Orange County Housing Report: It’s the Final Countdown!

July 24, 2023

The window of opportunity to take advantage of the Summer Market, the second best time of the year for selling, will soon be coming to a close.

Running Out of Time

Demand will remain elevated for the next month, but from there, it will decelerate for the remainder of the year. 

The Women’s World Cup has started, and millions of soccer enthusiasts will be tuned in worldwide for the next month. There will undoubtedly be blowouts. But there will also be close games where fans will be on the edge of their seats anxiously watching the last seconds of the game tic down to zero. Similarly, the Orange County Summer Market is rapidly coming to a close. By the end of August, just a month from now, housing will transition to the Autumn Market. 

Spring is the best time to sell a home, from mid-March through the end of May when the kids get out of school. Demand peaks, and typically, inventory rises. The second best time of the year to sell is the Summer Market, from June through the end of August, when the kids go back to school. Buyers and sellers transact year-round, but families prefer to find a home during the spring or summer and close before the school year starts. Back to school means fewer buyers are yearning to make an immediate move. Buyers with children factor in the inconvenience and strain on their family in moving while the kids are in school. As a result, many buyers wait until the following spring to start the process all over again in isolating a home for their family. 

That means sellers coming on the market right now, or over the coming weeks, have very little time to take advantage of the summer season and successfully place their home under contract before housing decelerates and transitions to the Autumn Market. 

Demand, a snapshot of the number of new escrows over the prior month, seasonally drops slowly for the next six weeks until the Summer Market comes to a close at the end of August. From 2017 through 2022, the average drop was 2%. Orange County then transitions to the Autumn Market, and demand drops faster. The average decline for September was 6.6%, and 6.4% for October. In November, demand plunged, on average, by 9.8%. From September through November, demand dropped by 21%. Last year, it sank by an unprecedented 34% from September through November. 

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Today’s sellers have little time to adjust to the market and find success before the market downshifts in only six weeks. Pricing a home according to its FAIR MARKET VALUE is crucial in selling. This can be achieved by carefully considering all pending and recently closed sales. Homes priced below $1.5 million are still fetching plenty of showings and multiple offers and are selling at or above their asking prices, similar to the COVID years of 2020 through the first half of 2022. However, due to the higher mortgage rate environment, buyers are not as eager to preview or write offers to purchase any home where sellers are stretching the asking price. During the COVID years, many sellers got away with overpricing, but not in the current environment. For the sellers that do overprice, even slightly, expect to sit on the market with less activity and no offers.

The Orange County housing market in 2023 is characterized by a minimal supply of available homes to purchase, 67% less than the 3-year average before the pandemic (2017 to 2019). This low inventory is matched against muted demand due to unaffordability, with mortgage rates hovering between 6.5% and 7%. Demand is 38% less than the 3-year average and is at its lowest end of July reading since tracking began in 2004. The current market dynamics illustrate further that aggressive pricing in this market is a recipe for disaster. 

Many sellers who enter the housing fray in late July or August believe they have plenty of time to cash in on the Summer Market. They do not understand that they must be on the money in terms of price or risk losing valuable market time during a season when they are running out of time. They still need to isolate a buyer and negotiate the sale. They are down to weeks, not months. For sellers who arrive late to the 2023 housing party, they must come out of the gates priced right on the money. Starting at an unrealistic price means they must adjust their asking price to sell. That reduction may come too late when there is very little time on the clock before the Summer Market comes to an end.  

Active Listings

The active inventory increased by 5% in the past couple of weeks.

The active listing inventory increased by 113 homes in the past two weeks, up 5%, and now sits at 2,276 homes, its largest rise of the year. It is still the lowest level for an end to July since tracking began in 2004. It is the highest reading since the start of February, yet it has not surpassed its initial January reading like it usually does. The inventory is about to peak. It cyclically occurs anywhere from mid-July through the end of August. This year’s inventory has been severely limited and has had difficulty rising. It is not because of incredible, insatiable, out-of-control demand; it is due to a limited number of homeowners willing to sell. The vast majority of homeowners are currently enjoying record-low fixed-rate mortgage rates and are unwilling to exchange their low monthly payments for considerably higher payments given the current high-rate environment. The inventory crisis will continue until mortgage rates finally dip down the road. 
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Last year, the inventory was 4,041, 69% higher, or 1,652 more. The 3-year average before COVID (2017 through 2019) is 6,776, an additional 4,387 homes, or 184% extra, nearly triple where it stands today.  

Homeowners continue to “hunker down” in their homes, unwilling to move due to their current underlying, locked-in, low fixed-rate mortgage. For June, 2,280 new sellers entered the market in Orange County, 1,580 fewer than the 3-year average before COVID (2017 to 2019), 41% less. These missing signs counter any potential rise in the inventory.

Demand

Demand increased by 38 pending sales within the past couple of weeks. 

