ORANGE COUNTY MARKET HEATS UP
Source: Keeping Current Matters - June 1, 2020
Surging housing demand amid a pandemic where the overall economy is struggling to come back online, is unexpected amidst a time where global struggles seem to continue.
In mid-April, the Expected Market Time was at 121 days, a slight Buyer’s Market (between 120 and 150 days). Since then, it has dropped by 39% and at 74 days, now indicates a slight Seller’s Market.
There are several factors that have led to the quick recovery in housing. First, housing is coming from a position of strength. Since the Great Recession, buyers now go through a more rigorous process of proving their ability to pay for a home. Now that homeowners are more qualified and foreclosures are less common, homeowners are sitting on a mountain of nested equity as a result of healthy down payments and steady home value appreciation from 2012 through the start of 2020. In addition, homeowners have not been using homes as piggy banks like they did previously, using home equity lines for lavish purchases.
Furthermore, the low mortgage rate environment has enabled homeowners to finance and refinance monthly payments to levels that further reduce budget concerns. A $700,000 mortgage at 3.15% is $3,008 per month compared to $4,356 per month prior to the Great Recession in 2007. That savings of $1,348 per month has further strengthened homeowners financial standings.
With homeownership affordability drastically improved, it is no wonder that current demand is pumping on all cylinders and has paved the way to a “V-Shaped” recovery. As a result, demand (the number of new pending sales over the prior month) in Orange County has increased by 74% in the past four weeks.Current demand is now equivalent to the start of February of this year, right after the Super Bowl, typically the best time of the year for sellers. It is hard to believe that just six weeks ago, in mid-April, demand hit levels not seen since the Great Recession. With inventory continuing to trickle in and remain low, this effect is even further pronounced. These numbers suggest the COVID-19 pandemic is losing its impact on today's housing demand, currently off by only 23% compared to last year, and the difference is diminishing.
With surging demand and an anemic active inventory, the Expected Market Time has dropped substantially. The market is still ramping up and the momentum is palpable. Housing is not only hotter than last year, it is poised to only get stronger, antagonized by record low rates. As the rise in demand continues to outpace any rise in the supply of homes, the Expected Market Time will continue to fall, and housing will line up further in favor of sellers.
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