Orange County Housing Report: Lock It In!
Mortgage rates may be at record lows, but they are poised to increase next year.
The current 30-year mortgage rate is at 2.7%, a 14th record
low since March.
Black Friday, Cyber Monday, Amazon Prime Day are all days
that countless Americans look forward to cashing in on the very best deals of
the year. From flat screen televisions to blenders to puffy winter jackets,
prices are slashed, and eager shoppers line up to take advantage of the
mind-blowing discounts. Many stores carry a limited quantity, so if “you
snooze, you lose.” For 2020, those days are in the past and it will not be
until the end of 2021 when they return.
Today’s mortgage rates are at a record low and they offer
the very best deal of the year. Soon, that deal will vanish, and rates will
rise, which will impact monthly payments and affordability. Many think the
Federal Reserve is in charge of setting mortgage rates, but that is not true.
Instead, they set the short term fed funds rate, currently at zero. This rate
affects automobile loans, credit card rates, and small business loans, also
known as “short term debt.” Long term debt, or 30-year fixed mortgages, are
tied closer to long term bonds. Watching any movement in U.S. 10 Year Treasury
bonds will indicate where mortgage rates are headed. Prior to this year, the
10-Year has never been below 1% (it is at 0.896% today). Similarly, prior to
this year, mortgage rates have never been below 3% (they are at 2.7% today).
Bad economic news drives the 10-Year down and good economic
news pushes it higher. COVID-19 and the economic recession due to the forced
shutdown of the economy drove the 10-Year below 1% for the first time ever.
There is a “spread” between the 10-Year bond and the 30-year mortgage rate that
is fairly uniform over time. Capacity constraints and risk aversion prevented
mortgage rates from immediately plunging below 3%, but they eventually got
there in July.
The United States economy has been on the mend. Retail sales
have rebounded. New home sales and residential resales have rebounded.
Consumers are consuming again. Manufacturing has returned. And, there is light
at the end of the tunnel, the Coronavirus Pfizer vaccine has been approved by
the FDA and distribution to all of the states started on Sunday. A second
vaccine, Moderna, is scheduled to be approved at the end of the week as well.
By mid-2021, the bulk of the U.S. population will be inoculated from the virus.
The economy will undoubtedly improve. With all this good news, the 10-Year has
improved from 0.645% in September to 0.896% today. In 2021, over the coming
months, there will be more good news to follow: a congressional relief package,
more positive vaccine news, positive jobs reports, and positive economic
reports. It will not be long before the 10-Year pops above 1%. As a result,
expect mortgage rates to increase from today’s exceptional 2.7% level to 3.5%
by the end of 2021.
For a $750,000 mortgage, today’s 2.7% payment of $3,042 per
month would rise to $3,368 at 3.5%. That is a difference of
$326 per month, or $3,912 per year. 3.5% is still a great
rate, yet there is still a significant impact in the monthly mortgage payment.
In November 2018, about two years ago, mortgage rates climbed to 5%. In
comparison to today, for a $750,000
mortgage, the payment would be an additional $1,004 per
month, or $12,048 per year. Today’s record low rates provide buyers and
homeowners the ability to save a lot of money.
In looking at rising rates impact on affordability, today’s
unbelievably low rate offers buyers the power to buy a much larger home. A
buyer with a 20% down payment that desires a monthly principal and interest
rate payment of $3,000 is able to purchase a $925,000 home. Rising rates erode
home affordability. With mortgage rates projected to rise to 3.5% by the end of
2021, that $3,000 desired payment yields an $835,000 home. That is a jaw
dropping $90,000 less, a significant difference in a buyer’s home search.
For perspective, in November 2018, the desired $3,000
mortgage payment resulted in a $698,750 home. The 5% rate shaves $226,250 in
purchasing power. The difference is stunning. Many of today’s buyers would be
sidelined by unaffordability. In year’s past, mortgage rates were much higher.
In 1981, they were at 18%. In 1990, they were at 10%. In 2000, they dropped to
8%. And, just prior to the Great Recession, mortgage rates were at 6.35%.
Today’s 2.7% mortgage rate is a Black Friday, Cyber Monday,
or Amazon Prime Day type of deal. It is a record low that is motivating buyers
to storm the housing market. As the United States economy improves over the
course of the year, mortgage rates will climb. With today’s powerful housing
demand in Orange County, the strongest December demand reading since 2011,
combined with today’s record low active inventory level, the lowest reading
since tracking began in 2004, home values will appreciate in 2021. With rising
rates and rising home values, the time for buyers to act is right now. Lock it
The current active inventory continued to plunge, shedding
another 9% in the past two weeks.
The active listing inventory shed 317 homes in the past
two-weeks, down an astounding 9%, and now sits at 3,152, its lowest level since
tracking began in 2004. Pass the eggnog, wrap those presents, grab a candy
cane, the Holiday Market is here, which brings large drops in both supply and
demand. This year is no different. Expect the active inventory to continue to
drop until ringing in a New Year. It will drop below 3,000 available homes,
limited the available homes to purchase to unbelievable low levels, making it
extremely difficult for buyers to secure a home. The inventory will not start
to rise again until this coming January.
