The numbers for the housing market in Orange County are good once again for the third quarter. They reflect a continued rise in sale prices over the same quarter last year even as they took a slight dip over the second quarter of 2021. Homes are also spending fewer days on the market than last year, but the number is unchanged from Q2 2021.
The great news for sellers is that many are commanding prices well over their asking price. With higher prices resulting from shrinking inventory, a housing shortage could be on the horizon. That said, low interest rates are prompting many to buy now as high prices are inspiring sellers to get their homes on the market fast. Here’s a deeper dive into the numbers and what they mean for both home buyers and sellers in Orange County.
Median Sold Price
Looking at the number for the Orange County real estate market for the third quarter reveals what could be a potential slow down. If we look at the median sold prices for homes in the third quarter of 2021 compared to the previous quarter, we see a drop of about two and a half percent. Not a huge drop, granted, but a decrease nonetheless. When we looked at the numbers from Q3 of 2020, we saw an increase of almost 22 percent, so there’s no denying that the real estate market in Orange County remains robust. However, a further slow down in the market may be on the horizon. This should encourage anyone who is still sitting on the fence, to act soon.
When we talk about the median sold price this is different from the average selling price. The median price indicates the halfway point in pricing between the high and low numbers. It provides a better picture of the actual sales price than the average because it removes the outliers of the highest and lowest sale prices.
Number of Homes Sold
Next, let’s look at the number of homes sold in Q3. In the third quarter of 2021, that number was 13,398. That’s a decrease of close to eight percent from the third quarter of the previous year and an almost seven percent decrease from the second quarter of this year. So, while prices remain high, the number of housing units on the market has dropped. This is a signal of a housing shortage. Not a huge shortage but it is a sign of stiffening competition for available housing stock in a hot market.
Median Days on Market
With a high demand for homes comes increased competition but it also results in quick sales with homebuyers making offers well over the asking price. When we look at the Days on Market numbers for the third quarter, we see things remain unchanged for the third quarter compared to the second quarter of this year, and that number is pretty low at eight days. When we look at the DOM from Q3 of 2020, we see a drop of 42.8 percent. That’s another sign of market health but also an indicator of a potential shortage. The Median Days on Market is the total number of days the house is on the market from listing to the signing of the contract.
If you could say anything positive about the ongoing COVID-19 pandemic it’s that it has kept interest rates low. This has provided a huge incentive to buyers looking to lock in a good rate. As of this writing, the average mortgage rate on a 30-year fixed-rate mortgage is just over three percent and the rate on a 20-year fixed-rate mortgage is 2.633 percent. For a 15-year mortgage, we’re looking at a rate of 2.115 percent while a 10-year fixed rate is just a bit over two percent. Many people in Orange County are rethinking their live/work situations as a result of the pandemic and have taken advantage of these rates to upgrade to larger homes or downsize to smaller housing units such as condos and townhomes.
Of course, no one can predict what the next quarter or the new year will bring. We do know that rates will rise at some point but how soon and by how much remains to be seen. While buyers need to be patient in this seller’s market, anyone looking to get their home on the market would be wise to do so soon.
When buyer demand outpaces supply a housing shortage is not far off. Several factors contribute to a seller’s market. For one, low interest rates motivate house hunters in search of new homes they can lock in a mortgage on. This demand allows sellers to list their homes for higher prices. As available housing stock is gobbled up and inventory shrinks, this high supply and short demand suits sellers much better than buyers. In fact, some buyers will get priced out of the market altogether. This will keep renters in apartments and those looking to downsize or upgrade will be forced to stay put.
The solution to a shortage is to increase supply, and in real estate, that means building new homes. That takes investment and this is a good opportunity for developers and investors. Of course, it takes time to develop properties and the global supply chain issues don’t make it easier.
In addition to a housing shortage, there’s always the fear that the housing market will crash again. It’s been about 13 years since the housing bubble burst in 2008 when prices fell due to an unprecedented wave of foreclosures. One key difference between then and now is that back in 2008, overinflated prices created a false sense of demand while today, low interest rates are fueling a natural demand for new housing. So, while a housing shortage could cause some economic headaches for some, a true market crash is not likely in 2022. That said, both buyers and sellers should take advantage of the hot real estate market in Orange County, but buyers are advised to have a little more patience.
The data in this article was obtained from several sources. It’s subject to change over time and is presented here only as a snapshot of the Orange County real estate market in September 2021.