January Market Update
![]() |
![]() ![]() |
With very little demand and a subdued inventory, real estate activity will be suppressed as the year gets underway. Bears do not wake up from hibernation energetic and raring to go. Instead, they are groggy and dazed for two to three weeks and it takes a while for their metabolism to kick in again. That is how housing normally starts after the holidays have finally passed. It takes a few weeks in January for buyers and potential sellers to shake off the holiday fog after enjoying the festive season that is chalk full of so many wonderful distractions. This is when the housing market slowly awakens and starts to thaw. It is coming out of hibernation and will be quite sluggish to start the New Year.
In looking at the details, the about face in housing is due to sky high mortgage rates coupled with a tremendous run-up in home values. In both 2021 and 2022, mortgage rates experienced back-to-back record low starts to the year at 2.65% and 3.22%. Today’s 6.14% is the highest start to a year since January 2008. As a result, demand, a snapshot of the last 30 days of pending sales activity, is at its lowest level to begin a year since tracking began in 2004 at 900 pending sales. It is slightly lower than demand level in 2008 oday, the inventory might be at the second lowest level to start a year, even beating 2021, but when it is combined with record low demand, the Expected Market Time is no longer at insane levels. Instead, it is like 2016 through 2018 and 2020 with a market time of 84 days. At 84 days the market is not instant. It may not be as slow as 2014, 2015, and 2019, but the few buyers that do remain in the system are not tripping over each other to purchase. They are taking their time, unwilling to stretch above the asking price, and carefully arriving at a price that they are willing to pay for a home based upon its condition, location, upgrades, amenities, and age. The Orange County housing market will thaw and improve from here. More homeowners will opt to sell, and the active inventory will rise. Buyer demand will increase as well with the holidays in the rearview mirror, it always does regardless of the pace of the market. Further fueling an increase in demand is that mortgage rates have dropped from over 7.25% in October and November to just above 6% today. Expect home values to continue to fall until mortgage rates drop to 5.5% or below. The direction of the housing market is predicated on the direction of mortgage rates and home affordability. As rates drop, affordability will eventually improve enough to instigate more demand. Mortgage rates will slowly fall as inflation gradually comes back down to earth. This is a process that does not occur instantly and just as it took a while to rise to its current level, it will take a while to substantively drop. |

The luxury market is a lot cooler to start 2023 compared to last year
In the past couple of weeks, the luxury inventory of homes priced above $2 million increased from 554 to 579 homes, up 25 homes, or 5%. Luxury demand decreased by 22 pending sales, down 19%, and now sits at 91, its lowest reading since May 2020, the initial lockdowns of COVID. With supply rising and demand falling, the overall Expected Market Time for luxury homes priced above $2 million increased from 147 to 191 days. Luxury is returning to pre-pandemic levels. In 2020, just prior to the pandemic, luxury started the year with an Expected Market Time of 269 days, a bit slower than today. Yet, today’s luxury market is making its way towards those levels. Upper end homes typically do not sell instantly; instead, market times of over 6-months are quite common. The higher the price, the longer it takes to sell a home.
Year over year, luxury demand is down by 72 pending sales or 22%, and the active luxury listing inventory is up by 227 homes or 64%. The Expected Market Time last year was 91 days, extremely hot for luxury.
For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 100 to 144 days. For homes priced between $4 million and $8 million, the Expected Market Time increased from 483 to 518 days. For homes priced above $8 million, the Expected Market Time decreased from 258 to 227 days. At 227 days, a seller would be looking at placing their home into escrow around August 2023.
Post a Comment