In recent times, we have witnessed a noticeable shift in the market pace, with the expected market time experiencing a significant increase. This change can be attributed to the rise in rates above 7%.
A Glimpse into the Current Economic Landscape
The current economic landscape has seen a surge in various expenses, from gas prices soaring above $5 per gallon to a noticeable increase in dining and grocery costs. This surge has led to a change in spending habits, with many individuals opting to cut back on extra errands or nights out.
Similarly, the real estate sector has not been immune to these changes. Home affordability has been under pressure, especially with the 30-year fixed rate experiencing a steep climb from 3.25% in January 2022 to over 7% in the latter part of the year. This trend continued into the new year, with mortgage rates hovering around 5.99% in February. Despite a slight ease in April, the rates have been on an upward trajectory, reaching a peak of 7.49% on August 21st, a rate not seen since December 2000. This has inevitably stretched buyers' budgets, making home ownership a distant dream for many.
Analyzing the Orange County Market Trends
In April 2023, the Orange County market witnessed its hottest period, with an expected market time of just 37 days, thanks to a dip in rates to 6.16%. However, as mortgage rates gradually increased, surpassing the 7% mark in May, the market began to cool down. Despite a steady demand, the inventory saw a slow yet consistent rise, leading to an increase in the expected market time to 39 days, a trend that continued into the subsequent months.
By August, the rates were nearing 7.5%, causing a further dip in demand. Even though the inventory began to decrease, the market time extended to 49 days, adding nearly two weeks compared to April. This period, although still considered a "hot market", necessitates careful pricing strategies and a sympathetic approach towards buyers who are grappling with the high mortgage rate environment.
Economic Forecasts and Their Implications
Earlier in January, economic experts had predicted a drop in mortgage rates below 6% by the end of 2023. However, the persistent strength of the U.S. economy, characterized by robust consumer spending and a resilient job market, has led to a revision of these forecasts. It is now anticipated that the rates will remain high until at least the second half of 2024.
As we move forward, the market dynamics are expected to change, with mortgage rates potentially seeing a decline if there are signs of a weakening U.S. economy or a significant drop in inflation. Until then, sellers are advised to adopt a more calculated approach to navigate the housing market effectively.
A Closer Look at the Current Real Estate Scenario
Currently, the active listing inventory has seen a 2% decrease in the past few weeks, settling at 2,385 homes, the lowest since the beginning of July. This trend indicates a potential record-low number of available homes as we enter 2024.
On the demand front, there has been a 7% decline in the past couple of weeks, marking the largest drop of the year. This decline is largely due to the near 7.5% mortgage rates witnessed on August 22nd, which has limited the number of qualifying buyers. As we move past the peak seasons of spring and summer, a gradual decrease in demand is expected, which will further intensify during the holiday season.
In terms of market time, there has been an increase from 46 to 49 days over the past few weeks, the highest since February's start. This trend is quicker compared to the previous year and significantly faster than the pre-COVID 3-year average.
As we navigate through these changing times, it is crucial for both buyers and sellers to adapt to the evolving market dynamics. Sellers, in particular, need to be more strategic in their approach, considering the high mortgage rate environment and its impact on home affordability.
By staying informed and adapting to the current trends, individuals can make well-informed decisions, ensuring a successful outcome in the real estate market.