Summer Slowdown

June 16th, 2022

The shift in housing due to higher rates has already made a significant impact on the housing market, and it will slow further over the summer.

Housing Will Continue to Cool

Since demand’s early peak at the end of May, the Expected Market Time has jumped from 20 to 45 days, growing by more than 3-weeks.

Road trip!! Living in California, it is of no surprise that so many families climb into their SUVs, packed to the gills with luggage, and explore the Golden State. After traveling 70-plus miles per hour for hours without a break, there comes a point where it is time to get off at the next exit, fuel up, and stretch the legs. Upon exiting the freeway and driving to the gas station at a much-reduced speed, it seems as if the car is barely moving. Of course, it is still progressing down the road, but everyone has become accustomed to the much faster speed. 

That is precisely how it has felt to participate in the housing market in 2022. The market had been zooming along for the past couple of years at an insanely, swift, unprecedented pace. It was as if the gas pedal was permanently fastened to the floorboard. There were very few homes available to purchase, demand was through the roof compliments of historically low mortgage rates, homes would last only days on the market, swarms of buyers toured every home, each offer to purchase competed against a slew of additional offers, sales prices soared above their asking prices, and home values rocketed higher. But, with higher mortgage rates, the market has slowed considerably, and this summer it will feel as if housing is barely moving. Yet, it will still be a Seller’s Market, just not what everyone has become accustomed to. 

With a higher-than-expected Consumer Price Index report that just came out last week, according to Mortgage News Daily mortgage rates leapt from 5.5% on Thursday, June 9th, to 6.13% on Monday, June 13th, an enormous, extraordinary jump. They were at 3.25% at the start of the year and have escalated by nearly 3 points since. The higher rates have already had an enormous impact on housing so far this year, and the recent rise will only further slow the market. Rates are rising in anticipation of everything that the Federal Reserve will need to do in order to tamp down stubborn inflation.

Higher rates dampen demand, homes take longer to sell, and market times grow longer. Today’s demand is muted compared to last year, down 34%, and the 3-year average prior to COVID (2017 to 2019), down 27%. Fewer buyers qualify to purchase at today’s higher rates, so there are not as many buyers bumping into each other. As a result, the inventory has more than tripled so far in 2022, growing from 965 homes to start the year to 3,059 today. The Expected Market Time (the amount of time between hammering in the FOR-SALE sign to opening escrow) has blossomed from 20-days at the end of March to 45-days today, still a Hot Seller’s Market (less than 60-days), just not an insane, instantaneous pace. Many homeowners are not finding success. Incredibly, 36% of all current active listings have been exposed to the market for at least one month. Sitting on the market for over 30 days is to be expected in the luxury ranges, yet there are plenty of sellers having trouble selling in the lower ranges as well. Between 28% to 36% of all homes priced below $2 million have been listed FOR SALE for more than 30-days and are still waiting for the right buyer to bring an acceptable offer to purchase. Not as many sellers have been on the market for more than two months, but that will change as housing continues to slow over the coming summer months.

On top of rising rates, the distractions of summer will impact the housing market as well. The busiest time of the year in terms of demand, the Spring Market, is now in the rearview mirror with the conclusion of the school year and graduations. Summer is when active buyers are pulled away from the exhausting pace of housing. Kids are home and parents are busy carpooling to camps, water parks, pools, beaches, and friends’ houses. Thus, demand decreases slightly and there are fewer new escrows opened. With demand dropping, the supply of available homes rises as more homeowners place their homes on the market. Many often mistake the Summer Market as the best time of the year to sell a home. In terms of new escrow activity, it is second to the Spring Market. With an increasing supply and falling demand, the Expected Market Time increases.

Combine the slightly slower Summer Market with the current rising mortgage rate environment and demand will continue to slowly cool over the next several months. The inventory will rise on the backs of homes that are overpriced, in poor condition, or have an inferior location. Carefully arriving at the price is crucial for sellers to secure a successful outcome. Homes that are priced according to their Fair Market Value will generate offers to purchase. Homeowners who stretch the asking price will waste valuable market time and will need to reduce to sell. In fact, 27% of all available homes in Orange County have reduced the asking price at least once. 

Attention Sellers: Sharpen your pencils, scrutinize all comparable data, and price your home so that it will sell. Do not learn the hard way that this market is not the same as the frenzied market of the past two years. 

Attention Buyers: There are finally more choices, but if a home is priced well, it will not last. Do not mistaken a slower market as a Buyer’s Market. It is still a Seller’s Market. Buyers looking to negotiate should consider homes that have been on the market for a while and are having trouble securing a buyer willing to make an offer to purchase. 

