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Orange County Housing Report: December 2022

December 16,2022 | Posted By Gary Macrides in Financial
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Not The Great Recession

With a very limited inventory of available homes coupled with over a decade of tight lending standards, housing values will not nosedive like they did during the great recession.

An astonishing 41% of Americans think that the housing market is going to crash in the next 12 months, according to a survey conducted by LendingTree. Even more revealing is that 74% of those who believe there will be a crash think it will be as bad or worse than the “2008 housing market collapse.” With so many convinced that a crash is inevitable, does that mean that housing will once again collapse?

Everyone across the nation recalls watching the housing market take a brutal pounding during the Great Recession. So many homeowners were burned as values toppled and their equity vanished seemingly overnight. It either happened to everybody personally or they knew somebody who felt the severe impact of the downturn. It is understandable that whenever there is an economic slump, the general public immediately recalls the Great Recession and expects the housing market to tumble once again.

Everyone expected a housing crash in 2018 when rates rose from 4% to 5%, but it did not materialize. It did not crash after the initial lockdowns of COVID, yet so many were convinced otherwise. Once again, with mortgage rates rocketing higher, home values already on the decline, and a recession on the horizon, many Americans believe that the housing market is on the edge of a precipice and home values are about to plummet. Even though so many feel a housing crash is eminent, and that it could be worse than the Great Recession, according to all the economic data, current trends, lending standards, and the health and strength of homeowners across the United States, there is no crash in sight, not now, not in the next 6-months, and not in the foreseeable future.

The number one reason why a crash will not occur is that there simply are not enough available homes to purchase. Today’s inventory is at 3,182 homes. While there were 57% fewer homes last year, 1,363, the 3-year average prior to COVID (2017 to 2019) is 4,988 homes, 57% more than today. The inventory has been stuck at anemic levels since the beginning of the pandemic. In comparing today’s supply to the two years leading up to the Great Recession, 2006 and 2007, the difference is stunning. The inventory peak in 2006 was 16,006 homes, and it was 17,898 in 2007. The 2021 peak was 2,537 and in 2022 it was 4,069. In sharp contrast to today’s inventory crisis with a lack of available homes, there was an inventory glut that led up to the Great Recession.

In 2006, when demand sank, the Expected Market Time, the amount of time between hammering in the FOR-SALE sign and opening escrow, which is based upon supply and demand, climbed to over 200 days. And in 2007, when demand dropped even further, the Expected Market Time soared past 400 days. When housing is severely out of balance, values plunge. That’s in sharp contrast to 2021 when the Expected Market Time dropped to 20 days by year’s end. It hit 19 days in March of this year but has climbed to 84 days today as demand dropped to levels last seen during the Great Recession. While 84 days is much longer than the insane pace of earlier this year and all of 2021, it is a far cry from 2006’s over 200 days and 2007’s over 400.

Even though the market time is not that high, values are still dropping today due to mortgage rates doubling from the start of the year. Yet, home values are not tumbling at the accelerated pace of 2007 and 2008 when home values sank by nearly 40%.That will not happen today because of a very limited inventory where homeowners are choosing not to list their homes. So far this year, through November, there have been 8,000 fewer sellers compared to the 3-year average prior to the pandemic, 21% less. There is no panic selling. Housing is not a commodity. Everyone needs a roof over their heads, someplace to call home. There is also an extreme lack of forced selling, homeowners that “have to sell.” During the Great Recession, over 10% of all outstanding mortgages were delinquent. Today’s national delinquency rate is at its lowest level in decades. In Orange County, there are 12 foreclosures and short sales available to purchase today. In mid-December 2019, prior to COVID, there were 54, and in December 2007 there were over 3,700.

Even with sky-high mortgage rates and home values on the decline, housing is insulated from a housing crash. Today’s housing stock is built on an extremely strong foundation with years of tight lending standards due to financing laws enacted after the Great Recession, strong credit scores, large down payments, fixed-rate mortgages, plenty of nested equity, and limited cash-out refinances. There is no crash in sight because of the strength of the homeowner coupled with a very limited inventory of available homes to purchase today. 


A C T I V E   L I S T I N G S 
For the first time, there are more homes on the market today than in 2020.

D E M A N D  
Demand sank by 7% in the past couple of weeks.

L U X U R Y   E N D 
The luxury housing market cooled considerably in the past couple of weeks.



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