2024 Orange County Housing Market Forecast

Story of the year: Mortgage Rate Lock Down

2023 has been another crazy year for real estate, where most experts predicted the housing market was in for a slight decline in home prices, it turned out to be the opposite and Orange County will end the year with somewhere between 5-6% appreciation. How did this happen? It’s been the same story over the last few years, inventory is just too low in Southern California. However, the reason why it was low this year is a little different from years past and is something you don’t see too often in the housing market. It happened because of something called a mortgage rate lockdown.  This happens when we have a period of extremely low interest rates(in this case the lowest rates we have ever seen) followed by a quick spike up in rates. Because of the extremes we saw going from 3% to 8% in such a short period of time, those who either bought a home or refinanced during covid now found themselves locked into their extremely low mortgage payments. Making a move, even if they were going to the same priced home, carried a significantly higher mortgage and made it impractical for most homeowners to up or downsize their home in 2023. This has been the main factor that contributed to the low level of inventory and transactions we saw throughout 2023.  

The Data That Will Determine How We Start 2024

Now that it looks like the highest rates are behind us, what does this mean for the 2024 housing market in Orange County? Let’s first take a brief look at where we’re ending the year as that will give us a much better idea of what to expect as we enter 2024.  

Current Inventory

We currently have 1,956 homes on the market in Orange County, and for those of you who don’t follow the trends in the housing market let’s give that number some context. If you look at the 3 years leading up to the pandemic(closer to normal years) we were averaging 4,988 homes on the market or 155% more than today. So you can easily see we will be entering 2024 with one of the lowest inventory levels ever in Orange County 

Current Demand

How about the demand side of things? Right now pending sales(the gauge of current demand) are about 59% lower than what we usually see during this time of year. Yes, rates have come down, but the combination of higher prices and rates have made home ownership very difficult for the majority of buyers out there right now. In fact based off the latest data only about 11-15% of people can afford the average prices home in Orange County right now(this is based on individual not household income). The other metric I always look at when it comes to demand is mortgage applications(new buyers applying for a mortgage) which has been increasing for 6 out of the last 7 weeks due to rates falling from their peak in mid October.  This measure gives us a good idea of what we can expect for demand over the next 30-90 days so there is a high probability we will be seeing demand start the year relatively strong. 

Current Interest Rates

The current average interest rates as of December 20th is 6.64%. This is significantly lower than the 8.03% we saw when rates peaked on October 19th, and in fact, it was one of the top three fastest drops in interest rates over the last 2 weeks on record for the housing market. 

How Long is it Taking to Sell a Home Today

The average time it takes to sell a home right now is about 59 days but that number varies significantly depending on the price range, with homes over 1.5 million taking much longer to sell than everything else below that cut off.  This is still faster than a normal market we see around this time in Orange County which is usually hovering in the 80-90 day range.

2024 Predictions 

Before we get into the predictions, I always want to make sure people understand that I don’t have a crystal ball. It’s impossible for anyone to say with 100% certainty what will happen in the housing market next year. However, what I can do is use the collection of data that I have acquired over the last month doing research and give you my best educated guess based on that data, current trends, and my first hand knowledge talking to buyers and sellers everyday on what is most likely to happen in the housing market in Orange County in 2024, so lets get into it.

Supply

As stated above, we will again be starting the year with significantly lower inventory than we usually have in Orange County. As the months go on, and we get closer to Spring, I expect supply to start picking up more than it did last year and we should end the year with somewhere between 15-25% more homes on the market. This is due to more homeowners being willing to sell their homes to move as rates continue to fall. However, this will still be far off from the “normal” amount of homes we see each year in Orange County. Yes, rates going down will help, but it’s still going to be tough for many homeowners to want to sell their home if they have rates in the high 2’s or low 3s. Right now as of the latest data reported by the National Mortgage Database, 85% of Californians have rates under 5%, 69% have rates under 4%, and 30% have rates under 3%. 

