Even though it is the hottest time of the year, the Spring Market, trends have emerged that confirm that the Orange County housing market is rapidly cooling.
Cracks Appearing
With demand falling and the housing inventory swiftly climbing, housing is slowing fast.
Traveling on the freeway and hitting bumper-to-bumper snarled traffic can be particularly frustrating. The frustration grows as the brake lights seemingly stretch for miles ahead, and the speed decelerates even more. Suddenly, the traffic has slowed to a crawl, and it will take a lot longer for everyone to arrive at their destination.
Similarly, the housing market had been moving along at a decent speed last year, and even hinted at speeding up early this year, but that has since changed. Fractures in the Orange County market have emerged. These cracks illustrate a rapidly cooling market. Sellers are losing their grip on calling the shots and must now be very precise in their pricing, or they risk not finding success and a further slowing of the market down the road. It is not a buyer’s market with plunging prices, but it is also not a hot seller’s market with rapidly rising prices. The market is moving, but not at the speed everyone expects in the spring. The latest trends highlight a cooling marketplace, moving at a much slower speed.
CRACK – The current active inventory has increased by 31% or 1,003 homes in the past two months. Last year, it grew by 16% or 228 homes; in 2023, it dropped by 6% or 142. How can this year’s inventory grow rapidly when year-over-year demand is only slightly down? The answer is simple: more homeowners are participating. Very few homeowners chose to sell in 2023 after rates skyrocketed in 2022. Instead, they “hunkered down” in their homes, unwilling to move due to their underlying, locked-in, low fixed-rate mortgage. That trend eased in 2024, allowing the inventory to grow. This year, the trend eased further, and the inventory has been rapidly growing with all the extra FOR-SALE signs, many more homeowners opting to sell. The trend is for the inventory to grow rapidly, increasing seller competition through the Spring and Summer markets.
CRACK – Despite an inventory that is 80% higher than last year, demand is down 9% year-over-year. Affordability is the main culprit for diminished demand. Mortgage rates have remained elevated since the Federal Reserve ratcheted up rates 11 times starting in 2022; thus, demand has been subdued since mid-2022. Yet, according to Mortgage News Daily, today’s 6.82% mortgage rate is far lower than last April, when they eclipsed 7.5% three times. With all the extra choices, demand should be higher. A contributing factor to today’s diminished demand is that consumer sentiment has collapsed since the announcement of deep tariffs on April 2nd. Plunging sentiment has led some potential buyers to place their home search efforts on hold despite improving rates. Financial market volatility has further eroded consumer confidence.
CRACK – The Expected Market Time spiked in the past six weeks. Typically, the Expected Market Time (the amount of time it would take to place a home on the market today and become a pending sale down the road) rises slowly after demand reaches its annual peak between March and April, and the inventory continues to grow until its Summer Market peak. This year, demand peaked in mid-March, earlier than usual, and has been slowly dropping ever since. On the other hand, the inventory has been growing at its most rapid pace since 2018. With a rapidly increasing supply and falling, subdued demand, the Expected Market Time has grown from 62 days six weeks ago to 81 days today, its slowest speed for an end to April since the pandemic lockdown in 2020, which was a temporary slowdown that did a 180 a month later as rates dropped to record lows. The 19-day rise in the past six weeks significantly outpaces every year since the pandemic lockdown. Last year, there was no change. In 2023, it decreased by five days, and in 2022, as rates climbed from 4% in March to 5.5% at the end of April, the Expected Market Time climbed by only 9 days. As inventory continues to climb rapidly and buyer demand slowly declines through the rest of the Spring and Summer Markets, the Expected Market Time will briskly rise, and the Orange County housing market will slow considerably.
CRACK – Like Orange County, all markets tracked by Reports On Housing are experiencing a swiftly rising inventory and subdued demand. Across the board, all markets are experiencing a jump in the inventory. It is growing at a brisk pace everywhere. Like Orange County, far more homeowners have opted to sell compared to last year, and the two-year difference is staggering. The “hunkering down” effect is waning everywhere, resulting in ever-increasing seller competition and a rapid accumulation of sellers to build this year’s inventory. It appears as if demand has reached its annual peak in all markets, which means demand is now slowly declining. Sinking consumer sentiment has impacted demand’s true potential, given that mortgage rates are down substantially compared to last year. The Expected Market Time is up noticeably compared to the previous year due to the rapid rise in inventory and subdued demand. As inventory continues to climb until reaching a peak later in the year, and demand slowly falls simultaneously, the Expected Market Time will continue to slow down from week to week. The bottom line is that this trend is not isolated to Orange County. It is affecting all markets.
The Orange County housing market has hit bumper-to-bumper traffic and slows further each week. With the current trends in place, it won’t be long until the market slows to a crawl, and sellers will wait much longer to secure success. There is a fracture in the market. This slowing market trend will continue until there is a noticeable drop in rates.
Active Listings
The Inventory grew by 6% in the past couple of weeks.
The active listing inventory increased by 241 homes in the past two weeks, up 6%, and now sits at 4,186, its highest level since September 2020. Since the start of the year, the inventory has grown by 1,785 homes. Last year, it grew by 535 homes, and dropped by 454 homes in 2023. This year’s rise is the largest since 2010. While still subdued compared to before the pandemic, the number of homeowners coming on the market far exceeds the past couple of years, which is why this year’s inventory is accumulating so quickly. It does not seem as if this trend will reverse course anytime soon. Expect the inventory to continue rapidly climbing through the Spring and Summer markets.
