Orange County Market Update February 2024

Orange County Market Update February 2024




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 inventory nationwide but especially here in Southern California. This is the lowest number of homes for sale over a 1 and 2 year period in recorded history.

In this months newsletter we will dive into a little of the supply and demand of the Orange County housing market as well as whats driving some of the national trends.

This is a challenging market for buyers and sellers. If you or anyone you know is things about making a move have them call me. My business runs on referrals and as many of you know its really helpful to have me in your corner.

- David Feldberg, LIC #01378475

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


The Big Story

Mortgage rates were remarkably stable in January, and near-term Fed rate cuts look less likely

Quick Take:

  • After the average 30-year mortgage rate fell over 1% in November and December 2023, rates stabilized between 6.60% and 6.70% in January 2024. Median prices continued to decline in January, but we expect prices to rise in February — the seasonal norm.
  • Sales fell 6% year over year and 1% month over month, hitting the lowest levels in modern history. Inventory fell nearly 12% month over month, making supply incredibly tight regardless of slower sales.
  • Consumer confidence has only recently begun climbing despite nearly every economic indicator showing a strong U.S. economy for some time. This, of course, largely can be explained by inflation and the recent improvement in real earnings (that is, inflation-adjusted earnings).

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


    --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Will consumer confidence bring back the housing market?

The Fed met January 30th through 31st and decided to keep its benchmark rate at a range of 5.25% to 5.50%, which it’s held since July 2023. The Fed board members left the meeting with a hopeful tone, but the meeting results are somewhat disappointing to those pushing for rate cuts in March. The door for cuts is cracked open, but we now expect rate cuts to begin closer to summer rather than in spring. Fed chairman Powell’s rationale is reasonable: the current rate levels seem to be working, and if it’s not broken, don’t fix it. The Fed’s dual mandate is for stable prices (inflation ~2%) and low unemployment. Currently, inflation is dropping, and unemployment is low, at 3.7%. Recession fears have declined once again, and the soft landing — slowing the economy without recession — that the Fed intended seems to be unfolding. Powell was quick to say the Fed does not have a growth mandate, which is correct, so the risks of cutting rates early will likely outweigh the benefits of cutting in March. However, if inflation continues to fall, and economic indicators are still favorable, rate cuts will likely start mid-year.

After the sharp mortgage rate drop in November and December 2023, the housing market saw real potential to warm considerably in Q1 2024, but now we expect a slower route to a healthier market. Mortgage rates remained steady at around 6.5% in January 2024, which is still about 1% higher than needed to get more participants to enter the housing market. We know the large mortgage rate drop from the 23-year high of 7.79% in October to around 6.5% wasn’t large enough to bring buyers and sellers back to the market, because the data now show that they didn’t come back. Sales reached a historic low, the number of new listings coming to market are near all-time lows, and inventory declined. This is due, in part, to normal seasonal trends — winter is when all those metrics tend to reach a seasonal bottom — but seasonality doesn’t fully explain those drops in the context of a substantial decline in rates. From October 2023 to January 2024, the monthly cost of financing a median priced home decreased nearly 13%, and the market still slowed on both the buyer and seller sides of the market, implying that rates are still too high for most would-be participants. However, we believe that if rates fall another percentage point, which roughly equates to another 10% decrease in monthly financing costs, the market will react positively and price more people into the housing market.

Another important aspect of the current market is the very recent positive changes in workers’ real earnings. The psychological effects of nearly 10 years of earnings growth, culminating in a final jump in the first two quarters of 2020, before dropping rapidly once COVID hit and inflation rose, was perhaps the most significant cause of the low economic sentiment in 2022 and most of 2023. People quickly become attached to the amount of money they make and the spending power of that money, so the feeling that it was taken away creates dissatisfaction. It’s also fair to say that part of the American dream is progressively increasing earnings as we age. But earnings didn’t keep up with inflation, so real earnings dropped, causing even more dissatisfaction. From 2021 to 2023, the purchasing power of the U.S. dollar declined 15%; therefore, earnings needed to increase 15% just to feel as financially well off as three years prior. For many, if not most people, earnings weren’t keeping up with inflation, and people don’t tend to buy homes when they feel less wealthy. However, after six straight quarters of real earnings growth, it makes sense that people broadly feel better about their finances, which will only benefit the housing market.

