Orange County Housing Market: Rising mortgage rates are slowing typical spring demand

The following article includes views from Reports on Housing by Steven Thomas, economics expert and experienced real estate executive, and is not a reflection of the opinions, views, or predictions of Nuvision and its representatives. 

Last year was the best for local real estate since 2005. But things are changing, and demand is taking a hit as mortgage rates continue to rise. Changes in affordability that come with rising rates will cool the insane pace that has characterized the market recently.

Mortgage rates have risen more than 2.25% since December, making homes less affordable.

On December 31st, 30-year mortgage rates were at 3.27%. Today, they’ve climbed to 5.55%. Affordability has taken a significant hit. The monthly mortgage payment on a $1.1 million home with 10% down would have been $4,319 in December; today, the monthly payment for the same home is $5,652.

As of March, the median detached home value rose to $1,305,000, according to the California Association of REALTORS®. That’s up 27% from last year, when the median was $1,025,000. Put these factors together, and it’s no wonder demand is down.

Demand is slowing in response to rising rates.

Demand decreased by 4%, or 87 pending sales over the past two weeks. Excluding the months impacted by COVID lockdowns in 2020, this is the largest April drop since 2011. This time last year there were 3,081 pending sales. Today, there are 2,154, a decrease of 30%.

Spring demand is normally the highest of the year, always on the rise as inventory increases. Low mortgage rates have slowed the insane demand seen through 2020 and 2021, though the market is still a very Hot Seller’s Market, with an expected market time of 29 days.

As inventory continues to rise and demand continues to drop, the market will likely cool further. Over the past two weeks, inventory rose 21%. Currently, active listing totals 2,104 homes, still the lowest level for this time of year since tracking began 18 years ago.

Fairly pricing homes will become more important for sellers.

Pricing your home at fair market value is always the best strategy to attract buyers. But it will become even more important as homes stop selling the instant they are listed. Decreased demand will allow prospective buyers to have more choices, meaning homes in unpopular locations, near busy streets, or in poor condition need to be priced accordingly if they want to sell.