Orange County Market Update March 2024

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 further ado, here is the latest...
 
Inventory remains tight (shocker I know) and interest rates have remained consistent. The fed did announce however that they plan to cut the federal funds rate three times later this year which should improve interest rates.
 
Its still a sellers market out there, but that doesn't mean there aren't still some fairly priced homes out in the marketplace. If you are thinking of buying or selling lets talk!
 
David Feldberg, LIC #01378475

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The Big Story

Mortgage rates increased in February, but their strong effect on the market may be waning

Quick Take:
  • Mortgage rates rose in February, closing the month at 6.94%. However, the Fed will almost certainly cut rates at some point this year, so potential homebuyers would only need to service the current rate level for a short period of time before refinancing.
  • Sales increased 3% month over month, which, although still low, is a sizable increase. More homes are coming to the market and quickly translating to more sales. Inventory increased 2%, as new listings rose by 25%. More supply and growing demand are good for the market, especially this time of year — right before the busier spring and summer seasons.
  • Months of Supply Inventory (MSI), which expresses the supply & demand dynamic, fell over the past three months, indicating the market is getting more competitive for buyers.

 

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

 

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Near-term refinancing could relieve current rate woes


On March 6, 2024, Federal Reserve Chair Jerome Powell delivered remarks before the House Financial Services Committee regarding the Fed’s stance on inflation and the likelihood of rate cuts. In short, rate cuts are coming soon but not too soon. Essentially, the Fed is waiting for more positive inflation data before cutting rates, and cuts will almost certainly come sometime this year. At the start of the year, financial markets were speculating that rate cuts would begin after the Fed’s March meeting, but, with the information from Mr. Powell, we are now expecting rate reductions after the June or July Fed meetings. The Feds strategy makes sense: the benefits of waiting for more information outweigh the potentially negative effects of cutting rates in March only to raise them again in June. The Fed’s dual mandate aims for stable prices (inflation ~2%) and low unemployment. Employment is solid with unemployment at 3.9%, and the February jobs report showed that the labor market added 275,000 non-farm payroll jobs, considerably beating analyst expectations of 200,000. Unless something truly disastrous happens in the labor market, inflation is the primary factor in the Fed’s decision making in the first half of 2024.

The good news for the housing market is that potential home buyers and sellers have a much clearer picture of where rates will go in the next 12 months. The bad news is that rates likely won’t meaningfully decrease until after what is traditionally the most active time in the housing market (March to August). However, because we know there is a high probability of mortgage rates declining this year, home buyers could easily decide to buy now and refinance in the near future. The average 30-year mortgage rate has been above 6% since September 2022, and the housing market has been slower, especially on the selling side, which of course feeds into the buying side, since buyers can’t purchase what's not for sale. The rate-induced market slowdown has given potential buyers more time for a down payment. Many buyers were priced out of the market in the second half of 2022 but have now had over a year to save more money for a down payment. Buyers and sellers are also a little more accustomed to higher rates so aren’t as emotionally tied to the sub-3% mortgage rates seen in 2020 and 2021. We expect the market to heat up more than it did last year because of these factors and aren't so worried about buyer demand because it’s high relative to supply so more sellers could definitely come to the 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.

 

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Big Story Data

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The Local Lowdown

Quick Take:
  • Median single-family home and condo prices reached all-time highs in February 2024. Month over month, prices rose 2.1% for single-family homes and 11.0% for condos. We expect new highs for single-family homes throughout the first half of 2024.
  • Active listings in Orange County declined 2.5% month over month, as new listings fell and sales increased from January to February 2024. Housing supply is once again near record lows.
  • Months of Supply Inventory remained near two months of supply, still indicating the market favors sellers. MSI could easily decline in the spring as buyer demand picks up, moving further into a sellers’ market.

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

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Median prices reached all-time highs for single-family homes and condos

In Orange County, low inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Prices in Southern California generally haven’t experienced large drops due to higher mortgage rates. In February, the median single-family home and condo prices reached all-time highs of $1,325,000 and $780,000, respectively. 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, at least for single-family homes. Additionally, inventory is so low that rising supply will only increase prices as buyers are better able to find the best match.

High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 15 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it.

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Single-family home and condo inventory declined, nearing all-time lows

Single-family home and condo inventory and new listings fell from January to February 2024. Inventory has trended lower from August 2022 to the present, as far fewer listings have come 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, peaking 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. We were hopeful that inventory and new listings would increase after new listings rose 98% in January 2024. However, new listings declined 10% in February. The number of new listings coming to market is a significant predictor of sales, and the substantial increase in new listings in January led to a 24% increase in sales in February. The demand is there, but supply — especially new supply — hasn’t yet come. The next three months will be critical to our understanding of the market. More supply will mean a healthier market. Year over year, inventory is down 16%, but sales are up 14%.

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Months of Supply Inventory in February 2024 indicated a 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 last year, and it hovered around two months of supply from March 2023 through February 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. Winter months tend 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 and February 2024 SP/LP was 4% and 2% higher than last year, respectively, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.

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Local Lowdown Data

 

 

 


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