Orange County Housing Report: Housing and the Coronavirus

Despite all the news swirling about the Coronavirus, the Orange County real estate market is still rocketing forward with an Expected Market Time of 48 days.

As the virus began to spread not only in China but South Korea, Italy and Iran, Wall Street and financial markets around the world panicked and moved their money out of stocks and into long term bonds, United States treasuries. When that occurs, long term mortgage interest rates fall.

So, how will the Coronavirus outbreak affect housing? There is no absolute, 100% certain answer. Instead, it all boils down how long this crisis will last and how large of an impact it will have on United States soil and the rest of the world. In China, the number of new cases is dwindling, a glimpse of hope that this too will end.

Currently, the data does not indicate any change in the local housing market. The supply of homes to purchase in Orange County is at its lowest level for a start to March since 2013, and demand (last 30-days of pending sales) is at its highest level since 2016. With not enough supply and strong demand, the Expected Market Time (the time between pounding in the FOR-SALE sign and opening escrow) is at 48 days, a HOT Seller’s Market and its lowest level since 2013.

As a direct result of the COVID-19 outbreak, mortgage rates have dropped to a record low and will most likely drop even further. There is a chance that they break below 3% and into the 2’s. This inevitably will provoke many more to purchase, juicing demand. For a $750,000 mortgage, today’s 3.25% rate amounts to a $492 per month savings compared to March 2019’s 4.4% rate. That’s a savings of $5,904 per year. If rates drop to 3%, it’s a $594 per month savings, or $7,128 per year. And, at 2.75%, it’s a savings of $694 per month or $8,328 per year. In doing the math, it is easy to see how lower rates will stimulate demand. The impact on affordability is astounding.

Affordability

Regarding the supply of homes, the Coronavirus may inhibit some homeowners from placing their homes on the market the longer the outbreak lasts. For now, there has been no real noticeable change in the number of homes coming on the market. Year over year looks nearly identical. That is something to watch as housing makes its way through the hottest season of the year, the Spring Market.

As for demand, the virus could turn some would-be buyers into fence-sitters, not desiring to purchase in this environment of uncertainty. Yet, at the same time, many fence-sitters will be replaced with more buyers looking to cash in on these record-low mortgage rates. Some potential purchasers are worried about the overall economy and a potential recession instigated by the Coronavirus. But, the economy has a far way to fall as today’s macroeconomic United States charts are really strong. It is important to keep an eye on everything: consumer confidence, employment, jobless claims, regional manufacturing, Leading Economic Indicators, and housing starts. The GDP could take a hit, but it most likely will not drop below zero. Even with an economic slowdown, ultra-low interest rates will juice demand.

Demand in the luxury ranges is a bit of a different story. The luxury market is somewhat tied to Wall Street and is a bit more vulnerable to stock drops and wild swings. Currently, the high-end data does not indicate any change, but it is something to mindfully watch. In the past couple of weeks, luxury demand in Orange County increased by 5%.

The Coronavirus will affect the housing market to some degree, but not to the extent that many fret about it. Society tends to worry about the worst-case scenario and overreact. Housing will not fall off a cliff. In fact, housing today is HOT and is heavily leaning in favor of sellers. Mortgage rates in the 3’s, or high 2’s, will help prop up the housing market.

Worrying about the worst-case scenario is an exercise in futility. Instead, have faith that the present day’s advanced, connected, collaborative society will overcome this virus. Do not panic; instead, wash your hands frequently and be prepared for the current housing expansion to continue.

OC listing inventory

Demand: In the past two-weeks demand increased by 4%.
Demand, the number of new pending sales over the prior month, increased from 2,479 to 2,583, an additional 104 pending sales, up 4%. Demand will methodically increase from now through mid-May when it typically peaks. As more homes come on the market, demand will further rise. Additional buyers will begin their search for a home in hopes of capitalizing and cashing in on the best mortgage rates ever. Lower rates will juice demand, which will help offset the effects of the Coronavirus.

Last year, there were 311 fewer pending sales than today, 12% less. 

In the past two-weeks, the Expected Market Time dropped from 49 to 48 days, a HOT Seller’s Market (less than 60 days), where home values are appreciating, and sellers get to call the shots during the negotiating process. It is the lowest reading since June 2013. Last year the Expected Market Time was at 84 days, much slower than today.

Luxury End:  The luxury market did not change much in the past two weeks.
In the past two-weeks, demand for homes above $1.25 million increased by 18 pending sales, up 5%, and now totals 416. The luxury home inventory increased by 74 homes, up 5%, and now totals 1,674. With supply and demand rising at the same rate, the overall Expected Market Time for homes priced above $1.25 million remained unchanged at 121 days in the past couple of weeks. 

Year over year, luxury demand is up by 70 pending sales or 20%, and the active luxury listing inventory is down by 340 homes or 17%. The Expected Market Time last year was at 175 days, noticeably slower than today.

  • For homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 77 to 71 days.
  • For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 92 to 80 days.
  • For homes priced between $2 million and $4 million, the Expected Market Time increased from 134 to 175 days.
  • For homes priced above $4 million, the Expected Market Time decreased from 363 to 321 days. At 321 days, a seller would be looking at placing their home into escrow around January 2021.

Expected Market Time

Not sure what this means for your situation? Contact me and we can go over it in as much detail as you’d like.

Taylor DeMaio
REALTOR® | Negotiation Expert (RENE)
CalRE# 01906731
C: 949.478.2629
Email:[email protected]

Data and comments provided by Steven Thomas, Reports On Housing – All Rights Reserved. Copyright 2020.

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