We will also see an uptick form foreclosures and short sales this year due to the economy slowing down and jobs being lost, however don’t expect a waive of foreclosures to hit the market like we saw in 2008. Homeowners are in much better financial shape this time around. They are very well qualified thanks to the loan regulations that were put into place during the aftermath of the 2008 crash, they also have significantly more equity in their homes than before, in fact about 40-45% of all homes owners no longer have a mortgage on their home. For the large majority of home owners that run into financial trouble, they will just place their home on the market as a normal sale and it will sell at a normal price. If you’re hoping to find a “deal” from one of these sales this year you’re going to be disappointed. Right now in Orange County we have the 14th best unemployment numbers since 1975 so it would take a significant downturn to see those numbers rise to a level of concern. Right now in Orange County there is a total of 9 homes that are on the market due to a foreclosure or short sale so there just aren’t going to be enough of them to impact the overall market. One thing to watch for next year is click bait articles coming out saying foreclosures are up 200%, yes that percent may be true but that just means it went from 9 to 27 total homes. 

Demand

As stated earlier, the best indicator of where future demand is going to be is mortgage applications. By looking at the data showing how many buyers are talking to a lender to get pre-approved for a mortgage loan, we can see what demand is likely to be 30-90 days from now. The number of buyers applying for a mortgage has been going up 6 out of the last 7 weeks now, with a significant bump with a more significant increase when rates started dropping. This tells me that there are still a lot of buyers that couldn’t purchase this year sitting on the sidelines waiting for rates to drop before jumping back in to the housing market. In fact, whenever rates drop by a percent, 3-5 million new home buyers in the US are able to afford to purchase a home again. 

This is especially true for millennials, the largest demographic patch in US history who are now in prime home buying years. This year boomers took over the top spot for number of homes purchased, which was held by millennials over the last few years, but I expect if rates continue dropping we will see millennials retake that spot this year as homes will start the year more affordable than they were last year. This large patch of homebuyers is also what puts a pretty high floor on demand right now and will continue to do so over the next few years. 

Just like supply, demand will rise this year but still be under the historic norms all year long.

Interest Rates

This is going to be by far the thing that will determine the course of the housing market this year. It’s also one of the hardest things to predict(as we have all seen over the last few years). However, what we can do is look at the current trends and how those impact rates and get a good educated guess on what to expect from rates over 2024. 

1- Fed Rate: During the December meeting, the Feds changed their stance on rates. They came out and said, baring some other unpredictable world wide event, they are now done raising rates and have even projected that they will be cutting rates about 3 times next year(up from the 2 they were projecting at the last meeting). While the fed rate doesn’t have a direct 1-to-1 impact on mortgage rates, it does impact short term interest rates like credit cards, car loans, and most importantly the 10-year treasury bonds. As soon as the feds announced they were done hiking rates and came out saying they would decreasing rates more than expected in 2024 we immediately saw the 10-year treasury bonds plummet. If you have followed my content for any length of time you know that the 10-year treasury bond is one of the best indicators of where mortgage rates are headed. They have moved up and down together since the 1970s so when we saw that massive drop in the 10-year bonds, interest rates dropped significantly as well. How significantly? It was one of the top three two day rates drops since tracking begin. All of the data coming from the fed is showing that rates should be headed down next year. 

2-Economic health: Credit card utilization is up and savings is down which is something that shows that we will probably soon see a slowdown in consumer spending as people run out of money to spend. Anything that shows the economy slowing down is going to encourage the feds to lower rates faster. Although not a great sign for the economy, this should result in rates going lower as well as consumer spending slows down next year. 

3-Inflation: Inflation has come down significantly from its highest point of 9.1% to the latest report from November showing it’s now sitting at 3.1%. This trend of inflation going lower should continue as one of the biggest drags on inflation, housing data, takes about 12 months to actually show up in the reports because of the way it’s calculated. We already have the real time data showing that rental prices national wide are decreasing, so it’s just a matter of time before that is reflected in the CPI numbers. The Feds also said during this last meeting they will start cutting rates “well before” they get to their 2% goal for inflation to make sure they don’t overshoot their goal so if we start seeing inflation data continue to move lower and get into in the high 2s, there is a good chance rates cuts will start. As inflation continues to go down, rates should also drop. 

