Orange County Housing Market Forecast February 2023

It's only been a couple of weeks since the start of 2023. And we're already starting to see some pretty significant changes in the Orange County Housing market. So what are those changes? And how are those going to impact the market as we head towards February? That's what we're going to take a look at today. 

Okay, so for these monthly forecast episodes, I'm going to do things a little bit differently than I did last year. Last year, they tended to drag out 15, 20, 25 minutes, this year, I'm going to condense it all down into five or 10 minutes. So if you're a data nerd like myself, and you want to go over more of the data, and more of this, just let me know, DM me anytime, I'd be happy to go over it with you. 

So let's go ahead and start looking at what supply and demand have been doing in Orange County since the beginning of the year. So as we started January supply in Orange County was the second lowest that we've ever seen, the only time it was lower was last year. On top of that demand in Orange County is the lowest that we've seen since the Great Recession. 

So supply was extremely low. Demand was extremely low to start the year. However, as the weeks have gone on, we are starting to see supply remain low. And the demand is starting to creep up every single week. So why is that? 

Well, number one, we're finally starting to see some stabilization and predictability in the housing market again, which we haven't seen in probably six months. So it seems like because of that we're seeing builder confidence go up, we're seeing consumer confidence go up in the housing market. And on top of that interest rates have been dropping ever since October, week by week. Right now we're hovering in the very low sixes for interest rates. And for very well qualified buyers, I’m seeing rates back in the high fives again. 

Now because of this, since the beginning of January, we're starting to see demand slowly rise week after week. But supply really has remained relatively low. We're actually starting to see the market heat up a little bit because demand is going up faster than supply. Now we are nowhere near a hot housing market, home prices are still slowly coming down right now. However, we are starting to see the trend of more and more buyers entering the market as homes are becoming more and more affordable again, due to the interest rates going down, as well as some depreciation that we've seen over the last couple of months in Orange County. We've seen about an average of 5% depreciation since the market high last summer. So not only are homes less expensive to start this year, interest rates are also down, making it a little bit more affordable for some buyers. 

Now, like I said, this is some buyers, for the vast majority of buyers, especially first time buyers, homes are still really out of reach right now, because the payments are just too high. So for those of you hoping for a quick turnaround in the housing markets, where all of a sudden home start appreciating again, you're going to be out of luck. There's just not enough demand right now when supply is low to make that happen in the market anytime soon. 

So what does this all mean as we enter the February housing market in Orange County? Well, number one, you're going to continue to see depreciation slow down. So although we're still going to see depreciation for a while, the housing market is like a giant ship, it's not going to turn around on a dime, it's going to take months of this consistent interest rates going down, as well as demand going up faster than supply to be able to see any type of home appreciation anytime soon, which again, I'm really not expecting anything like that to happen until at least the summertime if we continue the current trends.

Number two, traditionally, in the month of February, especially after the Super Bowl for some reason, you start to see more and more sellers start placing their homes on the market as we get closer and closer to the beginning of the spring market. So if you've been looking for a home, and you can't find anything right now, you will start seeing more hit the market as we enter mid February. 

So the third thing you can expect as long as these current trends continue with inflation going down is interest rates following that. So although you're probably not going to see the major drops that we've seen over the last couple of months in the housing market, you can expect interest rates to continue their slow march down as we head through February. As long as inflation data keeps coming out positive, we will see those numbers come down. Now I'm expecting hopefully by the end of February, as these trends continue that we might see rates back into the very high fives again, however, don't expect these giant half percent interest rates dropped like we saw at the end of last year when we first started seeing inflation turning around. So yes, interest rates will be going down. However, they're not going to be doing so very dramatically. And again, the same thing goes with home prices. 

The fourth and final trend that you can expect in February which is what we see almost every single year, is demand will continue to rise as well. As things start thawing out, hopefully as it starts raining a little bit less, you'll see more and more of these buyers because as interest rates are getting lower buyers are starting to enter the market looking for properties as well. 

So just to sum it up, inventory should start going up in the middle of February, demand week by week should continue to increase, interest rates can continue to go down, and depreciation will slow down as we head through the month of February. 

