Market dynamics have been notably influenced by fluctuations in gasoline prices and mortgage rates. In California, gas prices skyrocketed from $4.25 in January to $5.90 at the beginning of this month, with a substantial $1 increase from August to October. This rapid price alteration has inevitably altered consumer behaviors. Many decide to endure lengthy queues at Costco gas stations to save money on fuel expenses, while others curtail their outings or daily errands. When gas prices soar, driving diminishes, leading to a fall in fuel demand.
Similarly, mortgage rates have demonstrated a comparable fluctuating trend. According to Mortgage News Daily, a tumultuous journey of mortgage rates has been observed throughout the year, with rates leaping and retreating in a seemingly erratic pattern. These abrupt changes in rates have a pronounced impact on the housing landscape, affecting buyers' behaviors and budgetary constraints amidst a scenario of low housing inventory.
The principle of Supply and Demand from Economics 101 clarifies that prices and demand share an inverse relation, whereas prices and supply have a direct relation. Discerning these levels helps ascertain the market temperament, indicating whether it leans towards buyers or sellers, or rests in a balanced, or equilibrium state where neither party holds the advantage.
We continue to have the same story in the Orange County housing market. Over the past two weeks, the active listing inventory has seen a growth of 68 homes, a 3% increase, now standing at 2,408 homes. This rise marks the largest since early August, defying the typical Autumn Market trend of a gradual decline in inventory. However, with mortgage rates nearing the 8% threshold, the market's instantaneous nature is altering. New sellers are facing extended market times as homes linger longer on listings, a result of buyers not depleting the inventory as swiftly. Currently, the inventory is nearing its August peak of 2,475 homes, and if the growth pace sustains, a new peak might be on the horizon in the coming weeks. The inventory is projected to decline slowly through early November before plunging toward the Holiday Market on January 1st.
Comparatively, last year's inventory stood at 3,656 homes, which is 52% higher or 1,248 homes more. The three-year pre-COVID average from 2017 through 2019 is 6,306, an additional 3,898 homes or 162% extra, nearly tripling the current standing.
A notable trend is homeowners' inclination to "hunker down" in their current residences, driven by their locked-in low fixed-rate mortgages. September saw 1,915 new sellers enter the Orange County market, which is 1,114 fewer than the three-year pre-COVID average, marking a 37% reduction.
Demand, captured by the snapshot of new pending sales over the preceding month, has decreased from 1,414 to 1,335, down 79 pending sales or 6%, marking its lowest since February's outset. This is the lowest October reading since 2007, even though inherent demand remains due to the basic need for shelter. Cash buyers, those with substantial bank reserves for hefty down payments, and buyers with high dual incomes capable of absorbing increased owning costs continue to exist. The current levels closely mirror last year's, with just 92 pending sales fewer or 6% less, despite a lower rate of 7.12% compared to today's 7.8%. The forecast suggests a slow dip in demand, accelerating from mid-November through the beginning of next year, coinciding with the Holiday Market.
Last year, demand was at 1,427, 7% higher than today, or an extra 92 pending sales. The three-year pre-COVID average was 2,206 pending sales, 65% higher or an additional 871 compared to today.
With a rising supply and falling demand, the Expected Market Time (EMT) - the days required to sell all Orange County listings at the current buying pace - has escalated from 50 to 54 days over the past two weeks, reaching its highest since February. Contrastingly, last year's EMT was 77 days, slower than today, while the three-year pre-COVID average was 87 days, significantly slower than the current pace.
The luxury inventory, comprising homes priced above $2 million, increased from 789 to 810 homes, up 21 or 3%, marking its highest since July. Meanwhile, luxury demand diminished by six pending sales, down 3%, now standing at 185. With inventory ascending and demand descending, the EMT for luxury homes priced above $2 million rose from 124 to 131 days. At 131 days, the market is far from instant, requiring luxury sellers to meticulously approach the housing market.
Year-over-year, luxury demand has risen by 35 pending sales or 23%, and the active luxury listing inventory has grown by 22 homes or 3%. Last year's EMT was 158 days, slower than today.
In the $2 million to $4 million price bracket, the EMT over the past two weeks has risen from 92 to 95 days. For homes priced between $4 million and $6 million, the EMT remained static at 171 days. For homes priced above $6 million, the EMT soared from 260 to 326 days, implying that sellers in this bracket could anticipate transitioning their homes into escrow around September 2024.
Having said all of that, homes that are priced appropriately at fair market value, are going under contract very quickly - we are talking 10 days or less! Sellers with unrealistic hopes and expectations that are overpricing their homes are keeping the expected market time higher on average. So what does all this mean?
Sellers: Price your home at fair market value according to recent sales and comparable properties to achieve immediate offers (plural) and top dollar for your property.
Buyers: Be ready for a battle against other buyers for the properties you like. Prepare to offer over the list price and sweeten the deal with terms the seller can't resist.
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