Even with the active inventory dropping to all-time lows
since tracking began, there are MORE homes coming on the market right now
compared to last year. COVID-19 suppressed homeowners from entering the fray
earlier in the year, but that ended in Orange County in July. Now there are
more homes coming on the market year over year. In November, there were 15%
more homes that came on the market compared to 2019, an additional 317 FOR-SALE
signs. Even with the recent surge in COVID-19 cases, homeowners are still being
lured into selling their homes in Orange County.
Last year at this time, there were 4,546 homes on the
market, 1,394 additional homes, or 44% more. There were a lot more choices for
buyers last year.
Demand dropped by 3% in the past two weeks.
Demand, the number of new pending sales over the prior
month, decreased from 2,621 to 2,549 in the past couple of weeks, shedding 72
pending sales, down 3%. It is the lowest demand reading since June, but the
strongest December since 2011. Demand is not dropping as fast as it typically
does during the Holiday Market. Within the past 5-years, on average demand
dropped by 9% during the same two-week period. The low mortgage rates are
prompting buyers to remain active despite the holidays and the fact that the
supply is so anemic. Demand will continue to drop through year’s end.
Last year, demand was at 1,949, that is 600 fewer pending
sales compared to today, or 24% less.
In the past two-weeks the Expected Market Time decreased
from 40 to 37 days, its lowest level of the year and a Hot Seller’s Market
(less than 60 days), where sellers get to call the shots during the negotiating
process and home values are on the rise. Last year the Expected Market Time was
at 70 days, much slower than today.
The luxury market dramatically improved with a sharp drop in
the inventory and a surge in demand.
In the past two-weeks, the luxury inventory for homes above
$1.25 million plunged by 117 homes, or 8%, and now sits at 1,318. At the same
time, luxury demand increased by 466 to 502 pending sales, up 36, or 8%. Luxury
has been the great surprise in 2020, and December is no different as it marches
to the beat of its own drum. Typically, both supply and demand drop during the
Holiday Market, but not this year. With a giant drop in the supply coupled with
a sharp increase in demand, the overall Expected Market Time for luxury homes
priced above $1.25 million decreased from 92 to 79 days in the past couple of
weeks. Luxury is at its strongest point of the year, tying the level reached in
Year over year, luxury demand is up by 223 pending sales, or
80%, and the active luxury listing inventory is down by 377 homes, or 22%. The
Expected Market Time last year was at 182 days, more than double where it
For homes priced between $1.25 million and $1.5 million, in
the past two-weeks, the Expected Market Time decreased from 47 to 36 days. For
homes priced between $1.5 million and $2 million, the Expected Market Time
decreased from 63 to 53 days. For homes priced between $2 million and $4
million, the Expected Market Time decreased from 126 to 119 days. For homes
priced above $4 million, the Expected Market Time decreased from 322 to 248
days. At 248 days, a seller would be looking at placing their home into escrow
around August 2021.
Orange County Housing Summary
active listing inventory plunged by 317 homes in the past two-weeks, down 9%,
and now totals 3,152, its lowest level since tracking began in 2004. COVID-19
is not suppressing the inventory despite the recent surge in cases. In
November, there were 15% more homes that came on the market compared to last
year. Last year, there were 4,546 homes on the market, 1,394 additional homes,
or 44% more.
the number of pending sales over the prior month, decreased by 72 pending sales
in the past two-weeks, down 3%, and now totals 2,549, its strongest December
reading since 2011. COVID-19 has no effect on demand. Record low rates are
fueling today’s exceptional demand. Last year, there were 1,949 pending sales,
24% fewer than today.
Expected Market Time for all of Orange County decreased from 40 days to 37, its
strongest reading in 2020 and a Hot Seller’s Market (less than 60 days). It was
at 70 days last year, much slower than today.
• For homes
priced below $750,000, the market is a hot Seller’s Market (less than 60 days)
with an expected market time of 27 days. This range represents 33% of the
active inventory and 45% of demand.
• For homes
priced between $750,000 and $1 million, the expected market time is 23 days, a
hot Seller’s Market. This range represents 16% of the active inventory and 25%
• For homes
priced between $1 million to $1.25 million, the expected market time is 34
days, a hot Seller’s Market.
luxury homes priced between $1.25 million and $1.5 million, in the past two
weeks, the Expected Market Time decreased from 47 to 36 days. For homes priced
between $1.5 million and $2 million, the Expected Market Time decreased from 63
to 53 days. For luxury homes priced between $2 million and $4 million, the
Expected Market Time decreased from 123 to 119 days. For luxury homes priced
above $4 million, the Expected Market Time decreased from 322 to 248 days.
luxury end, all homes above $1.25 million, accounts for 42% of the inventory
and only 20% of demand.
homes, both short sales and foreclosures combined, made up only 0.3% of all
listings and 0.2% of demand. There are only 2 foreclosures and 6 short sales
available to purchase today in all of Orange County, 8 total distressed homes
on the active market, up 1 from two-weeks ago. Last year there were 68 total
distressed homes on the market, more than today.
were 2,843 closed residential resales in November, 25% more than November
2019’s 2,269 closed sales. November marked a 15% drop compared to October 2020.
The sales to list price ratio was 98.5% for all of Orange County. Foreclosures
accounted for just 0.1% of all closed sales, and short sales accounted for
0.2%. That means that 99.7% of all sales were good ol’ fashioned sellers with
Have a great week.
Regency Real Estate Brokers