Orange County Housing Market Update January 2, 2020
David Deem
714-997-3486
The 2020 Forecast: A Stronger Year
Despite the tremendous focus on the “trade war,” the
international slowdown, impeachment, Brexit, and stock market volatility, the U.S.
economy was strong throughout 2019. Unemployment reached 50-year lows. The GDP
was up considerably more than many forecasted. Long-term interest rates dropped
from 4.5% to 3.5% before climbing slightly to 3.75% by year’s end. Wall Street
had a tumultuous ride, yet ended the year at record levels. The trade war took
center stage and became a headwind for the overall economy. Finally, new home
sales have turned around after a sluggish start to the year. The overall
economy is strong, and the low interest rate environment is a tailwind that
will keep the economy running on all cylinders. As a result, the local housing
market is going to look a lot better in 2020. Here is the forecast:
·
Active
Inventory – the year will begin with around 3,750 homes, the third lowest
start in the last decade behind 2013 and 2018. That will translate to a very hot
start for housing. The theme for 2020 will be not enough homes on the market.
For buyers that equates to not enough choices. Expect the active inventory to
peak around July between 6,750 to 7,250 homes.
·
Demand – with
an anemic inventory and buyers reenergized by historically low rates, demand
will be strong throughout the Spring and Summer Markets. Buyers will be willing
to stretch slightly in price compared to the most recent sale; so, expect
appreciation around 3 to 4% for the year. Demand will be strongest, and most
appreciation will occur, from March through July, and then will downshift
during the Autumn and Holiday Markets.
·
Housing
Cycle - the housing market will follow a normal housing cycle. The
strongest demand coupled with plenty of fresh inventory will occur during the
Spring Market. This will be followed by slightly less demand and a continued
new supply of homes in the Summer Market. From there, demand will drop further
along with fewer homes entering the fray in the Autumn Market. Finally, all the
distractions of the Holiday Market will be punctuated with the lowest demand of
the year and few homeowners opting to sell.
·
Closed
Sales - the number of successful, closed sales will increase 3 to 5%
compared to 2019 (2019 was up 2% compared to 2018), around 30,000.
·
Luxury
Market – luxury sales will increase from 2019’s record by about 10%.
The Spring Market will be the strongest for luxury, and the second half of the
year will be especially sluggish.
·
Interest
Rates – look for mortgage rates to hover between 3.5% to 4.5%. Long
term rates are driven by economic fundamentals and headline risks. The “trade
war,” Brexit, the upcoming presidential election, global growth or slowdown,
all drive mortgage rates up or down. If the economy continues to improve, rates
could rise into the 4’s. With more negative news, rates could drop further.
Currently, mortgage rates are hovering around 3.75%. Do not expect them to
change much as 2020 unfolds.
·
Distressed
Inventory – in 2019, distressed sales, foreclosures and short sales
combined, only accounted for 0.9% of all closed sales, 250 total. Do not expect
the level of distressed sales to change much at all.
The bottom line: 2020 will shift back to a much hotter market.
Expect a HOT Seller’s Market during the spring with slowly rising values.
Multiple offers will be the norm for homes priced below $1 million. Once again,
the market will heavily favor sellers and buyers will have to pack their
patience in order to isolate their piece of the American Dream. For the second
half of the year, the market will evolve into a slight Seller’s Market, where
sellers still get to call more of the shots, but home values do not change as
much. Pricing will still be very important all year long as buyers do not want
to overpay. They will stretch slightly during the spring, but sellers who
overprice will kick themselves down the road.
DRE #01266522
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