Orange County leases eclipse sales

For the last 8 years or so, I've voiced concern that OC will become a landlord-tenant society with increasing numbers of homes owned by investors (including condos and 1-4 unit properties). It's happening faster than I expected.

The Fed lowering interest rates to prop up the economy during the height of the pandemic supercharged home sales. However, a presumably unintended consequence was that it also now deters most homeowners from selling when they would have, before rates were at all time lows. Virtually everyone now has a mortgage rate of 4% or lower, which facilitates irresistible cash flow on rented homes.

So, instead of selling homes when they move, the vast majority of homeowners are leasing them. This is glaringly obvious when we compare the number of homes available for sale versus those available to rent. Normally there are fewer rental listings versus resale listings. Note the prior 5 years' first quarter volume of lease versus resale listings charted below.

This April 5479 were offered for rent and only 3709 for sale. That's a 46% swing from last April and worsens the trend data above. This does not bode well. Fiefdoms are being built.

As I prepare my end of month market report, various data points indicate we're heading into an unpleasantly dramatic summer season. Much like last year, sellers will likely face falling prices in spite of limited listings. And renters will be frustrated when steadfast lease prices confine them to continued tenancy.

This April looks terrifying like May 2022 did. That was, as this appears to be, a critical tipping point. By last month's end, there were 35% fewer homes sold than last year. This comes after 9 straight months of falling listing inventory, mirrored by consistently reduced days to sell. And yet, median price fell slightly from March.

Buyers hit a speed bump.

Something changed. I suspect, as is usually the case, it's a combination of factors. Stubbornly elevated interest rates are keeping buyers at bay. And rising rents have made it increasingly difficult for them to save enough money for down payments.

Homeowners who refuse to sell their departure homes when they buy a replacement home will keep a lid on resale inventory for decades to come. So the stalemate continues. Until and unless mortgage rates soften, more buyers will be forced to remain on the sidelines. And the more individual landlords hold the line on their rental rates, fewer buyers will have savings.

It will be interesting to see who blinks first.

Bottom line, if you want to sell a home this year, now is likely the best time to do it. I warned sellers not to wait for summer last year, and far too many didn't listen. Maybe it will be different this year.

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