Area Real Estate News & Market Trends

You’ll find our blog to be a wealth of information, covering everything from local market statistics and home values to community happenings. That’s because we care about the community and want to help you find your place in it. Please reach out if you have any questions at all. We’d love to talk with you!

Jan. 31, 2023

Are Things Heating Up in January? - Canyon Crest Market Update January 2023

 

 

I'm not going to sugarcoat it - the second half of 2022 was rough for sellers, listing agents, buyer's agents, appraisers, mortgage lenders, and the real estate market in general.

 

With 2022 in the rearview mirror, we can finally get excited about what is going on in 2023. Even though it has been cold lately (for Southern California standards), the real estate market has already begun to heat up this month. Observations I have noticed thus far: 

  • Mortgage rates have remained stable and are currently in the low 5% range (clients with well-established relationships with particular banks are getting even lower rates)
  • Homes priced appropriately are getting multiple offers. Not 30 but at least a handful of offers.
  • As a result, homes priced appropriately are going under contract in a short time  -1 home in Canyon Crest went under contract in 14 days and another in just 3 days.

The key takeaway: PRICE APPROPRIATELY. 

 

Right now there is just one active property on the market in Canyon Crest. With nearly non-existent inventory and plenty of buyers wanting to live in Canyon Crest, there is ample opportunity for homeowners to cash in on all the equity that has accumulated over the past couple of years and beyond. Sellers who prepare their homes properly for sale and price at fair market value will achieve success in 2023.

 

See for yourself what is going on in the Canyon Crest market:

 

What's currently for sale?

Click here to see properties that are currently active

What properties are in escrow (under contract or pending)? 

Click here to see properties that are currently in escrow

 

What properties have sold in the past 60 days? 

Click here to see properties that have sold in the past 2 months

 

If you are thinking of selling your house in the next 2 years, please contact me. (Yes, I said the next 2 years.) Now may be the best time to get the most return on your investment. Need help determining how your home compares? That is where I come in!

 

I don't merely market, list, and sell your home. I am a consultant who helps you understand your options, helps create a plan that accounts for your particular wants and needs, and then executes the plan with a precision that exceeds your expectations. 

 

Contact me now and get the best team in the business working for you!

 

 

Jan. 11, 2023

Home and Personal Safety

Last week I attended a Home and Personal Safety meeting presented by the Mission Viejo division of the Orange County Sheriff's Department. In the past few months, reports of home burglaries seemed to bounce around from neighborhood to neighborhood so it was wonderful to hear from the sheriffs exactly what is going on.

The OC Sheriff's Department investigator confirmed that 90% of the home burglaries in South Orange County are being committed by South American burglary gangs. I had heard this through the rumor mill and it sounded like an urban legend, but the investigator at the meeting confirmed that it is true. She also shared an interesting sidenote that 95% of the women with children begging for money in front of local stores are actually part of these burglary gangs as well. Crazy, right?!?

Even though the investigator who gave the presentation was incredibly passionate about bringing these burglars to justice, unfortunately, the Sheriff's Department hasn't been able to do much to stop these burglary gangs because apparently they move on to other cities/states within a few months or head back to South America. The Sheriff's Department indicated that the best way to ensure that you are not a victim of a home invasion or burglary is to protect yourself and your home in the following ways:

  • Lock it up - Ensure your windows, doors, and garage doors are secured and locked
  • Lock front and back doors when leaving the home
  • Don't leave items outdoors unattended or overnight
  • Collect mail and deliveries as soon as possible; shred any old mail that has any Personally-Identifying Information
  • Sign up for informed delivery via USPS to track incoming mail and packages
  • Recommend motion-sensor lights, motion-sensored cameras, and Ring doorbell
  • Recommend an alarm system - SimpliSafe, ADT
  • Garage door monitor - MyQ
  • Keep an inventory list with photos, receipts, and serial numbers of all your valuables 
    • laptops, iPads, cameras, jewelry, watches, firearms
  • Consider purchasing a safe to store valuables
    • jewelry, watches, firearms, personal documents, passports, security cards, and cash
  • If leaving for vacation, ask a trusted family member or friend to check on the home and collect the mail
    • Criminals will target homes that appear to be unoccupied
  • OC Sheriff's Department and Mission Viejo Police Services offer free vacation home checks
    • Call dispatch at 949-770-6011 for an OCSD patrol check or 949-470-8433 for MVPS vacation home checks
  • If you see something suspicious, say something. Contact your local police department or 9-1-1 if you see something that just doesn't seem right.

