Ofelia Dilley
Real Estate Wealth Advisor
February 2021 Newsletter
Irrational Exuberance, Supply Issues, & Covid
The OC real estate market's response to the Covid-19 pandemic has been the most economically fascinating event of my lifetime and career. I would even say it exceeds the 2008 bubble pop, which I worked through too. Who would have guessed that Covid-19 would spur one of the greatest Buyer demand surges in history? Perhaps only matched by the post WW2 return of the GIs and GI tract housing. In this longwinded newsletter I have endeavored to answer why has buyer demand skyrocketed? And where are we going from here?

Firstly, at the onset of the pandemic, stock market investors sold their equity positions and poured them into bonds. Then came unprecedented stimulus from the Fed to ensure the capital markets continued operating smoothly and they provided liquidity to businesses through PPP loans. This created massive downward pressure on interest rates and helped calmed nerves after pulling the emergency brake on the metaphoric economic train. When the stimulus took effect, interest rates plummeted in March 2020 as shown in the image below of the US 10 year treasury rate. Interest rates remained historically low through November of 2020 and have since begun to climb back as the economy recovers and investor appetites for stocks has returned.
This decline in interest rates took several months to take hold but eventually Buyers in the real estate market wised up to the fact that mortgage rates plummeted into the 2 percent range for the first time ever. The result of this was an unexpected increase in affordability which Buyers hadn't seen in several years. In fact affordability became better than the whole of 2018 despite higher prices.

The second factor creating these incredible economic times was that nearly all reputable news sources predicted an uptick in listings and foreclosure activity due to job losses and a softening economy. In contrast, those potential sellers were granted forbearance agreements, stimulus checks, and even the traditional sellers who planned on selling, elected to hold off until the storm blew over. We learned from 2008. Below is a graphic of the "normal" number of active listings and what has happened since the onset of the pandemic.
Historically, Orange County has between 5,000-9,000 homes active on the market at any given time. The last 12 months Sellers have chosen to opt out while they strategize their next move. Active homes on the market are at the lowest point in decades and maybe the lowest point ever when considering active listings as a percentage of total housing inventory. Restated, there are half as many Active listings on the market than normal with more than double the demand.

What does increasing demand and decreasing supply result in? Higher prices and lower days on market. Compare this to 2008 when most homes were taking 4 months to sell; today it is 15 days or less.
Here is the price jump since inventory starting declining and buyer demand started increasing.
In conclusion, if there was ever a good time to sell... it is now. Buyer demand is at irrational exuberance levels, seller inventory is at maybe the lowest point ever. One property I showed this weekend had 27 offers after having over 100 showings in one weeks time. Our prediction is that interest rates will climb to a point this year (think 3.5-4.0% range) and price appreciation will cease in the near term. The recent price appreciation coupled with increasing payments will not sustain itself in the second half of the year. Interestingly, while interest rates remain low it can still make sense to purchase and lock in a low rate for the foreseeable future. We recommend purchasing homes with the intention of finding one that there can be a minimum of a 5 year stay. Just know, you have a lot of competition so strong offers are required.
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 Market Info:
 Market Info:
Mortgage Interest Rates Update
Interest Rates as of February 22, 2021
30 Yr Fixed Conforming Loan Limit (LA-OC)

Single: $822,375
Duplex: $1,053,000
Tri-plex: $1,272,750
Four-plex: $1,581,750

2.625% 1 points 3.375% APR

FHA Loans to 1 Million
2.875 % 1 points 3.625% APR
(Above interest rates are dependent on credit scores)
Down Payment & Closing Costs Assistance Programs available!

Apartments Units and Commercial Loans available *rate & loan terms are subject to various factors including but not limited to credit score.

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Ofelia Dilley
Real Estate Wealth Advisor
Mark 1 Mortgage & Wealth Academy | All Rights Reserved | 2021
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