Orange County Real Estate Market - End of Year Recap 2022
The South Orange County luxury residential housing market has now entered the two-month-long Thanksgiving to New Year holiday period, which historically is the time of year with the least number of sales and lowest listing activity.
Many sellers, especially those who have not had success selling, start pulling their properties off of the market to wait for the more vibrant Spring market. Yet it is still important to remember that the buying and selling of luxury homes continues at this time of year, albeit at lower levels, and this can be an excellent time to purchase for buyers who wish to submit lower offers or offers with terms, since there is less buyer competition and many sellers hoping to sell before the end of the year.
2022 will likely go down in the “residential real estate history books” as one of the most unusual years on record.
We started the year with a pandemic frenzy of buying, largely fueled by very low interest rates, the intent of the Federal Reserve to raise interest rates, historic low levels of homes available for sale, and extraordinarily high buyer demand. However, even at the start of the year, despite all of the craze in the market, there were severe economic headwinds that were looming: the highest inflation in four decades, by May, mortgage interest rates had already increased 69% in 2022, the stock market had declined; the S&P 500 was down 14% and the Nasdaq, 22%, and overall, there was anticipation of a slowing economy and a possible recession. The first effects of these market factors were seen in buyer demand; fewer buyers translated to fewer offers and fewer listings going under contract, and by July, the number of homes for sale had doubled and nearly one-third of the listing inventory had experienced at least one price reduction.
After a brief rebound in market activity in August, largely fueled by a very temporary decline in interest rates, and an associated rebound by the financial markets, the housing market conditions shifted once again, this time with interest rates soaring to 7%, their highest level in the past 20 years. Although many houses continued to sell, some at continuing record prices, the general trend saw declining sales activity, less buyer competition, and cooling demand. All of these factors added up to the lowest number of October sales since 2011; even though the average sales prices in markets like Newport Beach and Laguna Beach continued to be up 23% year over year, an astounding but likely unsustainable rate.
Without a doubt as the year wore on, the psychology, or balance of power between buyers and sellers, in the South Orange County luxury housing market ebbed away from sellers, who had controlled the market for the last several years. Buyers began being far more aggressive with lower offers, few felt the sense of urgency they did over the last two years, and many who missed out on buying in the frenzy are now sitting on the sidelines hoping for lower prices. Despite lower demand and vast price reductions, the number of new listings available for sale continues to be at historic lows. Higher interest rates are making many “would be” sellers refrain from listing their homes as a majority of homeowners who purchased prior to 2022, and those that refinanced are unwilling to part with their highly attractive 30-year fixed rate mortgages at 3% or less. This is a disconcerting phenomenon as the “move up” and “move down” markets are almost non-existent presently. The most prolific buyers presently are, or have been, renters, or are high-end cash buyers who are seeking a deal.
Orange County Median Sales Price, 2020-2022 (Image Source: Redfin)
As we approach 2023, the housing market and economy continues to be in a rapidly changing flux, with many unknowns, such as the possibility of a recession, a crypto currency crash, high inflation, supply chain issues, and historic highs in building costs and materials, all of which are causing many buyers and sellers to be more cautious as they wait to see how things settle. It’s also important to remember that the wildly overheated pandemic boom is not, and will not be, the new normal. Those market conditions of historic low interest rates, historic low levels of homes for sale, historic high stock values, and historic high overbidding rates is likely a once, or twice, in a lifetime phenomenon and likely unsustainable for any long duration of time. Certainly, the Federal Reserve has signaled their intent to slow things down. “Flippers,” sellers and realtors, whose expectations of booming sales have also been wildly distorted, will likely have to change along with the market conditions.
Sometimes after a frenzied market, there needs to be a reflection on the true value of real estate. Real estate, especially housing, is likely the best “long term” investment any owner will ever make. It is not a commodity that normally doubles or triples in value in a short amount of time, nor should we as owners expect it to. Houses are the places we live, we raise our families, and with good fortune, where we are happiest. Despite this rapidly changing market, there is one thing that holds true, South Orange County luxury real estate has always proven to be a spectacular long-term investment. You may find it hard to believe, but the average sales price of a Newport Beach home in 1980 was $239,000. That same home now has an average sales price of over $4.2 million.
Wherever you find yourself in this ever-changing market, I am happy to address any questions or needs you may have. I wish you and your loved ones an extraordinary holiday season filled with peace and joy!
Please feel free to contact me with any questions you may have regarding the latest market trends, or buying or selling real estate.