Fun Fact: Did you know that you can text 9-1-1? Until this meeting, I thought you could only call 9-1-1 but, in fact, you can text the emergency number as well.

Stay Safe!

Jan. 11, 2023

January 2023 Real Estate Market Update - Off to a Sluggish Start

 

Bears do not wake up from hibernation energetic and raring to go. Instead, they are groggy and dazed for two to three weeks and it takes a while for their metabolism to kick in again. That is how housing normally starts after the holidays have finally passed. It takes a few weeks in January for buyers and potential sellers to shake off the holiday fog after enjoying the festive season that is chock-full of so many wonderful distractions. This is when the housing market slowly awakens and starts to thaw. It is coming out of hibernation and will be quite sluggish to start the New Year. 

 

The issue is that housing has not had a normal, slow start to the year since 2020. In both 2021 and 2022, the market was insanely hot from day one, plagued with very few homes available and insatiable demand due to an extremely low mortgage rate environment. Buyers were tripping over each other to purchase every single home that came on the market, multiple offers were the norm, homes sold way above their asking prices, and the housing market felt like an out-of-control train where it was very challenging for buyers to secure a home.

 

 

In looking at the details, the about-face in housing is due to sky-high mortgage rates coupled with a tremendous run-up in home values. In both 2021 and 2022, mortgage rates experienced back-to-back record low starts to the year at 2.65% and 3.22%. Today’s 6.14% is the highest start to a year since January 2008. As a result, demand, a snapshot of the last 30 days of pending sales activity, is at its lowest level to begin a year since tracking began in 2004 at 900 pending sales. It is slightly lower than demand level in 2008.

 

Housing was manipulated by the policies of the Federal Reserve during the pandemic years with their $1.3 trillion purchase of mortgage-backed securities (MBS) and bringing the Federal Funds Rate (short-term rates) down to 0%. Basically, they acted like the secondary market and bought loans from banks so that lending would not collapse during COVID-19. Consequently, mortgage rates fell to record lows and buyer demand skyrocketed. Unfortunately, with heightened demand and many homeowners opting to not place their homes on the market while there was still a pandemic, the active listing inventory dropped to record lows. With heightened demand and a low supply of available homes, the Expected Market Time, the time between pounding in the FOR-SALE sign to opening escrow, dropped to record low levels, 42 days in 2021 and 25 days in 2022. 

 

 

Today, the inventory might be at the second lowest level to start a year, even beating 2021, but when it is combined with record low demand, the Expected Market Time is no longer at insane levels. Instead, it is like 2016 through 2018 and 2020 with a market time of 84 days. At 84 days the market is not instant. It may not be as slow as 2014, 2015, and 2019, but the few buyers that do remain in the system are not tripping over each other to purchase. They are taking their time, unwilling to stretch above the asking price, and carefully arriving at a price that they are willing to pay for a home based on its condition, location, upgrades, amenities, and age. 

 

 

The Orange County housing market will thaw and improve from here. More homeowners will opt to sell, and the active inventory will rise. Buyer demand will increase as well with the holidays in the rearview mirror, it always does regardless of the pace of the market. Further fueling an increase in demand is that mortgage rates have dropped from over 7.25% in October and November to just above 6% today. Expect home values to continue to fall until mortgage rates drop to 5.5% or below. The direction of the housing market is predicated on the direction of mortgage rates and home affordability. As rates drop, affordability will eventually improve enough to instigate more demand. Mortgage rates will slowly fall as inflation gradually comes back down to earth. This is a process that does not occur instantly and just as it took a while to rise to its current level, it will take a while to substantively drop. 

 

 

WARNING TO SELLERS: If you are holding out for the Spring Market in anticipation of a quick sale and a price higher than the last comparable sale, that simply will not happen. Instead, sellers will be looking at a much more sluggish market with muted demand and buyers taking their time to purchase. Proper pricing is crucial to find success. 

