With muted demand, how has the Orange County inventory already reached a peak? The first factor is that demand has reached a cruising altitude, stabilized after slowly dropping since the end of March. The second factor, and more importantly, there are fewer homeowners opting to sell. Fewer homes coming on the market impacts the ability for homes to accumulate on the market and allow the inventory to grow faster. From January to July of this year there have been 17% fewer FOR SALE signs compared to the 3-year average prior to COVID (2017 to 2019), a shocking 4,373 missing signs. In all of 2020, there were 1,795 missing signs, and there were 2,311 in all of 2021. This is a new trend that started in January as mortgage rates were rising.
Homeowners are not moving because they simply do not want to sell as they are locked into an incredibly low fixed mortgage rate. 72% of all homeowners have a mortgage rate at 4% or lower. 55% have a rate at 3.5% or lower. 34% have a rate at 3% or lower. If a homeowner sells and opts to purchase a replacement property, they are going to be paying a much higher rate and, most likely, much higher property taxes. Thus, homeowners are staying put. They may not be in love with their home, but they certainly are in love with their loan.
Another factor that has contributed to the diminished supply is that many sellers who have been unable to sell have decided to pull their homes off the market. For the first couple of weeks of August, the number of homes that have come off the market without success is up 127% compared to the same time last year.
The giant drop in demand is being matched up against an extremely anemic supply of available homes. There are fewer buyers participating today, just as there are fewer homeowners participating. This will continue until mortgage rates shift either higher or lower. Until then, the battle between supply and demand continues.