Demand, a snapshot of the number of new escrows over the prior month, increased from 1,560 to 1,598 in the past couple of weeks, up 38 pending sales, or 2%. Demand has remained relatively flat since the start of May when it was at 1,660 pending sales, only 62 more than today, or 4%. Though, these demand readings are the lowest since tracking began in 2004, very close to the 2007 level, the start of the Great Recession. Yet, the current market is not even close to the Great Recession when values plummeted, and foreclosures and short sales made up a substantial share of the marketplace. Homes in today’s market are fetching plenty of activity and multiple offers and selling at or above their asking prices. The only similarity to the Great Recession is the level of demand and dramatically fewer closed sales. Expect demand to slowly fall through August when the market transitions to the Autumn Market and demand begins to drop. The drop will accelerate during the holidays. 

Last year, demand was at 1,693, 6% more than today, or an extra 95. The 3-year average before COVID (2017 to 2019) was 2,578 pending sales, 61% more than today, or an additional 980.

With supply rising faster than the rise in demand, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) increased slightly from 44 to 45 days in the past couple of weeks. Last year the Expected Market Time was 72 days, much slower than today. The 3-year average before COVID was 80 days, significantly slower than today. 

Luxury End

The luxury market did not change much in the past couple of weeks. 

In the past couple of weeks, the luxury inventory of homes priced above $2 million increased from 774 to 815 homes, 41 additional homes, up 5%. It is the highest level since August of last year. Luxury demand increased by 12 pending sales, up 6%, and now sits at 199. With supply and demand increasing, the Expected Market Time for luxury homes priced above $2 million decreased slightly from 124 to 123 days. It has not changed much in the past month. Four weeks ago, it was at 122. Luxury is vastly slower than the lower ranges, which necessitates a careful approach to pricing to secure success.

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Year over year, luxury demand is up by 14 pending sales or 6%, and the active luxury listing inventory is down by eight homes or 1%. Last year’s Expected Market Time was 133 days. This is the first time since April of 2022 when the Expected Market Time was less than the prior year.   

For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 81 to 83 days. For homes priced between $4 million and $6 million, the Expected Market Time increased from 217 to 253 days. For homes priced above $6 million, the Expected Market Time decreased from 424 to 297 days. At 297 days, a seller would be looking at placing their home into escrow around May 2024.

Orange County Housing Summary

  • The active listing inventory in the past couple of weeks increased by 113 homes, up 5%, and now sits at 2,389, its largest rise of the year. It is still the lowest level for an end to July since tracking began in 2004. In June, 41% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,580 less. Last year, there were 4,041 homes on the market, 1,652 more homes, or 69% higher. The 3-year average before COVID (2017 to 2019) was 6,776, or 184% more, nearly triple.
  • Demand, the number of pending sales over the prior month, increased by 38 pending sales in the past two weeks, up 2%, and now totals 1,598, still the lowest level for an end to July since tracking began in 2004. Last year, there were 1,693 pending sales, 6% more than today. The 3-year average before COVID (2017 to 2019) was 2,578, or 61% more. 
  • With supply and demand rising, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, increased slightly from 44 to 45 days in the past couple of weeks. It was 72 days last year, much slower than today. 
  • For homes priced below $750,000, the Expected Market Time increased from 29 to 32 days. This range represents 18% of the active inventory and 25% of demand. 
  • For homes priced between $750,000 and $1 million, the Expected Market Time decreased from 28 to 27 days. This range represents 14% of the active inventory and 24% of demand.
  • For homes priced between $1 million to $1.25 million, the Expected Market Time decreased from 29 to 25 days. This range represents 9% of the active inventory and 16% of demand.
  • For homes priced between $1.25 million to $1.5 million, the Expected Market Time increased from 34 to 46 days. This range represents 11% of the active inventory and 10% of demand.
  • For homes priced between $1.5 million to $2 million, the Expected Market Time decreased from 56 to 53 days. This range represents 14% of the active inventory and 12% of demand.
  • For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 81 to 83 days. For homes priced between $4 million and $6 million, the Expected Market Time increased from 217 to 253 days. For homes priced above $6 million, the Expected Market Time decreased from 424 to 297 days.
  • The luxury end, all homes above $2 million, account for 34% of the inventory and 12% of demand.
  • Distressed homes, both short sales and foreclosures combined, comprised only 0.4% of all listings and 0.5% of demand. Only two foreclosures and seven short sales are available today in Orange County, with nine total distressed homes on the active market, down two from two weeks ago. Last year there were 12 distressed homes on the market, similar to today.
  • There were 1,993 closed residential resales in June, 16% less than June 2022’s 2,362 closed sales. June marked a 2% drop compared to May 2023. The sales-to-list price ratio was 99.5% for all of Orange County. Foreclosures accounted for 0.1% of all closed sales, and short sales accounted for 0.1%. That means that 99.8% of all sales were good ol’ fashioned sellers with equity.