 

WARNING TO BUYERS: While home values may be falling right now, lowball offers are a waste of everybody’s time including your own. Distressed sellers, foreclosures, and short sales are NOT components of today’s market. There is a real lack of panic selling. Most sellers do not have to sell, so there will not be major “deals” like there were during the Great Recession. 

 

Interested in finding out how the market is fairing in your community? Want to know what your home is worth? Thinking of moving but don't know where to start?

 

Call or text us at 949-444-1601 or email info@theswanteamoc.com. We are here to help!

 

{Market Update courtesy of Steven Thomas, Reports on Housing}

 

Dec. 16, 2022

Tips to Prevent Buglary

 

During the holiday season, think of all the deliveries that are made to your house each day…Between the full boxes that arrive on your porch to the empty boxes on the curb on trash pickup day, burglars are basically hearing you say, “I just got a brand-new TV! Come and rob me!”

 

That’s just one example of some unwise habits homeowners have. Here are anti-burglary tips that you can use all year round to keep your family, home, and belongings safe.

  • Keep up with home maintenance and lighting. Trim trees and shrubs that create hiding places for burglars. Replace or repair broken and cracked windows. Keep outside entryways lit. Consider installing motion-activated or heat-sensing lights. But beware of leaving your exterior lights on at all times, which signifies the occupant is gone for an extended period of time.

  • Know your neighbors. Many people don’t really know their neighbors which is a shame for several reasons. When it comes to the safety and security of your home, your neighbors can be a great asset. If your neighbors know everyone who lives in your home, then they will know who is and isn’t supposed to be at your home and can better assess when there may be a threat while you’re gone.

  • Assess your home’s vulnerability. Walk to the curb and face your house. Ask yourself, “How would I get in if I were locked out?” The first thing you think of, whether it’s the window with a broken lock or the door that won’t shut all the way, is exactly how a thief will get in. Think like a burglar, and then address the issues that come to mind.

  • Use technology to make your home look occupied. In addition to lighting, smart-home technology has made it easier to make it appear like people are home, even when they’re not. Systems that remotely control lighting, music, and appliances such as a thermostat can help you achieve this. Though not considered smart-home tech, simple lamp timing devices available at hardware stores are also good for this purpose. If you are going to be out of town for an extended time, notify your local police department and arrange to have your newspaper delivery stopped. Don't post to social media your location or vacation plans.

  • Yes, it has to be said: Lock your doors. It’s amazing how many people think they live in a safe-enough neighborhood not to have to lock their doors when they leave. Some facts you should know: In 30% of burglaries, the criminals access the home through an unlocked door or window; 34% of burglars use the front door to get inside; and 22% use the back door, according to the FBI Uniform Crime Report.

  • Install a home security system with 24/7 monitoring. In studies of convicted criminals, the homes that burglars tend to skip over are those that have a security system installed.

  • Blare the sirens. Burglars are usually in and out in less than five minutes, and they know police can’t respond to an alarm that quickly. Their bigger concern is witnesses to their crime. For that reason, an external siren is invaluable, whether as part of a monitored security system or a DIY alarm. Even if you don’t have an alarm, it’s not a bad idea to invest in fake security signs and post them near doors.

  • Consider surveillance cameras. The Los Angeles Police Department started a program encouraging homeowners to install a Ring doorbell with video surveillance capability that allows homeowners to view what’s outside their door on their smartphone, in a neighborhood that was a target for burglaries. After Ring was installed in hundreds of homes, the burglary rate dropped by 55% (link is external), according to reports.

  • Get a safe. Precious jewels, passports, and other important documents belong in a fireproof safe, preferably built into a wall or bolted to the floor.

  • Mark your valuables and record details. Use invisible-ink pens or engravers to mark identifying information (driver’s license or state ID numbers) on items. Log serial numbers and take photos of your belongings. Taking out a rider on your homeowner’s insurance policy for specific items can give you peace of mind that if an item is stolen, your insurance company will replace it.

While these actions aren't a guarantee, as the saying goes, "an ounce of prevention is worth a pound of cure."

 

For questions about buying or selling real estate, contact us at 949-444-1601 or info@theswanteamoc.com.

