A SHOWDOWN BETWEEN SUPPLY AND DEMAND
Even with ultra-low demand, the Orange County housing market lines up in favor of sellers due to the persistent lack of supply .
In the past week there has been a lot of noise about a “housing recession.” It was revealed that closed sales plummeted in July. In Southern California, sales were off by 37% compared to 2021. As a result, proclamations from experts across the nation exclaimed that the housing market is officially in a recession. Unfortunately, way too many people will jump to the conclusion that values are going to plummet like they did during the Great Recession. The recession that experts are alluding to is a major drop in sales, fewer purchase and refinance loans, and an overall limited number of transactions for all those involved in the real estate industry. Yet, a recession does not mean that housing is in crisis and that values will plummet. Only two of the last six recessions prompted a drop in home values, the Savings and Loan Scandal of 1991 and the Great Recession, both instigated by the missteps of the housing industry. The other four recessions resulted in an appreciating housing stock.
Today’s demand levels are significantly muted due to mortgage rates rising from 3.25% at the start of the year to 5.72% where they stand today, according to Mortgage News Daily. The buyer pool has been impacted and reduced by the massive drop in affordability that accompanies such a steep rise in rates.
Homeowners are not moving because they simply do not want to sell as they are locked into an incredibly low fixed mortgage rate. 72% of all homeowners have a mortgage rate at 4% or lower. 55% have a rate at 3.5% or lower. 34% have a rate at 3% or lower. If a homeowner sells and opts to purchase a replacement property, they are going to be paying a much higher rate and, most likely, much higher property taxes. Thus, homeowners are staying put. They may not be in love with their home, but they certainly are in love with their loan.
The giant drop in demand is being matched up against an extremely anemic supply of available homes. There are fewer buyers participating today, just as there are fewer homeowners participating. This will continue until mortgage rates shift either higher or lower. Until then, the battle between supply and demand continues.
