At the start of 2023, the economic consensus resoundingly predicted an impending recession, which has yet to come, and we’re happy to say that consensus has shifted to moderate economic growth. A “soft landing” — reducing inflation without a recession — seems more likely than ever. The economy is far from perfect, but the effect of largely positive economic news eventually leads to a more positive economic outlook from the average person. Job creation and GDP growth in the first half of 2023 have significantly beat expectations. Inflation is declining rapidly, and consumer confidence is the highest it’s been since February 2022. We can largely attribute the bounce in home prices to consumer perception, but consumer perception isn’t the only factor. Home prices certainly rose as recession worries subsided, even in the face of elevated mortgage rates. Supply, or lack thereof, has been the other major factor in the price rebound. Low, but growing inventory allowed for prices to increase quickly.
Housing doesn’t follow an Economics 101 supply-and-demand problem in part because it isn’t a commodity good. Inventory rising from near historic lows actually helps prices because more buyers can find a desirable home. During times of normal seasonality (at least pre-pandemic), inventory, new listings, sales, and prices all increase from January to July and decline from July to January. Any movement away from the hyper-low post-pandemic inventory levels is good for matching buyers with the right home, because buyers like enough selection to find the home they want in their desired location. Price appreciation this year indicates that even though sales are low, buyers are finding the homes they want.
During the Fed’s July meeting, board members decided unanimously to raise the federal funds rate for the 11th time since March 2022 to its highest level since 2001. Although headline inflation (Consumer Price Index, or CPI) is down by nearly two-thirds since it hit 9% last June, core inflation, which removes volatile food and energy prices from the inflation calculation, has only declined 15%. A large component to core inflation is shelter. The CPI for shelter is only down 5% from the March 2023 peak. This isn’t exactly surprising, considering how close prices are to their peak. The Fed stated they would take future rate hikes on a meeting-by-meeting basis. However, this was before Fitch downgraded U.S. credit on August 1. At best, the downgrade will have little to no impact on interest rates, but if it does have any effect, it will move rates higher. The average 30-year mortgage rate hit 6.81% at the end of July and 6.90 the first week of August. Based on weekly data ending August 3, we expect the average 30-year mortgage rate to hover between 6.25% and 7.25%.
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. In general, higher-priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and the limited ability to build new homes. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Single-family home and condo inventory have trended lower over the past 12 months, which is far from the seasonal norm. Inventory hitting a low in July only further highlights how unusual inventory patterns are this year. Typically, inventory peaks in July or August and declines through December or January. Currently, inventory is so low relative to demand that any amount of new listings is good for the market. The unusually low number of new listings from January through July 2023 has directly impacted both inventory and sales. The number of home sales is, in part, a function of the number of active listings and new listings coming to market. Since January 2023, sales jumped 58% while new listings rose 28%, whereas last year, for example, sales were only 6% higher in July than in January, compared to new listings, which were 24% higher.
As tight inventory levels continue, sellers are gaining negotiating power. In January 2023, the average seller received 94% of list price compared to 100% of list in July. Inventory will almost certainly remain historically low for the year, and the market will remain competitive in the third quarter.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Months of Supply Inventory hits 12-month low, indicating a strong sellers’ market
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI fell significantly this year, indicating the market moved from a balanced market to a sellers’ market in the first quarter. MSI remained low in the second quarter for both single-family homes and condos, falling further still in July. The sharp drop in MSI occurred due to the higher proportion of sales relative to active listings and less time on the market.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Find out what's happening in Orange County, CA. Current and upcoming events including festivals, fairs, concerts and more!
Explore the places, neighborhoods, and people that make the communities we serve special. We’ve highlighted important market data, school information, and neighborhood highlights to help you find your new home.
Stay up to date on the latest real estate trends.
July 2024
Coastal Splendor: Explore Exquisite Waterfront Properties in Orange County Orange County's coastal charm is epitomized by its stunning waterfront properties, each off… Read more
The Role of Schools in Orange County Home Values: Unraveling the Correlation Between Education and Property Investment In the intricate tapestry of real estate, vario… Read more
Historic Homes in Orange County: A Journey Through Time Embark on a captivating journey through Orange County's rich history as we explore the charm and elegance of i… Read more
Happy Wednesday to you all and sorry to get this to you about a week later than normal. Spring break with the kids, busy listings, and life got in the way. So without … Read more
Well its the begining of "listing season" but where are the homes? Long story short, they are coming but its probably going to be a bit. The market is starving for inv… Read more
The 9 Best Neighborhoods to Live in Orange County
The Big Story Fed policy is working, but mostly just on housing Quick Take: The national median home price declined 3.8% in the third quarter, landing only 4.7% belo… Read more
As the sun begins its descent, Newport Beach transforms into a canvas of breathtaking hues. Join us on a journey through eight incredible spots, all nestled within the… Read more