Dec. 15, 2022

Goodby 2022...Hello 2023 - Canyon Crest Market Update December 2022

 

This year has been quite a roller coaster ride for real estate, and Canyon Crest has been no exception. January through April, most homes in our community wouldn't last longer than a week on the market. In that week, a home would receive 5-20 offers, often tens to hundreds of thousands of dollars over the asking price. In April, the first significant interest rate hike occurred and suddenly, buyers could no longer afford the escalating prices. Suddenly, multiple offers turned into no offers, and homes not selling at all. For lack of a better term, buyers got really spooked by the rapidly increasing interest rates and everyone began envisioning 2008 and 2009 happening all over again. Over the summer and fall months, sales came to a screeching halt. But (and this is a big but), sales started picking up in October and have continued through now. Even though rates went as high as 8% this year, they have settled in at the low 6% range. Buyers seem to be adjusting their expectations of what they can afford, and sellers are adjusting their expectations of what they can sell their property for. As I always tell clients: realistic expectations are key. 

So what can you expect from Canyon Crest real estate in 2023? Well, let's first look at how we are wrapping up 2022.  

  • 22 homes sold in Canyon Crest in 2022 vs. 52 homes sold in Canyon Crest in 2021 - simply put, fewer homes were listed in 2022 vs. 2021
  • There is just one active property in Canyon Crest right now. Pre-pandemic there might be 10-15 properties on the market at this time of year. Bottom line: inventory is still very low.
  • 5 properties sold in the past 30 days vs. only 5 properties selling in the previous 6 months (June - November)

With nearly non-existent inventory and plenty of buyers wanting to live in Canyon Crest, there is ample opportunity for homeowners to cash in on all the equity that has accumulated over the past couple of years and beyond. Sellers who prepare their homes properly for sale and price at fair market value will achieve success in 2023.

 

See for yourself what is going on in the Canyon Crest market:

 

What's currently for sale?

Click here to see properties that are currently active

What properties are in escrow (under contract or pending)? 

Spoiler alert: there are none

 

What properties have sold in the past 30 days? 

Click here to see properties that have sold in the past month

 

If you are thinking of selling your house in the next 2 years, please contact me. (Yes, I said the next 2 years.) Now may be the best time to get the most return on your investment. Need help determining how your home compares? That is where I come in!

 

I don't merely market, list, and sell your home. I am a consultant who helps you understand your options, helps create a plan that accounts for your particular wants and needs, and then executes the plan with a precision that exceeds your expectations. 

 

Contact us now and get the best team in the business working for you!

Dec. 8, 2022

A Holiday Pause? - December 2022 Market Update

 

 

The holidays are here and with it come holiday parties, plenty of shopping, family gatherings, eggnog, spirits, and nonstop festive music. With COVID being much less of a distraction and a deterrent to enjoying the essence of the season, sellers and buyers are going to be even more inclined to place their real estate needs on pause. 

The Holiday Market is when the inventory plunges, demand plunges, and the Expected Market Time increases slightly. Regardless of the economic situation, without fail the cyclical slowdown prevails. Last year the number of available homes was already at historically low levels all year. After peaking in July, a record low peak, it was hard to imagine the inventory could plunge at the end of the year. Yet, from mid-November to the start of the New Year, it sank by 39%. Demand, a snapshot of the number of new escrows over the prior month, dropped by 44%, and the Expected Market Time, the time between coming on the market and opening escrow, increased by a meager two days. Similarly, the 3-year average inventory holiday drop prior to COVID (2017 to 2019), when housing was a bit more normal, was a 20% decline. Demand dove by 44% and the Expected Market Time increased by an additional 19 days. 

 

 

The inventory seasonally drops because not many homeowners come on the market at the end of the year. The fewest number of sellers enter the fray in December, 64% less than May, the peak month with the greatest number of new sellers. The second fewest come on in November, 46% less than May’s peak. In addition, many sellers who have not found success, mainly due to price, opt to throw in the towel and pull their homes off the market. The combination of those two forces, fewer new FOR-SALE signs and unsuccessful sellers, cause the inventory to plummet until the start of the New Year. 

