So far in 2020, there have been 13 percent fewer homes listed for sale in Orange County, California, than during the same period a year ago, according to The Orange County Housing Report.
This is fueling a rapid rise in housing prices that has taken many professional observers by surprise. The pandemic-induced lockdown was expected by many to lead to demand destruction as renters lost their jobs, and homeowners and landlords acted to sell before missing too many mortgage payments.
Instead, renters are being protected from evictions, and many homeowners and landlords have moved into forbearance with their lenders, which is keeping properties off the market.
So, even as family formation continues and people are fleeing from densely populated, urban areas to less-densely populated locations, buyers are also seeking to move into larger homes convenient for both at-home learning and working from home. That’s caused an imbalance between demand (buyers) and supply (sellers) at previous prices.
So, prices are increasing as the housing market seeks to find equilibrium.
Despite these well-known phenomena, housing supply remains very low. Indeed, according to the report, “the active listing inventory ... now totals 4,252 (homes for sale), its lowest level for August since tracking began in 2004.” The report goes on to say, “Last year, there were 6,997 homes on the market, 2,745 additional homes, or 65 percent more” than now.
Assuming there are no new exogenous shocks to the housing market, such as a major change in stock market prices or interest rates, or some big geopolitical event, we can expect the Orange County housing market to find equilibrium likely through a combination of few buyers looking for homes after school reopens for in-classroom instruction, more supply coming on to the market, or a continuing rise in home prices.
This doesn’t mean housing prices will necessarily go up. It could be that after schools reopen, the current very high demand for housing might quickly dissipate, and we might enter the normal seasonality of lower house prices from around Thanksgiving through the religious and family holidays in December. In most years, housing demand is relatively low after Labor Day through Easter and Spring Break the following year. In many of those years, housing prices are markedly lower in December than during the peak buying season, when parents are willing to move their children and find new schools.
This year, under the guidelines promulgated by the state of California and given the current health situation, the soonest public schools can reopen for in-person instruction in Orange County is Sept. 22.
On the other hand (I am an economist, after all), very low interest rates, a strong stock market, and risks for a changing tax environment after the November election might all cause demand to stay much, much stronger this year than would typically be expected, even without all the market dynamics caused directly by the pandemic-induced lockdowns (people moving out of urban areas, wanting more space for working from home, etc.).
Time will tell.
In the meantime, though, housing supply remains very, very limited. All else equal, the tight supply of houses will create a very strong tailwind for Orange County housing prices for at least the next few weeks.
