Tuesday, October 1, 2024   /   by Bob Cowan

The Orange County Housing Report: A JUMP IN DEMAND

THE ORANGE COUNTY HOUSING REPORT

A JUMP IN DEMAND

AFTER TOPPING 7.5% IN APRIL, MORTGAGE RATES HAVE DECLINED TO THE LOW SIXES AND HAVE REMAINED THERE WITH DURATION, PAVING THE WAY FOR AN UNCHARACTERISTIC LATE SEPTEMBER 

RISE IN DEMAND.

Everyone is always looking for a good deal. With Thanksgiving around the corner, many holiday shoppers will look to Black Friday and Cyber Monday for deep discount savings. Inevitably, in the early morning hours on the day after Thanksgiving, a long line of eager customers will arrive hours before stores open their doors. With the cost of living increases since the pandemic, consumers are looking for huge savings, especially on high-ticket items.

Mortgage rates have been stubbornly high this year. For most of 2024, they have remained above 7%, even topping 7.5% several times in April. They have been falling ever since, dropping below 7% in July and below 6.5% at the end of August. Now that interest rates have been dancing in the low sixes for several weeks, it is as if the entire housing industry suddenly went on sale with deep discounts. Buyers who had paused their hunt for a home are coming off the sidelines and reviving their search. Just as consumers look for deals on Black Friday and Cyber Monday, buyers are looking to cash in on favorable rates and significant improvements in affordability.

Ever since the Federal Reserve raised the short-term Federal Funds rate substantially a couple of years ago, rates climbed during the Autumn Market and hit their annual heights, reaching 7.37% in 2022 and eclipsing 8% in 2023. Affordability eroded, and demand slowed. But not this year. Rates recently dropped to their lowest level since February 2023, a considerable improvement from 7.5% just five months ago. They have persisted at these lower levels for several weeks now. This has resulted in a jump in demand and a noticeable drop in the Expected Market Time. 

Mortgage rates are currently at 6.21%. For a $1 million home purchase with 20% down, the monthly payment would be $4,905. That is much better than last year's 7.61% rate and

End of September Comparison



monthly payment of $5,654. Today's payment is $749 per month lower, or nearly a $9,000 yearly savings. It is a $252 monthly savings, or $3,024 annually, compared to two years ago when rates were at 6.69% and climbing.

With a significant improvement in home affordability, buyer demand (a snapshot of the number of new pending sales over the prior month) jumped from 1,413 two weeks ago to 1,554 days today, up 141 pending sales or 10%. It was the first late September rise in demand since 2012. Last year, during the same two-week period, demand dropped by 4%, shedding 60 pending sales. Two years ago, it plunged by 158 or 9%. The 3-year average before COVID (2017 to 2019), when housing was predictable year in and year out, was a drop in demand by 4%.


Combine the surge in demand with a slight drop in the inventory, down 1% in the past couple of weeks, and the market is uncharacteristically heating up amid the Autumn Market. The Expected Market Time (the number of days it takes to sell all Orange County listings at the current buying pace) sank from 78 to 71 days in the past couple of weeks, its largest drop at this time of year since tracking began twenty years ago.

Demand has been subdued, bouncing along a shallow bottom since October 2022. It has not fluctuated much and has remained flat, at bare-bone, inherent levels. There are always buyers in every market regardless of where rates climb. Yet, more buyers enter the market as mortgage rates improve and persist at lower levels. The lower rates fall, the more affordability recuperates, resulting in considerable improvements in demand. Currently, mortgage rates are knocking on the door of falling into the fives for the first time since August 2022.

This unconventional shift in demand and subsequent drop in the Expected Market Time is a "green shoot" for the Orange County housing market, a positive data point illustrating a new path to an eventual recovery in the lack of home sales. Due to very low demand, closed sales have also been down substantially. Not many homes have exchanged hands.

There is pressure on mortgage rates to fall further with a cooling economy and a slowing job market. Expect demand to continue to push higher in year-over-year comparisons and for closed sales to rise as well.




#OrangeCountyHousing #HousingMarketReport #OrangeCountyRealEstate #OCHousingTrends

  bob cowan, orange county, southern california, october 2024