 

 

Demand, recent escrow activity, typically drops substantially as well. Many buyers who have been actively looking for a home wait on the sidelines for the right home to come along. Yet, with fewer new choices as the end of the year draws closer and many sellers throwing in the towel, there is a real lack of fresh inventory, no replenishment of available homes. Moreover, there are buyers who are simply ready to pause the home search process and divert their attention to enjoying all the trimmings of the holidays. For many, it simply is not the time to hunker down and tiresomely search for a home. 

 

In the last two weeks of November the inventory has dropped by 8%, shedding 295 homes, the second largest drop of the year. There are only 3,286 available homes today, the second lowest end of November level behind last year. Demand increased, adding 10 pending sales, but it too is about to drop as fewer choices remain. The Expected Market Time dropped from 89 to 81 days, a bit better for the sellers who have opted to linger on the market during the holidays. It is still a far cry from the crazy market during the first four months of 2022 when the Expected Market Time reached a low of 19 days in March. 

 

The holidays are here for the Orange County housing market. The housing needs of many will be placed on pause to enjoy all that this season brings. As a result, expect inventory and demand to plunge and market times to grow a little bit longer as housing moves through its slowest season of the year. Having said all of that, we do have buyer clients right now who have been very active in looking at properties, and have even been in a multiple offer situation on a property (a property that had been on the market for just 3 days, no less). Great properties are still selling quickly and there are still buyers sitting on the sidelines just waiting to pounce on their "dream" home.

 

And while everyone is shopping and celebrating over the next couple of weeks, buyers will become more active looking at properties online the last week of December and certainly many the first week of January. Many people make the pledge to themselves as they ring in the new year that this will be the year they buy that new home. If you are thinking of selling, now is the time to start planning, so you don't miss out on those eager buyers. Contact us at 949-444-1601 or email us at info@theswanteamoc.com so you can prepare to maximize your returns and we can exceed your customer service expectations.

Dec. 7, 2022

Key Advantages of Buying a Home Today

 

Key Advantages of Buying a Home Today | MyKCM

There’s no doubt buying a home today is different than it was over the past couple of years, and the shift in the market has led to advantages for buyers today. Right now, there are specific reasons that make this housing market attractive for those who’ve thought about buying but have sidelined their search due to rising mortgage rates.

Buying a home in any market is a personal decision, and the best way to make that decision is to educate yourself on the facts, not following sensationalized headlines in the news today.  The reality is, headlines do more to terrify people thinking about buying a home than they do to clarify what’s actually going on with real estate.

Here are three reasons potential homebuyers should consider buying a home today.

1. More Homes Are for Sale Right Now

According to data from the National Association of Realtors (NAR), this year, the supply of homes for sale has grown significantly compared to where we started the year (see graph below):

Key Advantages of Buying a Home Today | MyKCM

This growth has happened for two reasons: homeowners listing their homes for sale and homes staying on the market a bit longer as buyer demand has moderated in response to higher mortgage rates.

The good news for you is that more inventory means more homes to choose from. And when there are more homes on the market, you could also see less competition from other buyers because the peak frenzy of competing over the same home has eased too.

2. Home Prices Are Not Projected To Crash

Experts don’t believe home prices will crash like they did in 2008. Instead, home prices will moderate at various levels depending on the local market and the factors, like supply and demand, at play in that area. That’s why some experts are calling for slight appreciation and others are calling for slight depreciation (see graph below):

Key Advantages of Buying a Home Today | MyKCM

If you consider the big picture and average the expert forecasts for 2023 together, the expectation is for relatively flat or neutral price appreciation next year. So, if you’re worried about buying a home because you’re afraid home prices will crash like they did in 2008, rest assured that’s not what expert projections tell us.

3. Mortgage Rates Have Risen, but They Will Come Down

While mortgage rates have risen dramatically this year, the rapid increases we’ve seen have moderated in recent weeks as early signs hint that inflation may be easing slightly. Where they’ll go from here largely depends on what happens next with inflation. If inflation does truly begin to cool, mortgage rates may come down as a result.

When that happens, expect more buyers to jump back into the market. For you, that means you’ll once again face more competition. Buying your house now before more buyers reenter the market could help you get one step ahead. As Lawrence Yun, Chief Economist for NAR, says:

The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”

When mortgage rates come down, those waiting on the sidelines will jump back in. Your advantage is getting in before they do.