4-Economic uncertainty: This one is always hard to predict but if trends continue and we move farther away from the banking crisis we had in the spring of 2023, and we don’t see any major unexpected spikes or dips in the economic data over the coming months, this should settle the financial industry down. The reason this is important for mortgage rates goes back to the spread between the 10-year treasury and 30-year mortgages. Since the 1970s the spread between the two averaged around 1.75%. So for example, if the 10-year treasury was at 4% then we would typically see mortgage rates at about 5.75%. However, due to all the uncertainty in the market over the last year in a half, we have seen that spread explode to one of the largest in its history. The 10-year treasury is currently at 3.89% which means in a normal market we should be seeing rates around 5.64%. During the banking crisis last year that spread, that was already larger than normal, widened even more but we are starting to see that spread condense again as volatility in the markets cools down. I don’t expect us to get back to the normal spread in 2024 but if we slowly continue heading to historic norms this again would be a good indication rates should move down.

So with all of this data seemingly in favor of rates going down next year, I find it hard to tell anyone that 12 months from now rates will be the same or higher than they are right now. Is it possible? Yes, but far less likely than rates continuing their slow march downward. 

So the next question becomes how far can they drop? 

With rates currently just a little over 6.6% I think it’s likely we will see rates in the 6s for most of next year, and if the trends continue, we could even be looking at the high 5’s if the stars align. However getting below 5.75% in my opinion is probably unlikely as the market has already started factoring in and expecting the Feds cutting rates next year. So unless the economy goes into a deep recession and the Fed has to cut rates even faster than anticipated, it’s hard to see a path to get below that 5.75% next year.

Prices

This is obviously the one most people are going to be interested in besides interest rates as it has the second largest impact on how affordable it will be to purchase a home.  Right now if you look at all the top experts, both national and local, there is a large variety of what they expect home values to do this year. Redfin has the lowest prediction at negative two percent nationally while OC Registers Jeff Lazerson predicts an eleven percent increase in Orange County. When looking over the data of over 100 of the top economists in the US looking at a mix of both national and local predictions the average home price is expected to increase by 3.11% in 2024. However, as most of you know, real estate is local. So looking at economist that focus primarily on California or Orange County specifically, the average then goes to 5.44% appreciation. 

So what do I think? Based on Orange County being in a stronger overall position with jobs, income, the lack of new constriction, and the current trends of supply and demand, there is a very good chance we will see homes appreciate this year. However, I am being a little more conservative with my prediction and I believe we will end up at the end of the year with 5% appreciation. I also think that the majority of that appreciation will come in the first half of the year as buyers tend to react quicker than sellers to rates going down. So demand will increase faster than supply for the first half of the year. But as the year goes on, if rates continue to go down, especially if we get into the high 5s, I can see more sellers finally saying that although rates are higher, they are no longer double what they have right now and you’ll see more sellers than might have those 4-5.5% rates who have been wanting to move over the last 18 months finally get their homes onto the market so they can move to that new home that better fits their current life stage. This will cause supply to increase at a time where demand usually peaks(end of Spring early Summer) causing the market to balance itself and prices stabilize without any massive swings up or down for the last 6 months of the year.  

Rents

With affordability getting better next year, more renters will be looking to purchase a home instead of renting. However, the difference between rental prices and a mortgage is still significant in Orange County so there’s still going to be huge demand for rentals. According to USC projections, because Orange County is only projected to build about 2,600 rentals units a year for the next two years, demand is still going to exceed supply causing the average rental price to increase by about $100 this year and next. 

Risks

The housing market in Orange County has a lot of momentum going into 2024 however there are a few risks that I’m looking out for. Here are the top ones I’m watching:

1- Inventory rising faster than demand: There is always a chance that we see inventory start rising next year faster than demand causing a housing market slow down. For this to happen we would have to see all of the current trends reverse, so again, not likely, but because rates are going down and and the same time the economy is expected to start cooling off more significantly next year, it’s not impossible to see more people wanting to sell their homes. The main reason I don’t think this will happen is when it comes to rates dropping, buyers have always reacted faster than sellers. For a seller to be confident that they can put their house on the market and find a new one, and have rates stay low during the whole process, they typically want to see a few months of rates lower consistently before pulling the trigger. However, on the buying side, as soon as rates drop we see the immediate(within the same week) increase of mortgage applications and demand shoots up quickly. We saw this happen in both February this last year when rates were in the low 6s for a month as well as right now in December when rates dived. So sellers putting there homes on the market quicker than buyers coming to the market would most likely only happen if rates didn’t go down and a bunch of sellers lost their job and had to sell their homes, which for reasons I stated above in the supply section, is very unlikely to happen. 

