Supercharged by the pandemic, the housing market in Orange County grew over the past number of years, however, recent months suggest that the market is beginning to normalize in its wake. In Q2, Orange County’s median housing prices reached their highest point of the year, with the number of homes being sold sharply rising and spending fewer days on market as buyers snatched up houses quickly.
By contrast, Q3 has seen a decline in median sales price, with fewer people buying homes than in the previous quarter. While housing markets typically slow down near the end of the year, factors such as inflation are wearing heavily on the economy and on the minds of many buyers and sellers. Depending on how the economy continues to develop and what actions The Federal Reserve takes, mortgage rates could continue to rise further, continuing to impact the housing market.
Median Sales Price
Q2’s median sales price reached $1,086,000 as buyers moved to purchase homes before interest rates rose any higher, as many people anticipated. However, rather than continuing this trend of high demand and higher housing prices, Q3 has seen median sold prices adjust to $950,000—a drop of 12.5 percent and the lowest it has been this year. While this does indicate a softening of demand for homes in Orange County, the median sales price has not dipped below what it was in Q3 of 2021—which was $950,000—meaning that despite the slowdown, the market has stayed the same.
Orange County is not alone in seeing a decline in demand in the housing market, as markets across the country are coming to grips with The Federal Reserve’s ongoing efforts to curb rapid inflation that has taken place since the start of COVID-19. The good news for sellers is that despite the downward trend, there will always be buyers looking for reasonably priced homes, no matter the condition of the market.
Number of Homes Sold
After seeing a rise in the number of homes sold in Q2 at 6,113, Q3 has seen the number of buyers decline, with 5,480 homes sold—a decline of 10.4 percent from the previous quarter. This is an even sharper drop from Q3 of 2021, which saw 7,355 homes sold—a drop of 25.5 percent. While sales prices this quarter remained consistent with Q3 of last year, the drop in median sales price from Q2 of this year and the overall decline in sales volume suggests that the market is shifting away from favoring sellers and towards favoring buyers.
While Orange County remains a sellers market for the moment, rising inflation and interest rates will likely continue to spur an overall downward trend, with fewer houses sold as inventory grows.
Median Days on Market
Q2 saw sustained demand for homes, with houses spending a median eight days on market. By contrast, in Q3, homes listed for sale spent 16 days on market—double the time we saw in Q2. Coupled with the overall decrease in the median sales price in Orange County, this rise in median days on market means sellers will need to restrategize their approach to adapt to the changing market.
While the median sales price in Q3 remained consistent with the same period last year, the increase in time spent on the market indicates that, should inflation and interest rates continue to rise as they have been, fewer buyers will be in the market for a new home. However, the market has been running hot for quite some time now. The fact that the market is stabilizing is a blessing for both sellers and buyers who have faced a housing shortage for a few years now.
Mortgage Rates in Orange County
While experts anticipate the market to continue adjusting modestly, mortgage rates are not likely to drop anytime soon. Rapid inflation is the driving cause behind The Federal Reserve’s continued interest rate hikes. In September, The Fed increased interest rates yet again by another 75 basis points (0.75%) with the target of raising base interest rates to between 3 and 3.25 percent. This has resulted in mortgage rates rising across the nation. In Orange County, rates for 30-year fixed mortgages have remained relatively consistent with the previous quarter at 5.70 percent—previously at 5.8 percent in Q2—but 15-year rates have gone up to 4.86 percent from 4.5 percent as of the time of writing.
For the time being, rapid inflation will continue to pose a challenge for buyers and sellers should it continue to rise, forcing The Fed to keep hiking interest rates, which they are likely to continue doing well into 2023 and potentially 2024. Experts anticipate that the base interest rate could reach as high as 4.6 percent by 2024, but it remains to be seen whether The Fed will have to take such drastic measures.
Future Market Expectations
The housing market in Orange County and throughout the country will likely continue to normalize; however, rising inflation and interest rates will continue to impact the market and drive prices down as houses spend more time sitting on the market.
Buyers should keep an eye on mortgage rates as The Federal Reserve will likely ramp up its efforts to curb inflation. Meanwhile, sellers looking to sell soon need to adjust to market demands and price their homes accordingly to attract buyers in a market where rising mortgage rates are pricing out some people.
In either case, buyers and sellers should keep a close eye on the state of the market and speak with their agent to determine the best time to buy or sell.