Bottom Line

If you’re thinking about buying a home, you should seriously consider the advantages today’s market offers. Call us at 949-444-1601 so you can make the dream of homeownership a reality. 

Nov. 16, 2022

Canyon Crest Real Estate Market Update - November 2022

 

With Thanksgiving nearly upon us and the holidays right around the corner, typically this time of the year is a slower time for real estate. If there is one thing we know about 2022, it is not a typical year.

There are currently 4 properties in escrow right now and just one active property.  For perspective, pre-pandemic, on average there were 15 active properties on the market at this time of year. But with most homeowners holding tight to their mortgage rates in the 2-3% range, virtually no Canyon Crest homeowners are ready to put their homes on the market. Yet there are still buyers out there looking for a home in Canyon Crest. With minimal options to choose from, buyers will be excited about the next new listing to come on the market. Will that property be yours?

 

One of the most crucial steps in being able to sell quickly, open escrow, and obtain the highest possible net proceeds from the sale of a home is to carefully arrive at its Fair Market Value. In every price range, homes sit without success, leaving these sellers wondering what in the world they are doing wrong. 37% of all homes in Orange County have been on the market for over two months, and 44% have reduced their asking price at least once. Throwing a price out there just to test the market is not a wise strategy. Instead, carefully, and methodically pricing a home is vital to cashing in on the Golden Opportunity, the first few weeks after coming on the market. It would be better to spend several hours coming up with an extremely accurate price than to waste weeks, or even months of precious market time. 

 

Due to the high interest rate environment, the market is lining up in favor of buyers during the negotiation process. Buyers do not want to overpay; they are unwilling to stretch. Accurate pricing is fundamental regardless of the temperature of housing, especially in a declining market. Throwing a price out there just to test the market is not a wise strategy. Ultimately, when asking prices of homes must be reduced in order to secure offers to purchase, it not only takes longer to sell, but sellers also sell for less. On average, the net proceeds check at the close of escrow is less if a price reduction is required. 

 

If you are thinking of selling your house in the next 2 years, please contact me. (Yes, I said next 2 years.) Now may be the best time to get the most return on your investment. With just one active property in Canyon Crest, realistic expectations, and my expertise, your home will sell quickly and for the highest price possible in this ever-changing market.

Need help determining how your home compares? That is where I come in!

 

I don't merely market, list, and sell your home. I am a consultant who helps you understand your options, helps create a plan that accounts for your particular wants and needs and then executes the plan with a precision that exceeds your expectations. 

 

Contact me now and get the best team in the business working for you!

 

See for yourself what is going on in the Canyon Crest market:

 

What's currently for sale?

Click here to see properties that are currently active

What properties are in escrow (under contract or pending)? 

Click here to see properties that are currently under contract

 

What properties have sold in the past 30 days? 

Click here to see properties that have sold in the past month

 

Nov. 2, 2022

Homeownership is Historically a Great Hedge Against Inflation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(iStock)

 

In an inflationary economy, prices rise across the board. Historically, homeownership is a great hedge against those rising costs because you can lock in what’s likely your largest monthly payment (your mortgage) for the duration of your loan.

That helps stabilize some of your monthly expenses. James Royal, Senior Wealth Management Reporter at Bankrateexplains:

A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.”

 

And with rents being as high as they are, the ability to stabilize your monthly payments and protect yourself from future rent hikes may be even more important.

 

When you rent, your monthly payment is determined by your lease, which typically renews on an annual basis.

With inflation high, your landlord may be more likely to increase your payments to offset the impact of inflation.

That may be part of the reason why a  survey from realtor.com shows 72% of landlords said they plan to raise the rent on one or more of their properties in the next year.

 

If you’re ready and able to do so, becoming a homeowner can provide lasting stability and a reliable shelter in times of economic uncertainty. The best hedge against inflation is a fixed housing cost. If you’re ready to learn more and start your journey to homeownership, contact us at 949-444-1601.

Nov. 2, 2022

The Fed and It's Influence on Real Estate - November 2022 Market Update

 

 

All year long the Federal Reserve has been in the news. Inflation had become enemy number one and they were going to do everything in their power to tamp down out-of-control inflation. Prices of goods, services, food, and energy were climbing at an unhealthy rate. Home values had soared by over 40% in just two years. 

