January 2023 Market Update

Climbing into a car during the dead of winter can be brutal. The seats are cold. The steering wheel is cold. Most importantly, the air temperature feels as if it is below ZERO, even in sunny Southern California. Initially, after turning on the heat, frigid air blows through the vents. After driving down the street, the air quickly warms, ending the harsh reality of winter’s chill. Similarly, after hitting its slowest time of the year during the Holiday Market, housing quickly heats up and transitions to the Winter Market where demand surges higher, the inventory slowly grows, and market times drop. 

Regardless of the economic situation, without fail housing revs its enormous economic engine and the market heats up during the Winter Market, from mid-January to mid-March. Last year the inventory of available homes hit a record low and by mid-January, there were only 1,080 homes on the market. By mid-March, the start of the Spring Market, the inventory had grown to 1,556, a small addition of 476 homes, yet a 44% rise from January.  Demand, a snapshot of the number of new escrows over the prior month, rocketed higher and increased from 1,426 pending sales at the start of the Winter Market to 2,284 in March, up 60%, or an additional 860. The Expected Market Time, the time between coming on the market and opening escrow, decreased from an insanely hot 23 days in January to an even hotter 20 days by spring.  

Yet, it is hard to compare the Winter Market of 2023 to last year’s unbelievably hot, unprecedented housing market where there was nearly nothing available, 25, 50, or more offers were the norm, homes were selling instantly, buyers were paying tens of thousands of dollars above the asking price, and home values were climbing at an unhealthy pace. Even though the market followed the normal Winter Market pattern, the 3-year average before COVID (2017 to 2019) is a much better comparison. The 3-year average inventory grew from 4,739 to 5,286 homes, up 12%, or 547 additional homes. Demand shot up from 1,710 to 2,517 pending sales, up a substantial 47%, or 808 additional pending sales. The 3-year average Expected Market Time dropped from 86 to 63 days, shedding 23 days over the course of the Winter Market.

In looking at the number of sellers entering the market before the pandemic in Orange County, the 3-year average for December is seasonally the month with the fewest number of new sellers. In January, the number of homes coming on the market more than doubled from December’s low. More homes come on the market each month until it peaks in May. Today there are only 2,536 available homes in the county, the second lowest mid-January level since tracking began 19 years ago. Even with lower demand levels due to the higher interest rate environment, the inventory will only slowly grow during winter. Countering less demand is the fact that homeowners are “Hunkering Down,” meaning many homeowners would like to move for a variety of reasons, but they choose to stay because their underlying fixed-mortgage rate is substantially lower than today’s 6.2% rate. In December there were 32% fewer new sellers compared to the 3-year pre-pandemic average.

Demand will increase substantially from now through mid-March. Today’s 939 demand reading may be similar to Great Recession levels, but it will nonetheless explode higher from here. There will be more activity. More buyers will pull the trigger and purchase, especially if rates continue to slowly fall. The lower rates fall, the more demand will climb. Many buyers who stopped their search for a home during the holidays will be ready to resume their search again. 

With the inventory slowly rising and demand surging higher, the Expected Market Time, the time between coming on the market and opening escrow, will fall and housing will feel a lot hotter. Right around the Super Bowl is when the conditions are often the best for sellers. There is limited inventory, which is only slowly growing, along with rapidly increasing demand and falling market times. These conditions are turning up the heat for Orange County housing.