Last year, the inventory was at 2,320 homes, 45% lower, or 1,866 fewer. The 3-year average before COVID (2017 through 2019) was 6,002, an additional 1,816 homes, or 43% more.
Homeowners continue to “hunker down” in their homes, unwilling to move due to their current underlying, locked-in, low fixed-rate mortgage. It became a crisis once rates skyrocketed in 2022. For March, 2,883 new sellers entered the market in Orange County, 1,025 fewer than the 3-year average before COVID (2017 to 2019), 26% less. Last March, there were 2,361 new sellers, 18% fewer than this year. More sellers are opting to sell compared to the previous couple of years.
Demand
Demand dropped by 3% in the past couple of weeks.
Demand, a snapshot of the number of new pending sales over the prior month, decreased from 1,594 to 1,546 in the past couple of weeks, down 48 pending sales, or 3%. Demand peaked six weeks ago at 1,665, and has declined by 119 pending sales or 7% since. In the past couple of weeks, according to Mortgage News Daily, rates have dropped from 6.98% to 6.82% today, yet demand has continued to fall slowly. Only a drop in rates below 6.5% could change the trajectory of the current trend, which would require a substantial economic slowdown with job loss.
As the Federal Reserve has indicated, watching all economic releases for signs of slowing is essential. That is the only path to lower mortgage rates right now. These releases can move mortgage rates higher or lower, depending on how they compare to market expectations. Before this Friday’s jobs report, all eyes will be on the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, set to be released Wednesday. Future tariff announcements could impact rates as well.
Last year, demand was 1,707, with 161 additional pending sales or 10% more. The 3-year average before COVID (2017 to 2019) was 2,780 pending sales, 80% more than today, or an additional 1,234.
Expected Market Time
The Expected Market Time again slowed by a week.
With supply of available homes rising by 241 homes, up 7%, and demand falling by 48 pending sales, down 3%, the Expected Market Time (the number of days it takes to sell all Orange County listings at the current buying pace) jumped from 74 to 81 days in the past couple of weeks. Six weeks ago, it was at 62 days.
Last year, it was 41 days, substantially faster than today. The 3-year average before COVID was 65 days, which is also much quicker than today. The last time the Expected Market Time exceeded 81 days at the end of April was during the COVID lockdowns in 2020, when it reached 118 days, but it was rapidly falling due to record-low mortgage rates.
Luxury End
The luxury market continued to slow substantially in the past couple of weeks.
The luxury inventory of homes priced above $2.5 million (the top 10% of the Orange County housing market) increased from 1,106 to 1,142 homes, up 36 or 3%. Luxury demand decreased by 12 pending sales, down 7%, and now sits at 150. The Expected Market Time for luxury homes priced above $2.5 million jumped from 205 to 228 days, its slowest level of the year, matching January 16th. The luxury market in Orange County has been impacted by the volatility in the financial markets and plunging consumer sentiment.
In the past two weeks, the Expected Market Time for homes priced between $2.5 million and $4 million increased from 155 to 187 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 200 to 174 days. For homes priced above $6 million, the Expected Market Time increased from 446 to 584 days. At 446 days, a seller would be looking at placing their home into escrow around December 2026.
Orange County Housing Summary
- INVENTORY: The active listing inventory in the past couple of weeks increased by 241 homes, up 6%, and now sits at 4,186, its highest level since September 2020. In March, 26% fewer homes came on the market compared to the 3-year average before COVID (2017 to 2019), 1,025 less. Yet, 522 more sellers came on the market this March compared to March 2024. Last year, there were 2,320 homes on the market, 1,866 fewer homes, or 45% less. The 3-year average before COVID (2017 to 2019) was 6,002, or 43% extra.
- DEMAND: Buyer demand, the number of pending sales over the prior month, decreased by 48 pending sales in the past two weeks, down 3%, and now totals 1,546, its second lowest April reading since tracking began in 2004, only behind the COVID lockdowns in 2020. Last year, there were 1,707 pending sales, 10% more. The 3-year average before COVID (2017 to 2019) was 2,780, or 80% more.
- MARKET TIME: With supply surging higher and demand down, the Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, climbed from 74 to 81 days in the past couple of weeks, its slowest pace since mid-January’s 84 days. Last year, it was 41 days, substantially faster than today. The 3-year average before COVID (2017 to 2019) was 65 days, which is also much quicker than today.
- LUXURY: In the past two weeks, the Expected Market Time for homes priced between $2.5 million and $4 million increased from 155 to 187 days. For homes priced between $4 million and $6 million, the Expected Market Time decreased from 200 to 174 days. For homes priced above $6 million, the Expected Market Time increased from 446 to 584 days.
- DISTRESSED HOMES: Short sales and foreclosures combined, comprised only 0.2% of all listings and 0.3% of demand. Only six foreclosures and three short sales are available today in Orange County, with nine total distressed homes on the active market, up three from two weeks ago. Last year, four distressed homes were on the market, similar to today.
- CLOSED SALES: There were 1,801 closed residential resales in March, up 1% compared to March 2024’s 1,785 and 23% from February 2025. The sales-to-list price ratio was 99.4% for Orange County. Foreclosures accounted for 0.2% of all closed sales, and there were no short sales. That means that 99.8% of all sales were sellers with equity.
