25 May The Harter Group Housing Report
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A Seller’s Market Will Prevail!
There is a lot of noise out there right now about the impact of higher interest rates, high inflation, and a potential recession on the housing market.
The Harter Group is used to the constant chatter about bubbles and plunging home prices. Yes, the surging interest rates and the high inflation, along with the volatile stock market will definitely have an impact on the economy and housing, but it will not be to the extent of the fearmongering masses who immediately jump to the worst conclusions.
So is the sky falling?
The sky is NOT falling when it comes to housing. Most people remember the burn of the Great Recession. There was an unstoppable wave of foreclosures and short sales. Home prices plummeted, erasing years of incredible gains. Unemployment skyrocketed and took over six years to recover. The Great Recession was the largest economic downturn since the Great Depression, and it left deep scars on society at large.
Today, home prices continue to soar, interest rates remain elevated above 5%, housing is just starting to decelerate, and many are calling for an imminent recession. But they have forgotten about all the other economic recessions we have had in the past where housing values continued to rise.
WHAT DOES A DECELERATING MARKET LOOK LIKE?
In housing, during a slowdown, demand falls, the active inventory rises, and it takes longer to sell a home.
During the Great Recession, there was a glut of homes available to purchase and it was matched up with muted demand. Consequently, home values plunged. In Southern California, there were nearly 120,000 homes available to purchase in 2007, compared to the 19,000 homes available today. Our inventory levels are still at an all-time low compared to 2007.
Today’s missing ingredient that would lead to falling home values is supplied. The number of homes on the market today is far below averages prior
the start of the pandemic when values were still rising, but at a much more methodical pace.
The Orange County supply is at 2,452, a sharp rise from the 994 homes on January 1st, but still far below the 3-year average prior to COVID (2017 to 2019) for this time of year, which would be around 6,255 homes. We still have a lot to make up in inventory just to get back to more normal levels. Keep in mind that the inventory levels since 2012 have been remarkably low compared to the Great Recession and it has become even more so each year thereafter.
A SELLER’S MARKET WILL PREVAIL!
Today’s housing has an extremely strong foundation with years of tight lending qualifications, large down payments, fixed-rate mortgages, plenty of nested equity, and limited cash-out refinances.
While the market is slowing, it is gradually evolving from its out of control, insane pace, to a normal Seller’s Market where pricing will be fundamental in finding success.
WHAT IMPACT HAS RISING INTEREST RATES HAD ON DEMAND?
The recent rise in interest rates is indicating that demand has indeed become more stable and has found its footing. Demand is muted compared to its elevated levels of the last couple of years, and lower than the normal levels prior to the pandemic, yet it is matched up against an abnormal muted supply of homes available today. This has resulted in the Orange County housing market remaining at an insanely Hot Seller’s Market level.
The Expected Market Time, the time it would take between hammering in the FOR-SALE sign to opening escrow, has risen from 20
days on March 31st to 34 days today, a two-week increase. However, at 34-days, the housing market is still at an insanely hot level. Anything below 60-days is considered a Hot Seller’s Market. From 60 to 90, it is considered a Slight Seller’s Market. The market is balanced between 90 and 120 days. It does not become a Slight Buyer’s Market until the Expected Market Time eclipses 120 days. And values do not fall swiftly until it is a Deep Buyer’s Market above 150 days. Today’s 37-day mark is nowhere close to a Balanced or Slight Buyer’s Market.
*Source – OC Reports on Housing by Chief Economist Steven Thomas. 5/18/22