Archive for June, 2023
The Rest of 2023 in OC – What Should Homebuyers & Sellers Expect?
As we delve into the second half of 2023, we must base our expectations on solid data rather than opinions or noise. Following the market and analyzing reliable data sources is key to understanding the projected trends. One such valuable resource is Reports on Housing, which offers an insightful analysis based on robust statistical information. Recently, Steven Thomas of Reports on Housing shared his perspectives on the Orange County 2023 real estate market during a visit to our Newport Beach office. Let’s explore some of the key takeaways from his presentation.
Interest Rates and the Debt Ceiling: Interest rates continue to be a significant factor impacting the current real estate market. The debt ceiling presents a challenge to the economy. In the past, when the debt ceiling was reduced in 2011, the market experienced an immediate boost. Therefore, there is hope that the Federal Reserve will take measures to address the debt ceiling again. It’s worth noting that when short-term rates rise, long-term rates often decline.
Defining the New Normal: We are still in the process of settling into the “new normal,” and this is evident in the real estate market. Buyers are capping their purchase prices lower than what was observed in 2020 and 2021. This adjustment reflects the evolving market conditions and buyers’ response to affordability and changing interest rates.
Commercial Market Impact: Unlike the residential market, commercial real estate is expected to experience a downturn due to different loan terms. However, residential sales currently maintain the lowest delinquency rate since the inception of Reports on Housing’s tracking. Barring any major incidents, there is no expectation of a short sale or foreclosure market in the near future for the residential market. Commercial real estate is projected to have a much bumpier road.
The “Slowcession” and Interest Rates: Rather than predicting an upcoming recession, Steven coined the term “Slowcession” to describe the anticipated economic environment. This slowcession would involve interest rates ranging from 4.75% to 5.75%. Presently, rates stand at 7%. Economists generally agree that interest rates will eventually decrease; the question is when. Hence, it is advisable to focus on finding the right house while keeping an eye on interest rate fluctuations. The target will continue to move.
Tandem Relationship: 10-Year Treasury and Mortgage Rates: A noteworthy insight from Steven is the 50-year tandem relationship between the 10-year treasury and mortgage rates. Monitoring the 10-year treasury can provide valuable insights into the future direction of interest rates, as the two usually dance together.
No Financial Crisis Expected: Statistics also express consumer confidence that a financial crisis is not imminent. Although some regional banks may undergo absorption, this is considered a typical occurrence in the industry. Recent bank runs have not seriously impacted our Orange County real estate market.
Supply Crisis and Price Stability: The current real estate market in Orange County faces a supply crisis, with historically low inventory levels. Even during the lockdown period, there was more inventory available than there is now! This scarcity of available homes is the main reason prices remain high despite the increase in interest rates. The peak of available inventory is expected in July, after which it will continue to decrease.
Opportunities for Buyers: It is currently advantageous, but an uphill battle, to be a buyer in today’s OC market. Renters, in particular, should consider transitioning to homeownership, as paying rent does not contribute to building equity. High rates have sidelined some buyers, so competition is not as fierce as in 2020-2022. But there is still plenty of competition, in fact, at least 2 buyers statistically for every home available. It is expected if interest rates decline in the future, it will attract more buyers back to the market, resulting in increased competition. Therefore, it’s advisable for potential buyers to act promptly and capitalize on the current conditions…there are not necessarily sunnier skies for buyers in the near future.
Sales Cycles and Demand: The typical sales cycle in Orange County follows a pattern: spring is the best time for sellers, followed by summer. It’s ALWAYS safest to be in escrow by July 31st, as fall is the third most active season, and winter is relatively slower.
Buyer Trends: Currently, buyers are more focused on securing favorable loan terms rather than their dream home, and logic often outweighs desire. Entry-level homes are highly sought-after, but bidding wars make it challenging for buyers to acquire them. Balancing the market would require an increase in inventory to accommodate the demand from millennials and compete with downsizing boomers. Buyers are ‘playing it safe’ and frequently purchase a bit below the level they qualify for.
Affordability and Market Time: The average median payment for California properties historically stood at $3,590 per month. Presently, that figure has risen to $7,290 per month. This dramatic increase highlights the reduced affordability caused by rising prices and interest rates. Additionally, the market time for Orange County properties is currently at 39 days, indicating an intense seller’s market, though less severe than the previous year. Somehow buyers are still absorbing current prices.
The second half of 2023 is expected to outperform the same period in 2022, with an increase in sales predicted for 2024. Both buyers and sellers need to maintain the right mindset and exercise patience in this dynamic market. Rental demand remains high, and rents are unlikely to decrease, making homeownership an appealing long-term investment. If you know someone who is renting, encourage them to explore the benefits of owning real estate and building equity. You can always reach out to Angie at 949-338-7408 for guidance & tools!
By focusing on reliable data and insights, we can project the real estate market for the rest of 2023. Steven Thomas’s presentation provided valuable charts & perspectives on the Orange County market, emphasizing the importance of monitoring interest rates, addressing supply crises, and making informed decisions as buyers or sellers. As the year progresses, maintaining a patient and adaptable mindset will be crucial for navigating the ever-evolving real estate landscape.
Ready to navigate the 2023 real estate market? Whether you’re a buyer or seller, seize the current opportunities and make informed decisions. Connect with us today to get expert guidance and achieve your real estate goals. Don’t miss out on the potential benefits awaiting you in the market. Fill out the form below or text for an appointment:
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