OC Market Update 3.4.21

The current active inventory shed another 2% in the past couple of weeks

Normally we see inventory decrease through January and then level off in February. This year will mark the first time in 13 years that inventory continued to decrease through February. Normally we see an increase in inventory starting in March. What is going to happen in March 2021.

Many buyers wonder if they are overpaying as real estate prices continue to soar to record levels, yet that is not what the data shows. There are not enough homes on the market to keep up with today’s intense buyer demand. There is a run-on housing. Homes are flying off the market faster than they are coming on, and the inventory has been dropping further as the year has progressed. Housing’s momentum lines up strongly in favor of sellers. In looking closely at the housing economic model of supply, demand, mortgage rates, affordability, buyer demographics, and market velocity, the data illustrates that the current trajectory of the housing market is not going to change anytime soon.

At the start of 2020, prior to any lockdown measures and the beginning of the pandemic in the United States, mortgage rates had dropped from 3.75% to 3.5%, an excellent level that had only been reached a few times since 2013. Throw in an increase in buyer demand due to the strongest demographic patch of prime first-time home buyers, 32-year-olds, in 26 years (which will continue for the next 4 years), it was no surprise that the market was hot in February 2020. The inventory was at its lowest level since 2013, a crazy year for housing, demand was at its hottest point since 2017, and the velocity of the market was the strongest since 2013. Then the pandemic hit, demand stalled and so did the inventory. Yet, as rates dropped to record levels, 16 record lows last year, demand heated up and the inventory continued to drop. The lower rates dropped, the hotter the market became. In fact, the market dropped to its hottest point by year’s end with an Expected Market Time (the time between hammering in the FOR-SALE sign to opening escrow) of 37 days.

With mortgage rates remaining below 3%, a level never reached prior to last year, today’s housing market is one of the strongest on record, and it has everything to do with supply and demand.

Buyers should not worry about paying too much in today’s environment. Mortgage rates are below 3%, demand is unbelievably powerful, the supply of homes is at record low levels, and values are lined rising swiftly. The underlying ingredients that make up today’s housing market are not going to change anytime soon. Instead, buyers should look at their family budgets and determine how much they can comfortably afford, and then aggressively pursue a home. Waiting is not really an option as home values are on the rise and mortgage rates are slowly rising right now as well.

A Tip for Buyers: In competing against a multitude of offers, sharpen your pencil, make the offer as agreeable as possible, and pack your patience.

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