A turbulent 2022 is blending into an uncertain 2023 for Orange County’s luxury market. Many buyers and sellers are sitting on the sidelines to gain some clarity after a slow pace of sales last year.
Last year kicked off with some residual demand from the pandemic frenzy that sent buyers paying top dollar for new homes, but that fervor was cut by looming economic headwinds; by May, mortgage interest rates were up 69% year-to-date, according to Steve High of Villa Real Estate.
“Fewer buyers translated to fewer offers and fewer listings going under contract,” High said. “By July, the number of homes for sale had doubled and nearly one-third of the listing inventory had experienced at least one price reduction.”
That continued slowdown in demand—exacerbated by interest rates soaring to their highest level in 20 years—resulted in the lowest number of October sales since 2011.
Despite this, average sales prices climbed higher in luxury markets like Newport Beach and Laguna Beach, according to High, in part driven by a record-low inventory of homes for sale.
Tale of Two Markets
Orange County’s lack of luxury inventory will send 2022 sales volume notably below 2021 levels, though that was anticipated from the start of the year, notes Compass’ Rob Giem.
“2021 was an anomaly,” Giem said. “It wasn’t possible to match that volume in 2022 with so few homes for sale.”
Last year’s sales volume, though below the records seen during the pandemic, will be more in line with the eight-year average that preceded the pandemic, Giem notes.
Coastal markets are virtually sold out of the new, high-end home product that buyers are looking for, which will pose as a continued headwind in 2023, brokers note.
“It’s essentially two different markets, between the new homes and the older homes,” Giem said. “The thought of taking on a project to build or upgrade a home is not appealing to buyers.”
Buyers and sellers are hesitant to make decisions heading into the new year, High notes, with the economy “in a rapidly changing flux.”
Giem expects that to change in the coming months, with an expectation that this year will mark a more successful one for the luxury market.
“I’ve seen too many buyers put themselves on the sidelines this year, and I believe people will have a better sense of where we are, and where we are going,” Giem said. “They’ll get back to buying and selling homes as they usually would.”
“South Orange County luxury real estate has always proven to be a spectacular long-term investment,” High added.
“You may find it hard to believe, but the average sales price of a Newport Beach home in 1980 was $239,000. That same home now has an average sales price of over $4.2 million.”