The Orange County Housing Market Report: Navigating the Supply Crisis
In a world where online shopping has taken over, finding toy stores, bicycle shops, or sporting goods stores has become a challenging endeavor. The closure of major national chains like Toys R Us, Performance Bicycles, and Sports Authority, coupled with the disappearance of many small mom-and-pop shops, has made holiday shopping more complicated. Similarly, the Orange County housing market is experiencing its own crisis - a severe shortage of available homes for sale. In this blog post, we will delve into the insights from "The Orange County Housing Report | Challenges of Supply Situation" by Steven Thomas and explore the reasons behind this supply crisis.
The Dodd-Frank Act and Its Impact:
The roots of the current housing supply crisis can be traced back to the Dodd-Frank Act, which came into effect in 2010 as a response to the Great Financial Crisis. This legislation aimed to curb excessive risk-taking on Wall Street and introduced common-sense protections for consumers seeking loans. One of the outcomes of this act was the disappearance of predatory lending practices that had plagued the housing market before the crisis. Adjustable-rate mortgages, subprime lending, and other risky lending products virtually vanished, replaced by fixed-rate mortgages and stringent lending standards.
Before the pandemic, the housing market was quite different. There were nearly three times as many homes on the market as there are today. Tight lending standards and fixed-rate mortgages led to a more stable homeowner population, with fewer people getting into financial difficulties that force them to sell their homes.
The Steady Decline in Inventory:
The decline in housing inventory has been steady over the years. According to the National Association of REALTORS®, in January 2012, there were 2,330,000 homes available across the U.S. By January 2020, just before the pandemic, this number had dropped to 1,400,000. In 2022, it hit a record low of 850,000 homes. The trend is similar in Orange County, where the inventory has shrunk from over 8,000 homes in 2012 to just 2,353 today.
This decline in inventory can be attributed to several factors, including strong lending standards, high FICO scores, and the disappearance of adjustable-rate mortgages that often forced homeowners to sell during economic downturns.
The Impact of Homeowners "Hunkering Down":
Another factor contributing to the supply crisis is the reluctance of homeowners to move due to their locked-in, low fixed-rate mortgages. The difference between their underlying interest rate and today's prevailing rates is significant, discouraging homeowners from listing their properties for sale and moving elsewhere. A staggering 87% of Californians with mortgages enjoy fixed rates at or below 5%.
Current Market Dynamics:
As of the latest data, the Orange County housing market remains in a state of crisis. The active listing inventory decreased by 1% in the past couple of weeks, with just 2,353 homes available for sale, the second-lowest level since tracking began in 2004. Meanwhile, demand increased by 1% during the same period, with 1,474 pending sales. The Expected Market Time (the number of days to sell all listings at the current buying pace) decreased to 48 days.
For homes priced below $750,000, the Expected Market Time is just 30 days, while it increases gradually for higher-priced homes. The luxury end of the market, consisting of homes above $2 million, accounts for 34% of the inventory and 13% of demand.
The supply crisis in the Orange County housing market shows no signs of abating. Tight lending standards, locked-in low mortgage rates, and a strong homeowner population have created a situation where the inventory remains severely limited. As we move forward, it's essential for potential buyers and sellers to navigate this challenging landscape with a clear understanding of the market dynamics. The housing market in Orange County continues to be a tale of high demand and limited supply, making it a challenging but intriguing arena for both buyers and sellers.
Source: Thomas, S. (2023, September 18). Orange County Housing Report | Challenges of Supply Situation. Reports On Housing - Your Local Real Estate Snapshot. Retrieved September 19, 2023, from https://reportsonhousing.com/
