The pandemic lockdowns began three years ago, in March 2020. Life came to an abrupt halt. Instantly, grocery shelves were ransacked as everyone prepared for an indefinite time in their homes. Many aisles were empty, most notably the toilet paper aisle. There was a run on toilet paper, and it lasted throughout 2020. In desperation, people resorted to shopping for rolls on eBay or Amazon and were willing to pay whatever price. It was simple supply and demand.

Similarly, the housing shelves have been seemingly empty since entering the pandemic, with very few homes available compared to pre-COVID inventory levels. In 2020 and 2021, fewer homeowners opted to sell their homes amid the pandemic. Orange County had 5% fewer sellers in 2020 compared to the 3-year average before COVID-19 (2017 to 2019), or 1,800 less. In 2021, it rose to 6%, or 2,300 missing sellers. Surging demand had an even more significant impact on shrinking the supply of available homes. From March 2020 to January 2021, rates reached 17 record lows. As rates plummeted, demand surged. As a result, the inventory reached record lows in 2020 and 2021.

The inventory finally began to rise in 2022 as rates soared from 3.25% at the start of the year to the mid-5s in June and July. Yet, rates rose further, surpassing 6% in September and 7% in October. Since 89% of all Californians have rates at or below 5% and 71% have rates at or below 4%, only some homeowners have been willing to give up their incredibly low fixed-rate mortgages and sell their homes. This “hunkering down” effect has resulted in a growing number of homeowners staying put. In 2022, there were 8,500 fewer sellers, 22% less.

Today, there are only 2,218 homes available to purchase in all of Orange County. There were 1,406 last year, catastrophically low and 37% lower than today. In 2021, there were 8% more. The marketplace is complaining about a lack of supply, just like they did in March 2021 and 2022. The lowest level by far before COVID was achieved in 2013 at 3,237 homes. That was 45% higher than the current level. The 6-year average from 2014 to 2019 for this time of year was

5,273 homes, an additional 3,055, or 138% extra, more than double. The current inventory level remains severely low.

Current demand levels are at Great Recession levels. Today’s demand, a snapshot of the last 30 days of pending sales activity, is at 1,505. Last year demand was at 2,195, or 46% higher. The 3-year pre-pandemic average is 2,422, or 61% higher. Yet, even with ultra-low demand, in matching it up against today’s ultra-low inventory, the Orange County housing market is extremely hot. The Expected Market Time, the time between coming on the market and pending status, is at 44 days. While not as hot as last year’s 19-day reading, it is considerably lower than the 3-year pre-COVID average of 64 days.

Home values had declined after peaking in May of last year. According to the Freddie Mac Home Price Index, values in the Los Angeles-Orange County region have dropped 7.9% since May. From June 2022 to January 2023, the Expected Market Time averaged 72 days. It was 84 days to start the year. However, in dropping to today’s 44-day level, home values are rising in many areas and price ranges due to the lack of supply. Open Houses are once again crowded with prospective buyers. Many homes are obtaining multiple offers and are selling above their asking prices. That is despite today’s 6.99% interest rate (Mortgage News Daily).

Sellers need to be careful in navigating today’s housing market. Homes priced according to their Fair Market Value and decent condition will procure plenty of activity and, in many cases, obtain multiple offers. But homes in poor shape with plenty of deferred maintenance, houses with an inferior location, and overpriced homes will sit on the market without success even with today’s hotter market time readings.

Like the empty shelves in grocery stores at the start of the pandemic, there are not enough choices for buyers looking to secure a home in today’s housing market. Even with far fewer buyers willing to participate due to higher mortgage rates, the housing scene feels exceptionally hot because of the supply dilemma.

Active Listings
The active inventory continued to fall, declining by 4% in the past couple of weeks.

The active listing inventory decreased by 87 homes in the past couple of weeks, down 4%, and now sits at 2,218 homes, its lowest level since April last year. With the Spring Market right around the corner, from mid-March to the end of May, the inventory typically rises at this time of year. The 3-year pre-pandemic average rise (2017 to 2019) was 3% and not a 4% drop. The inventory is falling, and it is not due to a sharp increase in demand. Instead, not enough homes are coming on the market thus far this year. In January, there were 45% fewer sellers, 1,380 less, that came on the market compared to the 3-year average, and in February, it was off by another 45%, or 1,413 fewer sellers. That is nearly 2,800 fewer FOR-SALE signs in just two months, more than all of 2020 or 2021. It is 33% of the 8,466 missing signs in 2022. Expect more homes to come on the market during the spring, but at a subdued rate due to the high mortgage rate environment and homeowners opting to stay in their homes and not sell.

