THIS YEAR’S START IS SLOWER THAN THE STRONG START TO 2024 DUE TO AN ELEVATED NUMBER OF AVAILABLE HOMES, SUBDUED DEMAND, AND A HIGHER MORTGAGE RATE ENVIRONMENT.
THE 2025 START
The supply level may be low, but it is much higher than last year and is matched up
against very little demand.
Climbing into the car in January can be extremely challenging. It is so cold! The seats are cold. The steering wheel is cold. After initially turning on the heat, even the air that blows out of the vents is cold. Upon backing out of the driveway and heading down the street, eventually, the air starts to heat up. Slowly but surely, the air gets warmer and warmer. It takes a while for the warmth to return to the hands.
That is precisely how the housing market starts each year. The market is cold and will take a few weeks to heat up. It takes a while for buyers and potential sellers to shake off the holiday fog that consumes everyone. The Holiday Market continues to run through mid-January, when nearly everyone gives up on their New Year’s resolutions. Housing will thaw by the end of January, and the warmth will return.
This year’s start is similar to many prior years. It is not as slow as some, but certainly not as instant as 2021 and 2022. Last year was a much hotter start with a very limited number of available homes. The 2025 kickoff is different because of a buildup in inventory. The buildup is a direct result of the higher mortgage rate environment. Demand was muted due to affordability constraints. Mortgage rates were stuck above 7% for the better part of last year, throughout the entire Spring Market and most of the Summer Market. The 7% mortgage rate is a psychological barrier to the housing market. It prevents many buyers from pulling the trigger on a home.
The Orange County housing market is particularly rate-sensitive. As mortgage rates migrate higher, demand slows, and the market speed slows. When rates fall, demand rises, and the housing market speeds up. In mid-July 2024, mortgage rates did drop below 7% with duration. They even dropped below 6.5% for 42 days from the end of August to the start of October. This resulted in more demand and the housing market heating up. Yet, with stronger economic readings and a change in political parties in the White House, 30-year mortgage rates popped above 7% in late October and November. Today, according to Mortgage News Daily, rates are at 7.1%. They have been stuck above the 7% threshold since December 18th.