Active Listings

The current active inventory surged higher by 13%.

The active listing inventory soared higher, adding 362 homes in the past couple of weeks, up 12%, and now sits at 3,059, its first time above the 3,000-home level since December 2020, 18-months ago. Muted demand has allowed the active inventory to climb rapidly since the start of April, adding 1,507 homes, nearly doubling in just a couple of months. OPEN HOUSE directional arrows now adorn busy intersections, and it is now common to see the same OPEN HOUSE for multiple weekends in a row. That was unheard of just a few months ago. It is important to note that today’s inventory level is still incredibly muted compared to averages prior to COVID. The 3-year average from 2017 to 2019 is 6,501, an extra 3,442 homes, or 113% higher, more than double today. Yet, the difference is rapidly diminishing. As demand continues to drop, overpriced homes will accumulate on the market and the inventory will methodically grow until it reaches a delayed peak sometime between October and Thanksgiving, making its way back towards pre-pandemic levels. 

Last year, the inventory was at 2,214, 28% lower, or 845 fewer

The new trend that developed this year is a sharp decrease in the number of homes coming on the market. For the month of May, there were 3,511 new FOR-SALE signs in Orange County, 654 fewer than the 3-year average prior to COVID (2017 to 2019), 16% less. Missing signs counter the potential rise in the inventory.

Demand

Demand dropped by 4% in the past couple of weeks.

Demand, a snapshot of the number of new escrows over the prior month, decreased from 2,113 to 2,020 in the past couple of weeks, down 93 pending sales, or 4%. Typically demand increases by 1% to start June. This is the lowest level for this time of year since 2007. Rising rates have dramatically impacted demand and the recent rise to 6.13% will only further dampen the number of qualified buyers. A buyer placing 10% down and interested in a $4,000 monthly payment was looking at a $1,021,000 home at the start of the year at 3.25% compared to a $731,000 home at today’s 6.13% rate. That is a drop of $290,000 in purchasing power. Qualifying for homes is more challenging at today’s higher rates, thus the drop in demand.  Expect demand to slowly drop through the summer months, which will continue its methodical descent during the Autumn Market. 

Last year, demand was at 3,057, 51% more than today, or an extra 1,037. The 3-year average prior to COVID (2017 to 2019) was at 2,766 pending sales, 37% more than today, or an extra 746.

With the supply surging higher and demand falling as well, the Expected Market Time (the number of days to sell all Orange County listings at the current buying pace) increased from 38 to 45 days in the past couple of weeks, its highest level since July 2020. Anything below 40-days is considered an out-of-control, frenzied market fraught with tons of offers to purchase, instantaneous success, and soaring home values. At 45 days, it popped above that mark, but is still a Hot Seller’s Market (less than 60 days) where sellers that are properly priced will procure plenty of showings, are able to call the shots during the negotiating process, will obtain multiple offers, and homes values will continue to rise (but not skyrocket). Last year the Expected Market Time was at 22 days, much faster than today. The 3-year average prior to COVID was at 71 days, slower than today and a Slight Seller’s Market (between 60 and 90 days).

Luxury End

The luxury market continued to substantially slow. 

In the past couple of weeks, the luxury inventory of homes priced above $2 million increased from 661 to 719 homes, up 9%, or an additional 58 homes, its highest level since February of 2021. Luxury demand decreased by 14 pending sales, down 6%, and now sits at 219. With the supply rising and demand falling, the overall Expected Market Time for luxury homes priced above $2 million increased from 85 to 98 days, still excellent for luxury, but rapidly slowing. It is the highest market time since January 2021. It has more than doubled since the 45-day low for the year back in February. The volatility of Wall Street is impacting the luxury market.

Year over year, luxury demand is down by 44 pending sales or 17%, and the active luxury listing inventory is up by 145 homes or 25%. The Expected Market Time last year was at 65 days, considerably stronger than today. 

For homes priced between $2 million and $4 million, the Expected Market Time in the past two weeks increased from 61 to 77 days. For homes priced between $4 million and $8 million, the Expected Market Time decreased from 146 to 144 days. For homes priced above $8 million, the Expected Market Time increased from 270 to 327 days. At 327 days, a seller would be looking at placing their home into escrow around May 2023.