Okay, so based on what you can expect in the February housing market, what would be my advice for both buyers and sellers? 

Let's go ahead and start with buyers first. So buyers number one, if you haven't already watched my latest episode, which is the top five ways to be able to write a winning offer in today's market, make sure you check it out. Just go back to my latest episode if you haven’t seen it yet and you can check that out before going on because that's going to give you all the tools you need to make sure you can write a winning offer in today's environment. 

Number two: Buyers, the longer you wait through February, the more competition you're going to have. Like I said, right now demand is going up faster than supply. And although supply and demand will both go up in February, it still looks like demand is going to slightly go up higher than supply, which means if you can purchase a home, right now, you're going to have a little bit more negotiating power than you will at the end of the month. However, it's not going to be a giant amount, and in a lot of cases, it might not even be noticeable. So really, the best thing for you to do is that if you aren't already pre approved, just make sure you go through that pre approval as soon as you can. That way if you are able to find that perfect home in this extremely limited environment, you're just going to have a little bit more negotiating power and be able to get into that home for a better deal. 

Okay, so let's go ahead and say that you already have that pre-approval from a lender. And now you're just trying to figure out the timing. “Should I buy in February? Should I wait till April? Should I wait till the end of summer? I just don't know what's going to be best for me.” The easiest way to determine this is just to ask yourself four basic questions. 

1) Am I able to afford the monthly mortgage payments in the neighborhood that I want to live in? 

2) Is it going to improve the quality of you and your family's life? 

3) Are you planning on living in that property for at least five years? 

4) Do you currently have a stable job? 

If the answer is yes to all four of these questions, then it's always going to be a good time for you to purchase a home. Because you're not an investor, you're not trying to time the market, you're looking at that monthly mortgage payment and deciding if that's going to be workable for you and your family for the long term. If you're planning on staying in the house, raising a family there, then the monthly ups and downs in the housing market really aren't going to make that much of a difference for you. Because you're a long term homeowner and in the long term, home prices have always gone up. So if you did answer yes to all four of those questions, now's the time to really hone in on the criteria you're looking for and really start the process of looking for a house because if you're able to find one, sooner rather than later, you're going to have less competition than if you wait towards the middle of the year. 

Okay, so now I want to go over what I recommend for sellers. There are two types of sellers, the first one is going to be someone that needs to sell their home, and then buy another home. In that case, the biggest thing that you have to remember is that you're always buying a home in the same market you're selling. What do I mean by that? Well, if you're hoping that somehow home prices skyrocket, again, which again, the data shows nothing like that happening anytime soon, then you also have to remember that if your home's value goes up, so does the house that you're trying to purchase. So really, the biggest thing for you is going back to those four questions as well to figure out if it's going to be a good idea for you to move or not. Because again, for a normal seller, you're not trying to time the market, you're trying to figure out if moving to a new place is going to make financial sense or not. 

Now let's say you the second type of seller, the seller that doesn't need to buy another home after they sell their property, then my advice for you is that you want to get your house on the market as soon as you can. Right now, every single week, home values are continuing to go down. So if you wait too long, you're just losing money at this point. You also have to understand that as we enter March and April, where you start seeing a lot more homes hit the market, it just means more competition for you. So at the end of February is really going to be the best time for sellers to be able to get their house on the market, have the least amount of competition, and demand by then should continue to rise, giving you more buyers to choose from.

Now the one last thing I want to talk to sellers about is if you're one of those sellers that is waiting to be able to sell your house until the kids get out of school at the beginning of summer, you have to understand timelines this year are completely different than the last couple of years. Before you'd be able to put your house on the market, and that weekend you'd have multiple offers on it, and be in escrow the next week. So it made more sense that if you were waiting for the kids to get out of school, that you hold off until the end of spring to sell your home. However, this year is completely different. The average home in Orange County right now is taking about two months to sell. So if you place your house on the market at the end of February, you're looking at probably the end of April actually getting into escrow. Then escrows is another 30 days as well, which means now you're looking at the end of May when your house closes, which is right around the time kids are getting out of school. 

So you have to make sure you understand the timelines if you're trying to time that home sale for when the kids get out of school.

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