OC Housing Report

Will it Slow in 2022?

February 23, 2022

Housing has only grown hotter despite mortgage rates  rising considerably since ringing in a New Year, indicating it will take further changes for the market to slow.

Market Shifts

If mortgage rates rise above 4% and remain elevated with staying power, then housing will finally slow a bit, shifting from an Insane Seller’s Market to a regular Hot Seller’s Market with longer market times.

The trend in rising rates has occurred before and eventually led to a market change in 2013 when there was a very limited supply of available homes to purchase as well.  Similarly to today, the Expected Market Time dropped, and the market got hotter at the beginning of the year. It declined from 47 days in January to 33 days by mid-March. At the same time, mortgage rates rose from 3.34% to 3.63%, yet the market just got hotter. But, as more homeowners came on the market during the spring, the number of available homes began to rise substantially for the first time in nearly two years, growing from 3,183 in March to 4,423 by mid-June, adding 1,240 homes, up 39%. At the same time, mortgage rates had climbed to 3.93%. The inventory continued to grow through the Summer and Autumn Markets and did not peak until mid-October at 6,350 homes. A typical peak occurs during the summer between July and August. From March to October the number of available homes had soared from 3,183 to 6,350, almost doubling by adding 3,167 homes. The Expected Market Time slowed from 33 to 82 days, and mortgage rates had surpassed 4.5% in September before retreating to 4.23% by mid-October.

The fundamental trend of persistent rising rates from 3.34% at the start of 2013 to 4.5% in September, paved the way to a shift in the market from an Insane Seller’s Market to a Slight Seller’s Market. Demand downshifted due to enduring climbing rates. With a bit less demand, overpriced listings sat on the market and accumulated over time, allowing for the inventory of available homes to rise. With a rising supply and muted demand, the overall speed of the market slowed, and Expected Market Times climbed.

For the market in 2022 to experience a similar shift. Mortgage rates cannot substantially drop from here. They must persist at these higher levels, between 3.75% and 4%, and then eventually climb above 4% with staying power. If that occurs, as more homes come on the market during the spring and summer, demand will be muted, and the inventory will substantially climb for the first time in 3-years. Higher rates must endure for that to occur.

Last year mortgage rates started the year at 2.65% and had climbed to 3.18% by April 1st, up a little over a half a percent. The rise was short lived as mortgage rates dropped back down to 3% by the end of April, and to 2.77% in August. Rising rates did not persist and the Insanely Hot Seller’s Market could not be stopped.

The Orange County housing market has been below 40-days since August 2020. At these levels there are a ton of showings, sellers get to call all the shots during the negotiating process, multiple offers are the norm, and home values are rising rapidly. At this point, only higher rates can slow the housing freight train that has been barreling down the tracks for nearly two years.

About the Author

Tim Morissette, also known in the community as Mr. Foothill Ranch, offers over 43 years of real estate experience which has given him an established reputation and unmatched market knowledge. He is joined by his wife, Michele and son Matt, as they continue to offer personal service with an emphasis on achieving his clients’ real estate goals.  This unique combination of traits has led to his proven track record of referral and repeat business. This can be witnessed by the trust of homeowners in Foothill Ranch where he has sold twice as many homes and represented three times more buyers than the next-leading real estate agent for the last 23 years.

As residents of Foothill Ranch since 1994, Tim and Michele are actively involved in the community by fundraising for Foothill Ranch Library, Make-a-Wish Foundation, Cancer Society, Homes for Habitat, Relay for Life, South County Outreach, and the local church and schools. Tim enjoys sponsoring community-wide garage sales, as well as sponsors Paper Shredding and E-Waste Recycling events twice a year.

Tim and Michele are dedicated to their family of four sons, daughter-in-laws, and grandchildren. As a family, they enjoy many outdoor activities which include camping, spearfishing, mountain climbing and exploring the miles of hiking and equestrian trails in Foothill Ranch and the Whiting Ranch Wilderness Park. Tim and his sons are also avid snowboarders and enjoy mountain biking and lobster diving. Family is a top priority in the Morissette household. They look forward to helping more families achieve their dreams of homeownership.