Change is happening quickly in the Orange County housing market. Higher rates have shifted the market faster than any point in recent history and if the current trends continue, we could be looking at entering a slight buyer's market before the end of 2022...
For a more detailed break down of what to expect in the Orange County housing market this summer or if you would just rather watch the market update instead or reading it below CLICK HERE or click the video above.
For the first time in what seems like forever I am able to say although still not likely, the trends in the data for the Orange County housing market are showing that if interest rates continue to stay in the range they are at right now there is a slight chance we will be headed for a very slight buyer’s market by the end of the year. However, this doesn’t mean that home prices are going to plummet, but we might see price appreciation stop, and remember, there is still a lot working against that becoming a reality. So let’s look at where we are now, how we could possibly get to a point where we would enter a slight buyer's market for the first time in years, and what that means for both buyers and sellers over the coming months.
Let’s first look at what the current data is showing.
Supply - Supply is up 14% in the last two weeks which is the largest two week rise since 2018. Inventory in Orange County now sits at around 3,500 homes. Let’s put that into some perspective though. Normal inventory for the three years leading up to covid (17’-19’) was around 6,600 for the end of June so we are still about 50% lower than normal. Also, for those of you scared we are about to experience another housing crash, in 2007 before the great recession, we had inventory levels of 18,000 in Orange County. We are currently adding around 1,000 a month to the market so at this current rate it would take us a very long time and a lot more economic bad news to get to that point again. Right now there is just no indication that we will get anywhere near those numbers.
Demand - Demand has dropped by 8% in the last two weeks and is now at the lowest level since at least 2004. However, it’s important to remember that inventory is still historically low which means that although we are not yet in balance with supply and demand, we are close enough that changes in the housing market are still happening at a gradual pace.
Interest rates - the average interest rate for a 30 year fixed mortgage has been hovering between 5.5%-6.25% in the month of June which is a pretty wild swing for a single month. Right now we are currently averaging 5.9%, which is significantly higher that the 3-4% we have grown used to over the last few years and the main driver of the housing market slow down.
Days on Market(DOM) - The Current DOM for Orange County is right around 60 days at this point. This is up 2 weeks in the last 14 days and triple what is was just a few months ago in March when it was hovering around 20. This has brought us from an extremely hot and insane seller’s market to only a slight sellers market where homes are still appreciating but at a more normal rate. Sellers need to be pricing their homes at the last comparable sale in their neighborhood to attract enough buyers to get offers in most cases.
So, before we go into how we could eventually get to a buyer’s market, let’s first go over what to expect for the remainder of summer.
Traditionally during summer supply will continue to rise week by week as demand continues to decline due to families shifting their focus to vacations and time off and put buying a home on the back burner, and that is exactly what you should expect this year but at a more dramatic pace. Inventory is increasing quickly and demand, which is already at the lowest level in recent history, will continue to decline unless interest rates start to go back down, which isn’t expected to happen anytime soon. So the further we get into summer, the more the market will shift away from a seller’s market and closer to a balanced(or healthy) market where neither the buyer or seller has a distinct advantage during negotiations. So if you are thinking of buying or selling a home this summer, what should you do? This is my advice:
I said this last month and I’ll say it again with even more urgency, if you want to sell your home for top dollar and the best terms in your contract, you need to get your home on the market yesterday. Every day and week that goes by will bring you less interested buyers and result in less aggressive offers. Although we are still seeing appreciation happening in today’s market, waiting an extra month or two before listing is not going to net you significantly more money, and in fact due to you getting less offers in the future, there is a good chance you’ll end up with less money in your pocket at the end of the day because buyers are no longer having to compete with each other as often which has been the main driver of price appreciation over the last two years.
Also, if you are trying to buy a new home after selling yours, waiting longer is really going to hurt you and open you up to more risk. Over the last two years, buyers have been willing to let the seller stay in their old home for a month or two after escrow closes to allow them to find a new place and close escrow on it. However, in today’s market buyers are not so eager to do that, which means there is a greater chance that you will have to rush the process of finding your next home before you close escrow on your current home which will lead to more stress and ultimately could lead you to compromise on your next home because you are running into a deadline. If you have the option to get your home on the market now or later, I HIGHLY recommend you get it on the market NOW.
Finally, as I’ve repeated over the last few months. Pricing your home correctly during a market shift is going to be one of the deciding factors on how much money you ultimately walk away with after everything is said and done. Price reductions are continuing to increase week by week and are ultimately due to seller’s believing we are still in the same market we were in at the beginning of the year where buyers would be climbing over each other to get a home.