2- Credit card debt and savings get out of control: It’s no secret that people have been spending money like crazy ever since the start of the pandemic. However, based on the latest data showing credit card utilization going up as well as savings going down, the days of reckless spending are numbered so the economy should be slowing down soon. Most experts are now predicting this to happen sometime between spring and summer of 2024. Now, if the Feds correctly thread the needle and we end up with a “soft landing” where we don’t have massive unemployment causing a deep recession, then the housing market should be able to withstand that slow down. Like I said before, as the economy slows down rates should continue to fall keeping the housing market somewhat propped up without any massive swings in prices. However, if the economy instead grinds to a halt, people lose their jobs in mass and home buyers, even if they can afford the payments with the lower rates get scared away from making any significant financial changes, you could see a situation where demands drops and supply increases causing housing prices to decrease. Will we see a decrease like 2008 if the economy grinds to a halt? Very unlikely, again due to the underlining financial health of the average home owner but we could see prices fall by a few percent under this scenario. 

3- World events: With two different wars going on right now and more economic turmoil going on around the globe there could always be an event that no one can predict that significantly impacts the US and the housing market. These are going to be impossible to predict and really, this is something that is a risk every single year no matter what because of the general unpredictability of the world. However if you wait for the world to be stable everywhere, you’ll never own a home as there is always going to be something happening unexpected somewhere in the world.

So with all this data swirling around your head, what does this actually mean for buyers and sellers in 2024. Here is my advice: 

Buyer Advice

Right now due to a slight decline in prices that we saw because of interest rates spiking in October, paired with interest rates falling significantly over the last 6 weeks, affordability is at it’s best point since February of 2023. However, don’t expect that to last long, as more buyers enter the market at the beginning of the year, prices will most likely start to rise again which will end up eroding a lot of that affordability by summer. If you are thinking of buying in 2024 getting a jump start earlier than usual will probably benefit you in the long run. 

However, as a home buyer you never what to buy a home based on speculation, leave that for the house flippers. If you are like most people who are planning on buying a home for you and your family, before you commit to buying anything you need to ask yourself these three questions:

1- Do I plan on living in this home for at least 5 years 

2 - Can I afford a house in a neighborhood I like with the amenities I need

3 - Do I have a stable job

If you can answer yes to these three questions then you are on track to purchase a home this year. To get to these answers will require a little bit of work on your end. The first thing you’ll need to do is to reach out to a trusted lender so they can work with you to get a good idea of the price of home you can afford and what the monthly payments would be(If you need a lender referral I have some great ones I can give you).  Now, just because the lender approves you for a million dollar loan doesn’t mean that you should be buying that million dollar home. The next step is to sit down and look at your budget, what are your current monthly expenses? How will those change when you purchase a home. Example: utility costs, home maintenance, HOA dues, savings, etc… Do you have some money set aside as an emergency fund that isn’t going towards your downpayment so you have a cushion if a major expense came up or if someone was temporarily unemployed? 

Once you get a better idea of your money coming in and going out, then you can set a price target for the type of home you can comfortably afford and start looking for homes in that price range to see if they are in locations you are wanting to live.  

The next step is to sit down and asking yourself if you’ll be able to grow into that home over the long run. The longer you are planning on being in the home the less you will have to worry about short term ups and downs in the housing market, making it a safer investment for your future.  If you’re buying for the long run, housing prices have always gone up, so time is your best friend. This is why your biggest focus really should be that monthly payment instead of what you think the market will be doing in 6 months from now.

Finally, you need to have a hard look at your current job, are there any issues are work that would cause you to quit? Is your company stable? Can you see yourself working there for the foreseeable future? When you take on something like mortgage, it’s a long term commitment so you need to be in a financially stable place to make buying a home a safe investment for you and your family. 

If all of this checks out then congrats, you can start moving to the next step of buying a home and that is to get educated on the whole home buying process from where you are now, to how to tour properties, place offers, what escrow consists of, contingencies periods, and a lot more. If it’s your first time buying a home all of this can get a little overwhelming but don’t worry, thats why I’m here. What I love doing with buyers is to sit down with them to not only discuss their goals but also to educated them step-by-step on what the except throughout the entire home buying process so when you’re ready to start that house hunt you are confident, know what to expect, and can make the best decision for you and your family. If you are interested in sitting down to go over all this info with me, which is completely free, feel free to text email or call me and we can set up a time that works for you.

