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Your January 2017 Market Update

With interest rates increasing, change is afoot. Many experts are anticipating more Federal Reserve hikes in the short term rate, which will be accompanied by a rise in the long term rate as well. The Federal Reserve made an initial hike in December and is poised to make more in 2017. Long term rates are not immediately impacted by changes in the short term rate, but multiple increases will definitely have an impact on the Orange County housing market.

In December of 2015 the Federal Reserve hiked interest rates and then hinted at four more in 2016. These expected hikes did not occur. However, briefly after the election, rates rose as high as 4.5%. Recently the rate increase has eased slightly. The Federal Reserve meets eight times per year and has projected three increases during 2017. Based on past increases, experts project the first one will occur during spring, the second at the start of summer, and the final one during the Winter Market. Even with the projected hikes, we do not expect to see massive increases above the 5.5% mark. American economic health is a major determining factor in interest rate fluctuation, and will guide the Federal Reserve decisions in 2017.

Higher rates clamp down on affordability and cause buyers to place more emphasis on properties being sold at Fair Market Value. As result more buyers and sellers will find success the 2017 Market. The active inventory is projected to climb beyond the 8,000 active home mark by the Summer Market for the first time since 2011, and appreciation will slow considerably.

The bottom line, the start of 2017 will feel a little slower than the past couple of years. At first buyers will line-up to take advantage of the end of the low rates, but as affordability erodes, so will buyer’s appetite to pay much more than Fair Market Value. The inventory will rise on the backs of sellers pushing the limits on price. As the inventory rises, Orange County will be poised to move from a seller’s market to a balanced market.

Overall we are expecting a very strong 2017 Housing Market where both sellers and buyers will be highly active and find value in their housing transactions.

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Active inventory in 2016 started with 4,400 homes, and ended with a little over 4,200 active homes. A total of 44,000 homes came on the market in 2016, identical to 2015. Cutting into the inventory a bit was closed sales. In 2016, there were 650 more closed sales than in 2015.

Other than starting the year off with fewer homes on the market, 2016 looked a lot like 2015 in terms of inventory. The peak of 7,329 active homes was reached in mid-July due to slightly stronger demand during the summer than what is typical. The Orange County Housing Market yearly peaks tend to occur during August.

Demand for 2016 was off by 5% for the first couple of months when compared to 2015, but by mid-March, the slower start was in the rear-view mirror. The Orange County housing engine, along with the rest of the country, was vibrant and making up for lost time. The second half of the year experienced 10% stronger demand with interest rates remaining at historically low levels. With rates between 3% and 4% for most of 2016, it is no wonder buyers were lining up to purchase. For perspective, in 1990 the interest rate was at 10%, and in 2000, it was 8%. Even now, at 4.5%, interest rates are facilitating affordability and propping up demand.

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