Despite the current slowdown in sales during the last year, housing data illustrates no housing crash on the horizon for the Orange County housing market in 2023.
There was likely a lot of talk at holiday parties and family gatherings about an imminent housing crash. Well-meaning aunts, cousins, and parents are predicting another Great Recession of 2008. Many feel strongly that a housing crash is in our future. However, according to all the economic data, current trends, lending standards, and given the health and strength of homeownership across the United States, there is no crash in sight, not now, not in the next six months, and not in the foreseeable future.
You can thank the lack of inventory for a stable market in Orange County—there are not enough homes to purchase. Today’s inventory is at 3,182 homes. The 3-year average before COVID (2017 to 2019) is 4,988 homes. That’s quite a difference. The inventory has been stuck at anemic levels since the pandemic’s beginning.
The difference is stunning when comparing today’s supply to the two years leading up to the Great Recession, 2006 and 2007. The inventory peak in 2006 was 16,006 homes and 17,898 in 2007. The 2021 peak was 2,537, and in 2022 it was 4,069. In sharp contrast to today’s inventory crisis with a lack of available homes, an inventory glut led up to the Great Recession.
So why the big difference in home inventory?The trend that developed this year is a sharp decrease in the number of homes coming on the market, homeowners “hunkering down” and unwilling to move due to sky-high mortgage rates and being locked in at a low fixed rate.
So what about those dropping values due to mortgage rates doubling from the start of the year? Dropping, yes but not tumbling at the accelerated pace of 2007 and 2008, when home values sank by nearly 40%. That will not happen today because of the extremely limited inventory. Simply put, homeowners are choosing not to list their homes. So far this year, through November, there have been 8,000 fewer sellers compared to the 3-year average before the pandemic, 21% less.
What about the Orange County Luxury Market?
In the past couple of weeks, the luxury inventory of homes priced above $2 million decreased from 730 to 698 homes, down 32 homes or 4%. Luxury demand fell by just one pending sale, down 1%, and now sits at 109, its lowest reading since May 2020, the initial lockdowns of COVID. With supply dropping faster than the drop in demand, the overall Expected Market Time for luxury homes priced above $2 million decreased from 199 to 192 days. Luxury is returning to pre-pandemic levels. Upper-end homes typically sell slowly; instead, market times of over 6- months are pretty standard. The higher the price, the longer it takes to sell a home.
Year over year, luxury demand is down by 72 pending sales or 40%, and the active luxury listing inventory is up by 301 homes or 76%. The Expected Market Time last year was 66 days, which is highly unusual for luxury.
The bottom line, the doom and gloom predictions you may have heard around the holiday table don’t hold up against the data and what is really happening in the Orange County market—demand and the lack of inventory will most definitely keep the market healthy through this next year.