Seller Advice

If you are thinking of selling your home this year, and want to take advantage of the largest number of buyers in the market, it’s looking like early spring is going to be the best time to list this year, think March and April.  Buyers will enter the market sooner this year and once we get to the end of February, we should see buyer numbers increase even more as long as rates stay the same or decrease slightly.  By the time we get to May and June you will be dealing with a lot more competition from other sellers making it harder for your home to stand out. So make sure you are ready to get a head start on the competition.

So you have a few months to get ready, what should you be doing? 

1- Decluttering: After the holiday season is over it’s always nice to start the new year with a full house clean out. Get rid of extra cloths, furniture, kids toys and books, and anything else you no longer use. The more stuff you take out of the house, the bigger it will look when the time comes to start showing it to potential buyers.

2-Depersonalize: This is always emotionally harder to do, but to allow new buyers to better picture themselves in your home. You’ll want to remove those family photos all over the walls and dressers. 

3-Deep clean: a week or so before you take photos/videos of your house it time to get those carpets cleaned(or replaced), tile steamed, windows washed, bathrooms and kitchen deep cleaned, and everything in your house dusted, yes this includes the baseboards, top of fans, HVAC registers, and anywhere else that dust can collect. 

4-First impressions: Before listing your home you’ll want to step out in the front yard and observe what a buyer is seeing when they first pull up to your home. Are there dead plants, empty flower beds, yellow patches in your grass, dust covering your house? This is an area that a little money can pay HUGE dividends when it comes to the overall selling price of your home. Taking some time to plant new flowers, put in some fresh bark in the dirt areas, pressure wash your house and driveway, and give your grass some love, leave buyers with that great first impression and give you a better chance of getting more and better offers. Bonus tip: Repainting the front door and putting on some new handle hardware also leaves a great first impression with buyers as it’s the first touch point of the home and can cost less than $500 to do.  

5-Pricing: Correctly pricing your home is always important but in 2024 it’s going to be even more crucial. Buyers now see that interest rates are going down which can cause them to feel less pressure about pulling the trigger and placing an offer on a home, after all as borrowing costs come down, homes get more affordable. So I’m predicting buyers will be a little more picky this year on the homes they do place offers on.  The #1 mistake a seller can make is overpricing their home. If your house sits on the market for more than 3 weeks, the chances of you getting a great offer on the home drop significantly. More times than not you’ll have to reduce the price, maybe even slightly below market value, just to keep the interest up.  Make sure you take the time to go over the comparable sales in your neighborhood and really dive into the differences in styles, finishes, upgrades, pool/no pool, view/no view, etc when determining the fair market value of your home. 

6-Marketing: Without it, especially as we get closer to the summer months, you’re going to have a hard time standing out as more homes hit the market. Every year the best marketing strategies evolve based on where home buyers attention currently sits, so if you are relying on just putting it up on the MLS with some photos and hoping for the best, you’ll be leaving money on the table if/when you get an offer on your house. A full marketing package in 2024 is going to consist of professional photos, multiple videos(short and long format), drone shots when necessary, targeted ads on google and social media platforms, mailers to your neighbors, open houses, virtual staging, 3D tours and more. If you don’t have an agent doing all of these, are you really getting a good value for the money you are spending paying for their service? My vote is NO. You need to work with someone that can identify the target audience for your specific home and show you how they can go about targeting that specific audience through their marketing efforts. 

If you made it all the way to the end, thank you! It takes a lot of time and research to create this annual forecast so I’m glad you go this far and have the knowledge you need to move into the 2024 housing market with confidence. If you are thinking of buying or selling a home in 2024 and want some more advice based on your individual situation I would love to have a no pressure conversation with you to help guide you into making the best decision for you and your family. If you wanted to schedule a time to talk please feel free to call, text, or email me and we can set a time up, or you can find a time that works best for you by looking at my calendar and scheduling a time that way by clicking the link below. Thanks again and wishing you and your family a happy, healthy and prosperous 2024! 

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