February Market Report July 3, 2022
289
Listed
54
Avg. DOM
$1,843.35
Avg. $ / Sq.Ft.
$4,495,000
Med. List Price
289 Properties
Page 1 of 25
$69,800,000
Neighborhood: Crystal Cove Estate Collection (CCEC)
7
Beds
13
Baths
15,500
Sq.Ft.
2021
Year Built
154
Days on Site
NP21118313
MLS
Commandingly perched atop one of Southern California's most desirable parcels of land, this custom designed crown jewel securely nestled at the pinnacle of Crystal Cove offers unobstructed views of...
$59,800,000
Neighborhood: Crystal Cove Estate Collection (CCEC)
7
Beds
10F21/2
Baths
15,000
Sq.Ft.
2014
Year Built
141
Days on Site
NP21124827
MLS
Located within the custom gates of Newport Coast's premiere private community, Crystal Cove this estate offers timeless elegance and seclusion nestled on one of the largest custom parcels showcasing...
$47,500,000
Neighborhood: Lido Island (LIDO)
4
Beds
4F21/2
Baths
8,868
Sq.Ft.
2018
Year Built
70
Days on Site
NP22033404
MLS
An immersive sensory experience at every turn. Behold 309 Via Lido Soud, a mesmerizing waterfront retreat peerless in quality, privacy, and scale. Situated on 3.5 lots with approximately 105' of...
$39,950,000
Neighborhood: Other (OTHR)
5
Beds
8F11/2
Baths
12,000
Sq.Ft.
2023
Year Built
69
Days on Site
NP22084117
MLS
No description available...
$35,000,000
Neighborhood: Cameo Shores (CSHO)
5
Beds
5F11/2
Baths
7,000
Sq.Ft.
2018
Year Built
465
Days on Site
NP21034222
MLS
Located in the highly exclusive Cameo Shores neighborhood, this 7,000 square foot architectural masterpiece was designed to impress. The jaw-dropping panoramic Pacific Ocean views throughout are...
$35,000,000
Neighborhood: Crystal Cove Estate Collection (CCEC)
6
Beds
7F21/2
Baths
14,809
Sq.Ft.
2022
Year Built
132
Days on Site
OC21023166
MLS
Crystal Cove's newest custom home is a masterfully-designed hilltop estate prominently positioned on a private front-row lot behind the community's prestigious second gates. Stunning architecture is...
$31,000,000
Neighborhood: Linda Isle (LIND)
4
Beds
4F11/2
Baths
5,500
Sq.Ft.
2020
Year Built
402
Days on Site
NP21115600
MLS
Just completed, this bay front home occupies the most sought-after location on Newport Harbor. Set behind the manned gates of Linda Isle, this 5,500 square foot residence of contemporary design is...
$28,500,000
Neighborhood: Crystal Cove Estate Collection (CCEC)
6
Beds
6F51/2
Baths
11,494
Sq.Ft.
2022
Year Built
82
Days on Site
OC21011374
MLS
Perched above the highly coveted community of Crystal Cove, the exclusive custom home lots of Crystal Cove is the epitome of luxury and exclusivity. Behind a second set of gates, all custom home...
$27,995,000
Neighborhood: Pelican Crest (NCPC)
7
Beds
8F41/2
Baths
14,196
Sq.Ft.
2001
Year Built
6
Days on Site
NP22129322
MLS
An emblem of Newport Coast's allure. Situated on a prized front-row lot, this Pelican Crest showpiece estate was just refreshed in 2022 and enjoys unobstructed views of the Pacific Ocean, Catalina...
$27,600,000
Neighborhood: Crystal Cove Estate Collection (CCEC)
8
Beds
8F31/2
Baths
13,787
Sq.Ft.
2022
Year Built
82
Days on Site
OC21011334
MLS
Amazing custom build to suit opportunity in one of the most exclusive enclaves in Crystal Cove. Perched atop the ultra prestigious Crystal Cove Community in Newport Beach, 6 Waves End is one of the...
$26,900,000
Neighborhood: Bayside Drive Custom (BSCH)
5
Beds
7F21/2
Baths
8,278
Sq.Ft.
2022
Year Built
5
Days on Site
NP21180719
MLS
A collaboration between some of the most respected names in coastal luxury home development, this meticulously planned bayfront estate will take waterfront luxury living to a new level. Situated on...
7
Beds
3F43/431/2
Baths
7,168
Sq.Ft.
2001
Year Built
160
Days on Site
OC22011406
MLS
Capturing sweeping ocean and harbor bay views from nearly every room, this entirely reimagined and redeveloped Corona del Mar architectural gem is a historic, one-of-a-kind legacy property on the...
Based on information from California Regional Multiple Listing Service, Inc. as of July 3, 2022. This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent. IDX provided by Sierra Interactive.
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