As we mentioned in the Big Story, the market has cooled for both buyers and sellers, largely because of higher interest rates. As we enter the new year, the market feels familiar — but from the era before 2020. Demand in Orange County is evergreen, so we aren’t worried about matching buyers and sellers. That said, sellers likely won’t be getting 12+ offers the second the home hits the market again anytime soon. To make a long story short, there is definitely less stress on the buying side of the market. Prices will most likely increase in 2023, but at a more modest rate of around 5-6%, which makes for a much healthier market than what occurred over the past three years. Single-family home prices increased 17% over the past two years, even with the 15% decline from the April peak to December 2022, and condo prices were up 22% despite a 13% decline from the May peak. When we look back further to Q4 2019, single-family home and condo prices have increased 34% and 29%, respectively. Without any signs of interest rates dropping, we’re entering a stage of slower, longer-term growth.
More new listings should come to the market in the first quarter
When we look at single-family home inventory levels for 2021 and 2022 side by side, it’s immediately apparent that inventory levels in any given month were fairly similar, but the markets were remarkably different. The 2021 market was defined by the high demand and high number of new listings, which helped drive higher sales. New listings and sales rose and fell in tandem. In 2022, however, far fewer listings came to market, but new listings still rose from January through May, while sales began to decline after the first quarter. Fewer homes and the rising rate environment dropped demand, allowing inventory to grow at a slightly higher rate than the year before. The condo market had a simpler story in that there were far fewer new listings without a proportional decline in sales, so inventory remained low. This year, we expect the housing market to look a lot more like 2022 than 2021.
Months of Supply Inventory implies a slight sellers’ market
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI has trended higher, from a sellers’ market toward balance, since late spring 2022. With the changing market environment, we are comfortable saying that the market will oscillate between a slight sellers’ market and more balanced throughout the first half of the year for both single-family homes and condos. We are beginning the year with more buyers than sellers on the market.
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