Orange County Home Prices are Skyrocketing
Home prices are starting to take off again! The median home price in Orange County increased 4.2% from January – February. That is an absolutely massive price increase on a month-over-month basis. This rate of appreciation is very similar to what we saw at the start of 2021. In this video we talk about why home prices have continued to skyrocket despite higher mortgage rates.
To put it simply, home prices are rapidly increasing because of an imbalance in supply and demand. There simply aren’t enough homes for sale to satisfy the number of home buyers. This creates a competitive market where we see multiple offers, bidding wars, and homes selling above this asking price. Ultimately, this is what drives home prices higher. The imbalance is primarily due to a supply issue. The number of homes for sale is much, much lower than normal, while buyer demand is very similar to the last few years. I’ve been talking about the extremely low number of homes for sale in my market updates for a long time. This year we have the lowest number of homes for sale on record for this time of year. There are currently only about 1,400 home for sale in Orange County.
Another reason the market could be so HOT is because rising mortgage rates can sometimes boost buyer demand in the short-run. Some buyers will scramble to lock in a lower mortgage rate if they expect rates to rise in the future. However, if rates continue to rise it will eventually become a headwind for buyer demand. Buyer demand has been steadily rising all year, but it is still slightly below the last few years. I believe the buyer demand number would be higher if there were more homes for sale. Demand is measured by the last 30 days of pending sales. If there aren’t enough homes on the market, it can limit the potential for buyer demand.
Steven Thomas, the author of “The Orange County Housing Report”, does not believe inventory can rise meaningfully until rates get above 4%. Right now, homes are selling about as fast as they are coming on the market. For inventory to grow, we either need buyer demand to slow or a lot more homes to come on the market. We also look how the housing market reacted to rising rates in the past decade. In 2013 and 2018 the housing market slowed in tandem with rising mortgage rates.
Below are a few interesting charts related to housing market values:
Stocks vs. Home Values: https://www.longtermtrends.net/stocks-to-real-estate-ratio/
Home Values vs. Median Income: https://www.longtermtrends.net/home-price-median-annual-income-ratio/
Home Values vs. Inflation https://www.longtermtrends.net/home-price-vs-inflation/
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By: Tim Hamilton
Broker Associate
Lic# 01959966
(714) 486-4086
timsellsca@gmail.com