 

In June, after delivering his prepared press conference remarks, Jerome Powell was asked about their outlook for the housing market. He stated that housing needed “a bit of a reset.” During the September press conference, a reporter asked for him to elaborate on what he meant by a housing “reset.” He did just that:

  • An end to the swift rise in home prices where homes were selling way over their asking prices.
  • For supply and demand to get better aligned so that home values did not skyrocket higher.
  • Help bring home prices more in line with rents and other housing fundamentals.
  • The housing market would have to go through a correction to get to that place, a better balance.

In economic terms, a correction typically means that home values drop between 10% to 20% from the peak. That peak occurred in May and prices have been on the decline in Southern California ever since. The issue is that mortgage rates have climbed at an unprecedented pace this year in response to all the Fed’s actions and statements, climbing from 3.22% at the start of January to 7.08% today, according to Freddie Mac’s Primary Mortgage Market Survey®. In the over 51 years in conducting the survey, mortgage rates have never climbed this much in a year, surpassing the prior record annual gain in 1981.

 

Powell just announced this afternoon another three-quarters of a point rate hike.

 

For perspective, the monthly payment on a $900,000 mortgage has increased from $3,902 on January 6th when mortgage rates were 3.22%, to $6,036 today at 7.08%. That is an increase in payment of $2,134 per month, or $25,608 per year. Affordability has taken a giant hit and the pool of prospective buyers interested in purchasing has shrunk noticeably. 

 

Demand, a snapshot of the number of new escrows over the prior month, has dropped to levels last seen during the initial pandemic lockdowns of April 2020, reminiscent of the start of the Great Recession. Today’s demand is at 1,270 pending sales, 48% less than last year’s 2,429 hot October reading. The 3-year average prior to the pandemic (2017 to 2019) was 2,180, an astonishing 72% more than today. 

 

 

The supply of homes has increased dramatically after starting the year at record low levels, increasing from 954 homes on January 1st to 3,677 homes today, a 285% rise. It is up 97% compared to last year at this time but is well off the 3-year pre-pandemic average of 6,010 homes for this time of year. The inventory should have surpassed levels last seen in 2019, but it fell well short due to a lack of homeowners placing their homes on the market. So far this year there have been 6,198 missing FOR-SALE signs compared to the 3-year average number of homes placed on the market prior to COVID, 19% fewer. Homeowners are hunkering down and opting to stay put as they enjoy unbelievably low fixed mortgage payments. According to the Federal Housing Finance Agency, 71% of all Californians with a mortgage have a rate of 4% or lower, far below today’s 7.08% height.

 

 

Even though the supply of homes remains muted, uncharacteristically weak demand has resulted in the Expected Market Time, the amount of time between pounding in the FOR-SALE sign to opening escrow, climbing from a low of 19 days at the start of March to 87 days today. 

 

A market time of 87 days is not even close to the start of the Great Recession when it eclipsed 365 days back in 2007, but the lack of affordability has reached a crisis level and values are slowly declining regardless of the lack of available homes. Today’s buyers are sophisticated and cautious in their approach to the housing market. They are unwilling to stretch and will not overpay for a home. It all boils down to value and they will patiently wait for the right home to come along. 

 

 

For sellers, it is imperative to recognize that the Federal Reserve’s housing “reset” has arrived. Be prepared for mortgage rates to remain elevated until inflation moves in the right direction. Until then, demand will remain sluggish, market times will grow longer, and home prices will slowly and methodically decline. 

 

Bottom Line:

Rates are going to continue to increase, with the hopes that home prices will decrease. 

 

Buyers need to understand that their home values may go down if they buy right now, but that they will eventually flatten and increase again over time (perhaps 5 years or so.) Locking in at a 7% rate now might actually seem like a bargain if rates are at 9% next spring. Buyers should also check with their mortgage lenders to see if they have any programs that will allow them to “lock and shop” so that they don’t have to succumb to the ever-increasing rates. Always remember, homeownership is historically a great hedge against inflation. 

 

Sellers need to understand that buyers can’t afford what they could even just last month. Consider all offers and know that comparable properties and thus other offers one month from now will likely be less than those offers received today.