Inventory has been on the rise and is starting to pick up steam, unlike last year when it continuously dropped through mid-April.

From the start of the year to today, more homes are available in every price range.

Californians have endured severe droughts, which have resulted in water restrictions, new laws, and policies aimed at curtailing the consumption of this valuable resource. Reservoirs reach record lows. Frustrated snow skiers watch the 10-day forecast, anxiously awaiting a hint of future snow. There are years when rainfall totals disappoint. But in years when it rains week after week, snow tops all surrounding mountains, and reservoirs rise, there is a sense of relief. It is a year when a drought has been abated.

Orange County has endured an inventory drought for several years now. Yet, finally, there is rain in the forecast, more homes are coming on the market, and the inventory is slowly rising. The drought of available homes to purchase has not ended, but at least it has been moving in the right direction. For buyers experiencing the drought firsthand, any rise in the number homes to look at is a welcome relief.

From the start of the year to today, the active inventory has risen 17%. Mortgage rates bounced between 6.63% and 7.16%. Last year, the inventory dropped 14%, while mortgage rates fluctuated between 5.99% and 7.1%. It was 2022 when the inventory changed the most, rising 41%. That was when mortgage rates soared from 3.29% at the beginning of January to nearly 4.5% by mid-March. The low mortgage rate environment was quickly coming to an end.

For a proper perspective, it is best to look at the 3-year average before COVID (2017 to 2019) when housing was normal and mortgage rates were in the low to mid 4% range. Cyclically, the active inventory would slowly rise during the Winter Market, then pick up steam during the Spring Market, and slowly reach a peak sometime during the Summer Market. The 3-year average rose 13%. The percent change looks misleading because it is smaller than this year and 2022, but that is because there were already a lot of homes on the market before COVID.

This year and 2022 started from chronically low, anemic levels, making this increase feel insignificant for buyers waiting for more homes to come on the market. Nonetheless, the rise in inventory is a welcome trend in a housing market starved for a fresh supply, especially in comparison to last year’s dwindling supply. The average amount homes available today are much better than the amount available in 2022, yet the total is still 61% lower than the 3-year average before COVID, when the housing market was functioning at a much better pace.

The inventory has been rising partly due to the higher mortgage rate environment, as rates have eclipsed the 7% mark several times over the past month, and also because more homeowners are opting to sell their homes. When rates surpass the psychological 7% barrier, the inventory grows. That has been true both last year and this year. In addition, listings are up 15% from last year’s record low. Yet, the 3-year average was 56% higher.

The inventory crisis has not been averted. The drought is far from over. But, slowly, more homes are accumulating on the market. It is a trend to be aware of, especially for sellers. Even though the market is exceptionally hot and negotiations favor sellers, a growing inventory indicates some sellers are overzealous and lingering on the market, stretching their asking price too high. With higher rates, many buyers are not biting when pricing is out of bounds. That is precisely why 22% of the active inventory has adjusted their price lower at least once. With a climbing inventory, sellers must price appropriately to secure success.

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