Mortgage Rates are the Driving Force in Orange County’s Real Estate Market

By Scot Campbell, Broker | Source: Reports on Housing

Executive Summary: Mortgage rates doubled since last year. Yet, the number of pending sales increased 237 in the last month while the number of new listings increased by only 110. So, there are more prospective buyers entering the market than there are new listings coming on the market. As a result, it is a Seller’s Market in the price segments below $2 million.

qualify for a maximum $1 million home and had been shopping in that price segment… do not like what a $665,000 home looks like. Those buyers have exited the market for the time being, they are waiting for mortgage rates to fall.

Higher rates sideline many sellers as well. Some homeowners would like to move but choose to “hunker down” and stay put instead. Their current underlying low, fixed-rate mortgage is providing the incentive for California homeowners to postpone selling:

When mortgage rates are low, the market heats up with a rise in affordability and buyer demand, along with a surge of homeowners desirous of taking advantage of a great time to make a move. And, when mortgage rates substantially rise as they did over the past year, demand diminishes due to affordability constraints, and many sellers opt to “hunker down” as they enjoy their locked-in, low fixed-rate mortgages.

The pandemic was an enormous disruptor, Mortgage rates dropped to record low levels, instigating tremendous housing demand. Mortgage rates remained at unbelievably low levels, and housing benefited with a nearly instantaneous, insanely hot market that lasted for two years, from June 2020 to May 2022. That was when the Federal Reserve stepped in raising short term rates, and mortgage rates soared.

In 2022, mortgage rates started the year at about 3.25%, according to Mortgage News Daily, and surpassed 7% in both October and November. The giant jump in rates had a significant impact on affordability. For example, buyers wanting a $4,000 per month principle and interest payment with 10% down started the year looking at a $1,021,111 home. By October, with rates above 7%, the same buyer was looking at a $665,000 home. Certainly, buyers who previously could

• 89% of homeowners have a mortgage rate at or below 5%

• 71% of homeowners have a mortgage rate at or below 4%

The higher rate environment limits the number of sellers coming on the market. These missing sellers have resulted in a falling inventory of homes for sale despite lower demand levels associated with higher mortgage rates.

As a result, the market feels exceptionally “hot” (especially in the under $2 million price segments). Even with higher rates, the Days of Supply (the number of days to sell every home on the market at the present rate of home sales) is only 45 days for Orange County.

Today’s hotter market is a function of the low supply and fewer homes coming on market, not record-breaking demand. If your home comes on the market, and is priced reasonably, you may see “multiple offers” despite today’s higher mortgage rates.

If you are having thoughts of selling, please reach out to me. I may already have a buyer for your home!

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