Orange County Housing Report: Buyers Against The Ropes

Chad Hooper
Chad Hooper
Published on September 24, 2021

The insane housing market has been frustrating buyers for more than a year now with unbelievable, relentless competition, making it exceedingly difficult to secure a home.

Buyers Should Not Give Up

The housing market will remain a Hot Seller’s Market for some time and home values will continue to rise.

“When it rains it pours.” There are times in life when it seems impossible to catch a break. All the cards feel as if they are stacked against you. That is how so many buyers have felt for over a year now. The housing market has been extremely hot since June of last year and has not let up ever since. Buyers are faced with crowds of interest on just about every home that is placed on the market. Multiple offers are the norm. Homes selling for above their list prices is the norm. Homes instantly selling is the norm. It is tough to be a buyer looking to purchase in today’s housing market. It feels as if they are constantly against the ropes in a 12-round heavyweight bout.  

For buyers, securing a home is exceptionally frustrating. Many are kicking themselves and wish that they could have purchased a year ago, knowing that homes have appreciated at record levels ever since. Yet, that kind of thinking is futile. Home values have gone up for decades. Rather than dwelling on the past, it is best to look at where housing is at today and where it is headed in the future.

To gauge where housing is today, it is crucial to look at supply, the number of homes available to purchase, demand, the number of pending sales in the prior month, and the speed of the market, market time. The active inventory is at 2,289, the lowest level since tracking for this time of the year. The 3-year average from 2017 to 2019 (intentionally leaving out last year due to the skew from COVID) is 6,520 homes, 185% more than today’s level, an extra 4,231 FOR-SALE signs. It has not helped that there have been 1,720 fewer homes placed on the market compared to the 3-year average, 6% less.

Even with fewer available homes, demand (the last 30-days of pending sales) has been running persistently hot. The 3-year average from 2017 to 2019 is 2,363 pending sales, 10% less, or 260 fewer than today’s 2,682 level. Hot demand combined with a supply crisis has resulted in an Expected Market Time (number of days between coming on the market and opening escrow) at ultra-low, unprecedented levels. It is at 26 days today and has been stuck below the 40-day threshold since January, indicative of an insane market with tons of showings, multiple offers, selling prices above their list prices, and swift appreciation.

The current market dynamics point to a continued supply crisis with fewer homes entering the fray, elevated demand due to unrelenting historically low mortgage rates, and an insane Expected Market Time remaining steadfastly below 40-days. This is a recipe for continued multiple offers, continued throngs of buyers jumping at everything placed on the market, and continued appreciation.

Knowing where the market is today and where it is headed from here is very important. When buyers qualify to purchase and are comfortable with the monthly payment, they can take heart that they are taking advantage of today’s remarkable, historically low mortgage rate environment, and that home appreciation will endure for the foreseeable future. In comparing a home purchased today for $1 million with a 20% down payment, the monthly payment is $3,313 at 2.86%. Home appreciation will slow a bit over the next year, from 20% today to about 10%. If rates stayed the same, the $1 million home would appreciate to $1.1 million in a year, and the payment would be $3,644 per month. That is $331 extra every month, or an annual increase of nearly $4,000, by holding off a home purchase for a year.

Many financial institutions and economic experts are forecasting a rise in rates to about 3.5% in a year from now. With a $1 million home appreciating to $1.1 million and rates rising from 2.86% to 3.5%, the monthly mortgage payment jumps to $3,952 per month. That is $639 extra every month, or an increase of over $7,500 per year for the life of the loan.

It seems that everybody has become quite accustomed to today’s low-rate environment. For context, the 30-year fixed-rate peaked at over 18% back in 1981 and it has been trending down ever since. In 1990, rates were at 10%. In 2000, it was 8%. Just before the Great Recession, mortgage rates had fallen to 6.35%. They dropped down to 3.35% by the end of 2012, fueling the recovery in housing that has endured for more than a decade. The market did slow quite a bit at the end of 2018 when rates nearly reached 5%, but they have been down ever since. With the outbreak of the COVID-19 pandemic, according to Freddie Mac’s Primary Mortgage Market Survey®, 17 record lows were reached, and rates have remained stubbornly below 3% for quite some time. Eventually, as the economy improves, they will rise.

Rates will not linger at these historically low levels forever. It is not a matter of IF they rise; it is more a matter of WHEN. For buyers, it is not wise to gamble on rates. They are extremely low today, and the Orange County housing market is poised to continue to appreciate. While buyers may have felt like their backs have been against the ropes for many rounds, it is wise to get right back into the center ring and isolate a home.

Active Listings

The current active inventory remained unchanged over the past two weeks.

The active listing inventory did not change at all in the past two weeks, remaining at 2,289 homes. That occurred after the largest drop of the year, down 9%, two weeks prior. Autumn’s official start may be this Wednesday, but for housing, it started when the kids went back to school at the end of last month. With fewer families opting to sell now that the kids have gone back to the classroom, expect the inventory to slowly drop from now through the week before Thanksgiving. And, this year, the kids are attending school “in person” versus virtual. Last year’s virtual setup made it a bit easier for

families to make a move. That is not the case this year.

Demand

Demand dropped by 2% in the past couple of weeks.

Demand, a snapshot of the number of new pending sales over the prior month, decreased from 2,682 to 2,623 in the past couple of weeks, shedding 59 pending sales, down 2%. On average, demand drops 3% at this time of the year. Demand readings remain strong due to stubbornly low rates that have bounced between 2.86% to 2.88% for five straight weeks. They have remained below 3% since July 1st. In calculating the potential monthly payment based upon today’s low-rate environment, buyers remain eager to purchase and cash in as soon as possible. Yet, with fewer homes coming on the market, expect demand to drop slightly from now through the week before Thanksgiving.

Last year, demand was at 3,256, 24% more than today due to a delay in the Spring Market because of COVID.

With no change in the inventory and a slight drop in demand, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) remained unchanged at 26 days, an extremely 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 39 days. The 3-year average from 2017 through 2019 was at 84 days, much slower than today, but still a Slight Seller’s Market.

Luxury End

The luxury market continued to improve in the past couple of weeks.

In the past two weeks the luxury inventory of homes priced above $1.5 million decreased by 11 homes, down 2%, and now sits at 722, its lowest level since tracking. In the past month, the inventory has dropped by 72 homes. Luxury demand increased by 12 pending sales, up 3%, and now sits at 454, its strongest level since June. With a drop in the supply and rising demand, the overall Expected Market Time for luxury homes priced above $1.5 million decreased from 50 to 48 days, a very Hot Seller’s Market for luxury. The last time luxury was this hot was back in May.

Expect the luxury market to slightly cool as housing transitions further into the Autumn Market. The recent drop in Wall Street is common for this month, known as the “September Effect,” and it will have little impact on luxury housing. If it were to endure for longer than September, it could eat into demand a bit as many luxury buyers are heavily invested, and downturns on Wall Street can impact housing. The slump is not likely to continue beyond September. Time will tell. 

To request to read/download the full report and charts, please email [email protected]

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