A look at 2022 and what we can expect from the real estate market here in Orange County in 2023.

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UNLIKE THE INSANE, INCREDIBLE HOT STARTS TO 2021 AND 2022, THIS YEAR’S START IS MUCH DIFFERENT WITH MUCH LOWER DEMAND, A MUTED INVENTORY, AND EXPECTED MARKET TIMES AT PRE-PANDEMIC LEVELS. Happy New Year and I hope you had a great holiday season. Sorry to open with such a negative picture, but I’m just trying to bring you the reality of our market. So if you appreciate this and would like to be kept informed on the market, please LIKE or SUBSCRIBE from wherever you’re watching. 

Typically It takes a few weeks in January for buyers and potential sellers to come out of the holiday fog after enjoying all the busy-ness that the season brings. This is when the housing market slowly awakens and starts to thaw. The issue that the housing market is experiencing this year is that we have not had a normal/typical slow start to the year since 2020. If you remember, in both 2021 and 2022, the market was insanely hot from day one, with very few homes on the market and crazy levels of demand due to extremely low mortgage rates. Buyers were tripping over each other to purchase every single home that came on the market, multiple offers were the norm, homes sold way above their asking prices, and the housing market was out of control.  And while it seemed great from a distance, that was an extremely challenging and stressful climate for buyers, and the agents who represented them. 

The change in the housing market that we’re feeling today is due to the higher mortgage rates coupled with a huge jump in home values that homeowners have enjoying since May 2020. If you remember, in both 2021 and 2022, mortgage rates experienced back-to-back record low starts to the year at 2.65% and 3.22%. Today, we’re at 6.14%! The highest start to a year since January 2008. And as a result, demand is at its lowest level to begin a year since tracking began in 2004. 

Today, 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 that we had in 2021. Instead, it’s more like 2016 through 2018 and 2020 with a market time of 84 days. At 84 days the market is as instant as sellers have come to expect. It’s not near 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 of the property.  

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, as it always does, regardless of the pace of the market. Further fueling an increase in demand will be 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. 

HEADS UP TO SELLERS: If you are holding out for the Spring Market in anticipation of a quick sale and a price higher than the last comparable sale, that simply will not happen. Instead, sellers will be looking at a much more sluggish market with muted demand and buyers taking their time to purchase. Proper pricing is going to be crucial to find success. 

HEADS UP TO BUYERS: While home values may be falling right now, lowball offers will be a waste of everybody’s time including your own. Distressed sellers, foreclosures, and short sales are NOT components of today’s market. There is a real lack of panic selling. Most sellers do not have to sell, so there will not be major “deals” like there were during the Great Recession of 2008-2011. 

Homeowners continue to “hunker down” in their homes, not willing to move due to their current underlying, locked-in, low fixed rate mortgage. The difference between their low fixed rate and today’s rate is quite large and precludes many homeowners from listing their homes for sale and moving to another home. This will continue until mortgage rates drop. 

As more homes come on the market, expect demand levels to climb. It will dramatically improve over the course of the next two months and will continue to climb until peaking somewhere between the end of March to mid-May. Yet, demand will remain muted as long as rates remain above 6%. As rates fall below 6%, demand will improve. 

With demand falling faster than supply, the Expected Market Time increased from 76 to 84 days in the past couple of weeks. Last year the Expected Market Time was at 25 days! The 3-year average prior to COVID was 104 days, a slightly slower pace compared to today.

With supply rising and demand falling, the overall Expected Market Time for luxury homes priced above $2 million increased from 147 to 191 days in just the past month. In 2020, just prior to the pandemic, luxury started the year with an Expected Market Time of 269 days. 

As for a peek specifically into Laguna Beach market activity, we started December 22 with 95 homes on the market, and today we are sitting at 92, so a slight dip here. After sales in October of 19, followed by 16 in November, that downward trend continued in December with only 12 sales, and a high sale of $5,499,999 on Temple Hills. If we look at year over year comparisons, last December we had 36 sales in December 2021, with a high of $43M in irvine cove. The bigger concern I have however is when we compare year over year comparisons for the entire year of 2021 to the entire year of 2022. In 2021, we had 574 sales in Laguna Beach, and in 2022, we only had 322, which is a huge difference. 

I hate to leave you on such concerning information, but I am just trying to bring you accurate information to help guide you through this market and assist in making your real estate decisions. 

Please, again, if you like receiving this, please like or subscribe, and as always, I’d love to get your feedback, questions or anything else you’d like to see or hear from me.  Reach out to me at 949-295-5758 or marcus @marcusskenderian.com

Until February, have a great month.  Thank you! R