January 24, 2023
Written by Steven Thomas
With all the distractions of the holidays now in the rearview
mirror, the housing market is about to heat up as demand
soars and market times fall.
The Winter Market
The Winter Market is characterized by slowly rising supply, surging demand, and a fall in market times.
Climbing into a car during the dead of winter can be brutal. The seats are cold. The steering wheel is cold. Most importantly, the air temperature feels as if it is below ZERO, even in sunny Southern California. Initially, after turning on the heat, frigid air blows through the vents. After driving down the street, the air quickly warms, ending the harsh reality of winter’s chill. Similarly, after hitting its slowest time of the year during the Holiday Market, housing quickly heats up and transitions to the Winter Market where demand surges higher, the inventory slowly grows, and market times drop.
Regardless of the economic situation, without fail housing revs its enormous economic engine and the market heats up during the Winter Market, from mid-January to mid-March. Last year the inventory of available homes hit a record low and by mid-January, there were only 1,841 homes on the market. By mid-March, the start of the Spring Market, the inventory had fallen to 1,702, a loss of 139 homes, an 8% decline from January. Demand, a snapshot of the number of new escrows over the prior month, rocketed higher and increased from 2,020 pending sales at the start of the Winter Market to 2,785 in March, up 38%, or an additional 765. The Expected Market Time, the time between coming on the market and opening escrow, decreased from an insanely hot 27 days in January to an even hotter 18 days by spring.
Yet, it is hard to compare the Winter Market of 2023 to last year’s unbelievably hot, unprecedented housing market where there was nearly nothing available, 25, 50, or more offers were the norm, homes were selling instantly, buyers were paying tens of thousands of dollars above the asking price, and home values were climbing at an unhealthy pace. Even though the market followed the normal Winter Market pattern exception for inventory (it typically rises slightly), the 3-year average before COVID (2017 to 2019) is a much better comparison. The 3-year average inventory grew from 5,402 to 5,598 homes, up 4%, or 196 additional homes. Demand shot up from 2,308 to 3,227 pending sales, up a substantial 40%, or 919 additional pending sales. The 3-year average Expected Market Time dropped from 75 to 52 days, shedding 20 days over the course of the Winter Market.
In looking at the number of sellers entering the market before the pandemic in San Diego County, the 3-year average for December is seasonally the month with the fewest number of new sellers. In January, the number of homes coming on the market more than doubled from December’s low. More homes come on the market each month until it peaks in May. Today there are only 2,720 available homes in the county, the third lowest mid-January level since tracking began in 2012 behind the pandemic years of 2021 and 2022. Even with lower demand levels due to the higher interest rate environment, the inventory will only slowly grow during winter. Countering less demand is the fact that homeowners are “Hunkering Down,” meaning many homeowners would like to move for a variety of reasons, but they choose to stay because their underlying fixed-mortgage rate is substantially lower than today’s 6.21% rate. In December there were 32% fewer new sellers compared to the 3-year pre-pandemic average.
Demand will increase substantially from now through mid-March. Today’s 1,327 demand reading may be similar to Great Recession levels, but it will nonetheless explode higher from here. There will be more activity. More buyers will pull the trigger and purchase, especially if rates continue to slowly fall. The lower rates fall, the more demand will climb. Many buyers who stopped their search for a home during the holidays will be ready to resume their search again.
With the inventory slowly rising and demand surging higher, the Expected Market Time, the time between coming on the market and opening escrow, will fall and housing will feel a lot hotter. Right around the Super Bowl is when the conditions are often the best for sellers. There is limited inventory, which is only slowly growing, along with rapidly increasing demand and falling market times. These conditions are turning up the heat for San Diego County housing.
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