Orange County Market Update October 2023

Orange County Market Update October 2023

 

Curious about the housing market? Wondering when more homes will become available and if prices will budge? Keep reading for my insights!


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Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.
 
In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.
 
As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.
 
David Feldberg, LIC #01378475


The Big Story

+7% Mortgage Rate Era

Quick Take:
The median home price in the United States landed 1% below the all-time high it reached in June 2022 after appreciating 13.6% in 2023. At the same time, mortgage rates are 1% higher than a year ago, which means the monthly cost of a home is 10% higher than last year.
The Fed hiked rates by 0.25% in mid-July to the highest level since 2001, which didn’t impact mortgage rates because the rate increase was expected. However, Fitch unexpectedly downgraded U.S. credit from AAA to AA+ on August 1 and, although we’ve maintained that 30-year mortgage rates would likely hover between 6% and 7% during 2023, the surprise downgrade may push mortgage rates slightly above 7% in the third quarter.

Broadly, the economy is doing well with strong GDP growth, high employment rates and job creation, falling inflation, and growing consumer confidence. Strong economics coupled with a low supply of homes have kept prices climbing, despite sustained elevated mortgage rates.

Note: You can find the charts & graphs for the Big Story at the end of the following section.

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The powerhouse of housing

The average 30-year mortgage rate hit a 23-year high in September, closing the month at 7.31%. The current high mortgage rates are negatively affecting affordability, making it incredibly hard not to compare mortgage rates and prices to those of the past few years — because the comparison is so stark. In 2020 and 2021, 30-year mortgage rates were the lowest in history at an average of 3.11% and 2.96%, respectively. Low rates priced buyers into the market, which drastically grew demand in a market with fairly static short-term supply. Competition among buyers rose sharply, increasing prices at the fastest rate ever. The Case-Shiller 20-City Composite Home Price Index rose 41% from June 2020 to June 2022. Meanwhile, inventory plummeted, creating an even larger supply issue than the already undersupplied U.S. market. Although home prices contracted in the second half of 2022, as the Fed began hiking rates, they bounced back in the first half of 2023 and are now only 1.6% below the all-time high. Once we couple the median price with the average 30-year mortgage rate, we can see the actual monthly cost rather than just the price. Only 27% of homes were purchased with cash in August, a good portion of which were likely bought by homeowners selling their home and using the proceeds to buy another. Most buyers, however, are financing the purchase of their homes in some capacity and are, therefore, affected by the high mortgage rates. To put the change into perspective, the median home financed in August 2023 cost 15% more on a monthly basis than the median home financed in June 2022 — the all-time high price — because rates are 1.8% higher.


As you’ve likely already noticed, our current market involves an interesting dynamic of low supply and demand, but high prices and cost of financing. A lot of this has to do with (potential) seller mentality. Approximately 75% of U.S. homeowners have mortgage rates of less than 4%, according to JPMorgan, which has kept potential sellers from entering the market because they either stay in their home or keep their home as a rental property when they move. As a result, new listings remain significantly depressed. When we compare the first three quarters of 2022 and 2023 with the average from the first three quarters of 2017 to 2021, new listings are below average by about 1.5 million homes. The National Association of Realtors reported that the number of homes sold dropped 0.74% month over month and 15.3% year over year, which is less surprising considering that there are far fewer homes from which to choose. That being said, people move for all sorts of reasons, and supply has declined further than demand, which has helped prices stay high. Homebuilders are also affected by higher rates when it comes to construction loans, so homebuilder sentiment is in decline, according to the National Association of Home Builders/Wells Fargo Housing Market Index. We will likely see fewer and fewer new homes built until rates come down, negatively affecting supply.


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 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.

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Big Story Data



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The Local Lowdown

Quick Take:
  • The median single-family home price hit an all-time high in September, while condo prices declined from the all-time high reached in August. We expect prices to remain fairly stable in the fourth quarter.
  • Active listings in Orange County fell from August to September, continuing the 12-month downward trend. Year over year, inventory is down 31%, highlighting one of the challenges of buying a home in a desirable market.
  • Months of Supply Inventory rose in September as sales slowed and days on market increased. It’s common for the market to trend toward balance in the fall and winter, when fewer buyers are in the market. Currently, the market still favors sellers.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

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Single-family home prices hit all-time high

In Orange County, the price of housing is sticky — even reaching all-time highs during a period of rapidly rising mortgage rates. The median single-family home price rose 11% year over year, hitting a new record high in September. Condo prices fell from the August peak, still up 10% year over year. The sustained downward inventory trend and low number of new listings will create price support in the slower fall and winter seasons. New price peaks are exceptionally rare in the fall and winter, but we expect price stability for the rest of the year.


Typically, demand begins to decline in the fall and bottoms out in January, so the consistently low supply should be less of an issue. With mortgage rates at a 23-year high, quality listings are going to have the most competition. This isn’t unusual, but potential homebuyers aren’t nearly as willing to pay a premium for a fixer upper as they were in 2020 and 2021.

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Inventory continues 12-month downward trend

Single-family home and condo inventory have trended lower over the past 12 months, which is far from the seasonal norm. Typically, inventory peaks in July or August and declines through December or January. Even though demand is softening due to higher interest rates and normal seasonality, inventory is so low that any amount of new listings is good for the market. Comparing new listings from January through September 2023 to the same time period in 2022, new listings are down 29%, which 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. Sales are down 16% year over year.
 
As demand slows, buyers are gaining more negotiating power and paying slightly less than asking price on average. In July 2023, the average seller received 100% of list price compared to 98% of list in September. That being said, inventory will almost certainly remain historically low for the rest of the year, and likely remain low in 2024, which will create price support.

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 Months of Supply Inventory continues to indicate 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 below three months in the first quarter this year and has hovered around two months of supply from March through September. Currently, MSI indicates the housing market in Orange County continues to favor sellers.

 
 
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Local Lowdown Data

 

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