June 15 Snapshot

jun15mkt > June 15 Snapshot - California Real Estate Expert Robert Wolf - California Real Estate Expert Robert Wolf >

Download the Report. Living in California, it is of no surprise that so many families climb into their SUVs, packed to the gills with luggage, and explore the Golden State. After traveling 70-plus miles per hour for hours without a break, there comes a point where it is time to get off at the next exit, fuel up, and stretch the legs. Upon exiting the freeway and driving to the gas station at a much-reduced speed, it seems as if the car is barely moving. Of course, it is still progressing down the road, but everyone has become accustomed to the much faster speed.

That is precisely how it has felt to participate in the housing market in 2022. The market had been zooming along for the past couple of years at an insanely, swift, unprecedented pace. It was as if the gas pedal was permanently fastened to the floorboard. There were very few homes available to purchase, demand was through the roof compliments of historically low mortgage rates, homes would last only days on the market, swarms of buyers toured every home, each offer to purchase competed against a slew of additional offers, sales prices soared above their asking prices, and home values rocketed higher. But, with higher mortgage rates, the market has slowed considerably, and this summer it will feel as if housing is barely moving. Yet, it will still be a Seller’s Market, just not what everyone has become accustomed to.

With a higher-than-expected Consumer Price Index report that just came out last week, according to Mortgage News Daily mortgage rates leapt from 5.5% on Thursday, June 9th, to 6.28% on Tuesday, June 14th, an enormous, extraordinary jump. They were at 3.25% at the start of the year and have escalated by over 3 points since. The higher rates have already had an enormous impact on housing so far this year, and the recent rise will only further slow the market. Rates are rising in anticipation of everything that the Federal Reserve will need to do in order to tamp down stubborn inflation.

Higher rates dampen demand, homes take longer to sell, and market times grow longer. Today’s demand is muted compared to last year, down 32%, and the 3-year average prior to COVID (2017 to 2019), down 30%. Fewer buyers qualify to purchase at today’s higher rates, so there are not as many buyers bumping into each other. As a result, the inventory has more than doubled so far in 2022, growing from 1,254 homes to start the year to 3,423 today. The Expected Market Time (the amount of time between hammering in the FOR-SALE sign to opening escrow) has blossomed from 19-days at the end of March to 42-days today, still a Hot Seller’s Market (less than 60-days), just not an insane, instantaneous pace. Many homeowners are not finding success. Incredibly, 30% of all current active listings have been exposed to the market for at least one month. Sitting on the market for over 30 days is to be expected in the luxury ranges, yet there are plenty of sellers having trouble selling in the lower ranges as well. Between 24% to 34% of all homes priced below $2 million have been listed FOR SALE for more than 30-days and are still waiting for the right buyer to bring an acceptable offer to purchase. Not as many sellers have been on the market for more than two months, but that will change as housing continues to slow over the coming summer months.

Attention Sellers: Sharpen your pencils, scrutinize all comparable data, and price your home so that it will sell. Do not learn the hard way that this market is not the same as the frenzied market of the past two years.

Attention Buyers: There are finally more choices, but if a home is priced well, it will not last. Do not mistaken a slower market as a Buyer’s Market. It is still a Seller’s Market. Buyers looking to negotiate should consider homes that have been on the market for a while and are having trouble securing a buyer willing to make an offer to purchase.

The active listing inventory soared higher, adding 455 homes in the past couple of weeks, up 15%, and now sits at 3,423, its first time above the 3,000-home level since last August of last year, 10-months ago. It was also the largest two-week rise in the inventory so far this year. Muted demand has allowed the active inventory to climb rapidly since the start of April, adding 1,645 homes, nearly doubling in just a couple of months. OPEN HOUSE directional arrows now adorn busy intersections, and it is now common to see the same OPEN HOUSE for multiple weekends in a row. That was unheard of just a few months ago. It is important to note that today’s inventory level is still incredibly muted compared to averages prior to COVID. The 3-year average from 2017 to 2019 is 6,695, an extra 3,272 homes, or 96% higher, almost double today. Yet, the difference is rapidly diminishing. As demand continues to drop, overpriced homes will accumulate on the market and the inventory will methodically grow until it reaches a delayed peak sometime between October and Thanksgiving, making its way back towards pre-pandemic levels.

Demand, a snapshot of the number of new escrows over the prior month, decreased from 2,611 to 2,441 in the past couple of weeks, down 170 pending sales, or 7%, its largest drop of the year. Typically demand decreases by 1.8% to start June. This is the lowest level for this time of year since tracking began in 2012. Rising rates have dramatically impacted demand and the recent rise to 6.28% will only further dampen the number of qualified buyers. A buyer placing 10% down and interested in a $4,000 monthly payment was looking at a $1,021,000 home at the start of the year at 3.25% compared to a $720,000 home at today’s 6.28% rate. That is a drop of a little over $300,000 in purchasing power. Qualifying for homes is more challenging at today’s higher rates, thus the drop in demand.  Expect demand to slowly drop through the summer months, which will continue its methodical descent during the Autumn Market.

Last year, demand was at 3,584, 47% more than today, or an extra 1,143. The 3-year average prior to COVID (2017 to 2019) was at 3,501 pending sales, 43% more than today, or an extra 1,060.

With the supply surging higher and demand falling as well, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) increased from 34 to 42 days in the past couple of weeks, its highest level since June 2020. Anything below 40-days is considered an out-of-control, frenzied market fraught with tons of offers to purchase, instantaneous success, and soaring home values. At 42 days, it popped above that mark, but is still a Hot Seller’s Market (less than 60 days) where sellers that are properly priced will procure plenty of showings, are able to call the shots during the negotiating process, will obtain multiple offers, and homes values will continue to rise (but not skyrocket). Last year the Expected Market Time was at 22 days, much faster than today. The 3-year average prior to COVID was at 58 days, slower than today and still a Hot Seller’s Market (between 60 and 90 days).

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