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.

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Big Story Data



 

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Local Lowdown

Quick Take:

  • The median single-family home price rose from December 2023 to January 2024, up 1.1%, while condo prices declined 5.3%. However, year over year, prices appreciated significantly, up 13.0% for single-family homes and 12.9% for condos. The median single-family home price returned to an all-time high.
  • Active listings in Orange County rose 2.4% month over month, as new listings nearly doubled from December 2023 to January 2024. Higher supply only benefits the Orange County housing market after single-family home and condo inventory hit record lows in December.
  • Months of Supply Inventory remained near two months of supply from December 2023 to January 2024, still indicating the market favors sellers. MSI will likely decline further in the spring as buyer demand picks up.

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.


--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Median prices rise in January 2024 for single-family homes and condos

In Orange County, low inventory has more than offset the downward price pressure from higher mortgage rates. Prices in Southern California generally haven’t experienced larger price drops from higher mortgage rates. In January, the median single-family home price reached $1.3 million, which is the record high hit in April 2022 and September 2023 as well. Prices almost never peak in the winter months, indicating home prices will likely rise to a new high in almost every month in the first half of the year. Condo prices were 8.5% below the August peak. Slight price contractions are normal and expected in the second half of any given year. We expect condo prices to remain slightly below peak in the winter months, but as interest rates decline, prices will almost certainly reach new highs in the first half of 2024. Additionally, the low but rising inventory and new listings will only raise prices as demand grows. More homes must come to the market in the spring and summer to get anything close to a healthy market, and we are already seeing more new listings come to the market.

High mortgage rates soften both supply and demand, so ideally, as rates fall, far more sellers will come to the market. Rising demand can only do so much for the market if there isn’t supply to meet it. Unlike 2023 inventory, 2024 inventory has a much better chance of following more typical seasonal patterns.

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Single-family home and condo inventory increased after hitting all-time lows last month


Single-family home and condo inventory and new listings rose from December 2023 to January 2024. Inventory in Orange County had trended lower from August 2022 to December 2023, as far fewer listings came to the market. Low inventory and new listings, coupled with high mortgage rates, led to a substantial drop in sales and a generally slower housing market. Typically, inventory begins to increase in January or February, and peaks in July or August before declining once again from the summer months to the winter. In 2023, inventory patterns didn’t resemble the typical seasonal inventory wave, but 2024 is already showing signs of a more normal year. New listings rose 82% month over month, and the number of new listings coming to market is a significant predictor of sales. Month over month, homes coming under contract increased 37%. Year over year, inventory is down 21%; however, sales and new listings are up 1% and 6%, respectively.

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Months of Supply Inventory in January 2024 indicated a balanced 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 last year, and it hovered around two months of supply from March 2023 through January 2024.

We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. January tends to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. The January 2024 SP/LP was 4% higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.

 

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Local Lowdown Data

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

 

 

 


Recent Blog Posts

Stay up to date on the latest real estate trends.

Orange County Market Update March 2024

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

Orange County Market Update February 2024

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 9 Best Neighborhoods to Live in Orange County

Orange County Market Update December 2023

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

8 Awesome Places to Watch the Sunset in Newport Beach

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

Orange County Market Update November 2023

The national median home price declined 3.8% in the third quarter, landing only 4.7% below the all-time high reached in June 2022 and reflecting typical seasonal trend… Read more

Investing in Rental Properties: Pros and Cons for First-Time Investors

Are you considering entering the world of real estate investment by purchasing rental properties? It's a path that many first-time investors explore, but it's essentia… Read more

How to Stage Your Home for a Quick and Profitable Sale

Selling your home is a major decision, and you want it to happen smoothly and profitably. One of the most effective ways to market a home (especially if its vacant) th… Read more

The Influence of Millennials on the Real Estate Landscape

Millennials, born between 1981 and 1996, have emerged as a powerful force shaping the real estate market. As this generation enters various life stages, their preferen… Read more

link