Last year, the inventory was 1,406, 37% lower, or 812 fewer. The 3-year average before COVID (2017 through 2019) is 5,119, an additional 2,901 homes, or 131% extra, more than double today

Demand, a snapshot of the number of new escrows over the prior month, decreased from 1,537 to 1,505 in the past couple of weeks, down 32 pending sales, or 2%. This is the lowest level for this time of year since tracking began in 2004. Typically, demand is slowly rising to start the month of March. With rates increasing from 5.99% a month ago to 6.99% today (Mortgage News Daily), many buyers are again being priced out of the market and sitting on the sidelines, hoping that rates will drop again. Usually, demand rises from here at a faster pace until peaking sometime between mid-April to the end of May. The path of mortgage rates will dictate how the Spring Market unfolds. At this point, it looks like it will be subdued with an anemic number of homes available to purchase, fewer sellers coming to market, and higher mortgage rates due to a steady stream of hotter-than-expected economic readings, counter to the Federal Reserve’s objective in reducing inflation.

Last year, demand was at 2,195, 46% more than today, or an extra 690. The 3-year average before COVID (2017 to 2019) was 2,422 pending sales, 61% more than today, or an additional 917.

With the inventory falling faster than the drop in demand, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) decreased from 45 to 44 days in the past couple of weeks, its lowest level since May 2022. At 44 days, the market is hotter than the 84-day level to start the year, but this is more of a function of a lack of supply and not record-breaking demand. Last year the Expected Market Time was 19 days, substantially faster than today, and home values were screaming higher. The 3-year average before COVID was 64 days, a slower pace than today.

In the past couple of weeks, the luxury inventory of homes priced above $2 million increased from 606 to 614 homes, up 8 homes, or 1%. Luxury demand increased by 27 pending sales, up 18%, and now sits at 177, its highest level since the start of September 2022. With supply only increasing slightly compared to surging demand, the Expected Market Time for luxury homes priced above $2 million decreased from 121 to 104 days, its strongest level since last June. As in the lower ranges, fewer luxury homeowners opt to place their homes on the market. In January, there were 31% fewer sellers than in January 2022; in February, it was down by 35%. The lack of luxury sellers has resulted in a hotter luxury market.

Year over year, luxury demand is down by 75 pending sales or 30%, and the active luxury listing inventory is up by 221 homes or 58%. Last year’s Expected Market Time was 47 days, extremely hot for luxury and faster than today.

For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks decreased from 82 to 73 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 216 to 128 days. For homes priced above $6 million, the Expected Market Time decreased from 347 to 312 days. At 312 days, a seller would be looking at placing their home into escrow around January 2024.

Orange County Housing Summary

• The active listing inventory in the past couple of weeks decreased by 87 homes, down 4%, and now sits at 2,218, the second-lowest March level since tracking began in 2004 behind last year. In February, 45% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,413 less. Last year, there were 1,406 homes on the market, 812 fewer homes, or 37% less. The 3-year average before COVID (2017 to 2019) was 5,119, or 131% more.=

• Demand, the number of pending sales over the prior month, decreased by 32 pending sales in the past two weeks, down 2%, and now totals 1,505. Last year, there were 2,195 pending sales, 46% more than today. The 3-year average before COVID (2017 to 2019) was 2,422, or 61% more.

• With the supply falling faster than the drop in demand, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, decreased from 45 to 44 days in the past couple of weeks. It was 19 days last year, much stronger than today.

• For homes priced below $750,000, the Expected Market Time increased from 38 to 39 days. This range represents 24% of the active inventory and 27% of demand.

• For homes priced between $750,000 and $1 million, the Expected Market Time decreased from 32 to 29 days. This range represents 18% of the active inventory and 27% of demand.

• For homes priced between $1 million to $1.25 million, the Expected Market Time increased from 33 to 36 days. This range represents 10% of the active inventory and 12% of demand.

• For homes priced between $1.25 million to $1.5 million, the Expected Market Time decreased from 45 to 38 days. This range represents 10% of the active inventory and 11% of demand.

• For homes priced between $1.5 million to $2 million, the Expected Market Time increased from 44 to 48 days. This range represents 11% of the active inventory and 10% of demand.

• For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks decreased from 82 to 73 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 216 to 128 days. For homes priced above $6 million, the Expected Market Time decreased from 347 to 312 days.

• The luxury end, all homes above $2 million, account for 28% of the inventory and 12% of demand.

• Distressed homes, both short sales and foreclosures combined, comprised only 0.5% of all listings and 0.1% of demand. There are only four foreclosures and six short sales available to purchase today in all of Orange County, with ten total distressed homes on the active market, up two from two weeks ago. Last year there were two total distressed homes on the market, similar to today.

• There were 1,137 closed residential resales in January, 37% less than January 2022’s 1,809 closed sales. January marked an 18% decrease compared to December 2022. The sales-to-list price ratio was 98.6% for all of Orange County. Foreclosures accounted for 0.4% of all closed sales, and short sales accounted for 0.1%. That means that 99.5% of all sales were good ol’ fashioned sellers with equity.