WE ARE NO LONGER IN THAT MARKET.
If you price your home too far above market value, it will sit there until you eventually become part of the growing number of homes owners that having to reduce their price, ultimately leading you to a sale price lower than what you could have received if you priced it correctly the first time. Make sure you get a proper home evaluation using the latest data and an agent that excels at marketing your home to set yourself up for a successful home sale. Want a free equity analysis for your home to see what it would be worth in today’s market? Please reply to this email and I would be happy to send one over to you free of charge with no strings attached so you know what you can expect to sell your home for and how much you would walk away with after everything is said and done.
Yes, the market is shifting more and more into your favor and is trending to continue to do so over the coming months, however there is one important thing you really need to remember. We are still in a slight seller’s market, which means prices are still going up as well as interest rates don’t show any sign of retreating in any significant way in the short term. All this means that the longer you wait to buy, the more home values will increase and the less you will be able to afford. You need to be focused on one thing right now, the monthly payments.
If you can get into a home with a payment that makes sense for you and your family, and you plan on being there for the long term(5+ years), then I would highly recommend you start or continue looking for a home. If you buy today and interest rates do end up going down, you can always refinance into a lower monthly payment, but if you wait and interest rates and/or prices continue to rise it’s just going to make it that much harder to get into your next home.
But what if home prices drop? As of now, the most likely reason home prices could eventually drop would be if inflation and interest rates continue to increase at a significant pace. But to get to a slight buyer’s market we would have to see the average days on market go from about 60 today all the way to above 120 days and it would have to be above that for a few months before you saw any noticeable decrease in prices. Also remember in a slight buyers market prices don’t crash 20-30%, they would most likely only fall a few percentage points which ultimately would not have much of an impact on your overall monthly payment. When you look at the all important monthly payment number, when interest rates increase slightly, it will make a much larger impact on that monthly payment than if home values decreased by a few percent.
Want to see exactly what I’m talking about? Check out this quick video here that goes over what your monthly payments look like when rates go up and home prices fall. You might be shocked on how much prices have to fall before you start seeing an impact on your monthly payments.
Will we see a buyer's market before the end of the year?
Ok so now for the part I’m sure a lot of you are interested in. What would it take for us to actually get to a point where we transition into a buyer’s market. The most likely way for this to happen, would be if inflation does not get under control by the end of the year and therefore interest rates remain about the same or go up even farther as we finish up the year.
Now in our typical housing market cycle, inventory continues to rise through summer, peaks around the end of summer, and then starts to fall as kids head back to school and fall begins. At the same time, demand typically peaks in early summer and then starts to fall for the remainder of the year until it hits its lowest point around the last week of the year.
This year however, demand peaked early(around the end of March) and due to the higher interest rates and lower demand, inventory will most likely continue to rise all the way until Thanksgiving when people will start pulling their homes off the market for the holidays. With the way the current trends are going, this continued increases in inventory along with lower than normal demand could push us from a slight seller’s market into a balanced market sometime in the next few months and after that there is a slight chance it could continue heading into a slight buyer's market before the end of the year if the trends don’t change at all.
Now I don’t have a crystal ball so this is only speculation based on the current trends staying the same, however I don’t think this will be what ends up happening. Here is why. The feds are becoming more and more aggressive about reducing the inflation we have been seeing over the last year and I believe that before the end of the year, we will most likely see the peak of inflation hit and then it will start heading back down. This is important because inflation is the enemy of long term interest rates, which is why we have seen such a dramatic jump in rates over the last few months. When we start seeing data showing that inflation is starting to peak and come back down, you can expect mortgage rates to start decreasing as well. If this peak happens sometime in the fall then that would actually be perfect timing for the housing market as we would most likely be in a balanced market by then with a lot more inventory for buyers to choose from so when rates do start going down, although demand will start to go back up again, we will finally have enough inventory to balance out the demand helping to keep the housing market in a balanced market for a longer period of time as we head into 2023.
Now again, if covid has taught us anything, there are a lot of variables out of our control and things can change rapidly but I try to advice my clients on the most likely outcome so they can make the best decisions based on the data. Ultimately, unless you are an investor who is looking to buy and sell within a short period of time, you should always be focused on what is the best decision for you and your family TODAY and not try to time, speculate, and gamble with the housing market. Will a move improve the quality of your life? Is it within your budget to do so? Are you likely to remain at your new home for at least 5 years? If the answer is yes, then the decision to buy or sell is going to be more about your own personal timing than what the market is doing at any given day, month, or year.
As always please feel free to reach out to my with any of your home buying or selling questions. I'm here to help!