanged in the past couple of weeks.

Demand, a snapshot of the number of new escrows over the prior month, increased from 2,284 to 2,286 in the past couple of weeks, up 2 pending sales, nearly unchanged. The current demand level is still the lowest reading for this time of the year since 2008 when it was at 2,285, nearly identical. The muted demand is due to not enough available homes to sell, but is also due to a steep rise in mortgage rates since ringing in a New Year. As buyers digest the higher mortgage rate environment, they will not be as willing to stretch above asking prices and they will begin to overlook and ignore overpriced homes. These overpriced homes will sit and accumulate over time. Expect this to occur and be a lot more discernable during the second half of the year.

Last year, demand was at 3,162, 38% more than today, or an extra 876, and was 2021’s peak. The 3-year average prior to COVID (2017 to 2019) was at 2,668 pending sales, 17% more than today. In Orange County, current demand readings have clearly been muted by a lack of available homes and not enough coming on the market.

With both supply and demand not changing, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) remained unchanged at 20 days, an insane, HotSeller’s Market (less than 60 days) where there are a ton of showings, sellers get to call the shots during the negotiating process, multiple offers are the norm, and home values are rising rapidly. Last year the Expected Market Time was at 21 days, similar to today. The 3-year average prior to COVID was at 63 days, substantially slower than today and a Slight Seller’s Market (between 60 and 90 days).

Luxury End

Luxury slowed slightly in the past couple of weeks. 

In the past couple of weeks, the luxury inventory of homes priced above $2 million increased from 420 to 448 homes, up 7%, or an additional 28 homes. Luxury demand decreased by 5 pending sales, down 2%, and now sits at 253. With supply increasing and demand falling, the overall Expected Market Time for luxury homes priced above $2 million increased from 49 to 53 days, still an extremely hot market for luxury.

Year over year, luxury demand is down by 35 pending sales or 12%, and the active luxury listing inventory is down by 233 homes or 34%. The Expected Market Time last year was at 71 days, exceptionally hot for luxury, but slower than today, indicating just how unbelievably hot the luxury market is right now.

For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 33 to 34 days. For homes priced between $4 million and $8 million, the Expected Market Time increased from 75 to 91 days. For homes priced above $8 million, the Expected Market Time increased from 195 to 267 days. At 267 days, a seller would be looking at placing their home into escrow around December 2022.

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