What's Really Happening in the Orange County Housing Market: Your Q4 2025 Update and 2026 Forecast

Quick Takeaways (Read This First)

Current Market Snapshot (October 2025):

• Orange County inventory sits at 4,485 homes—still 40% below pre-pandemic levels
• Expected market time: 83 days (down from 85 days two weeks ago)
• Interest rates hovering at 6.36%—the lowest we've seen all year
• 26% of August sales closed above asking price, even in a "sluggish" market
• Cypress specific: Expected market time jumped from 31 days last year to 46 days this year

2026 Forecast Bottom Line: Most likely scenario shows closed sales increasing 3-6%, with home values rising 1-4% in Orange County. The key variable? Whether mortgage rates break below 6% during spring 2026.

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Prefer to listen? Stream The Five-Minute Real Estate Fix episode on this topic below:

Why This Market Update Matters to You

After 28 years of helping families buy and sell homes in Cypress and throughout Orange County, we've learned one critical lesson: everyone has an opinion about real estate, but very few have the data. That's why we attended leading housing economist Steven Thomas's Q4 presentation this week. Thomas—founder of Reports on Housing and one of Southern California's most respected housing analysts—doesn't deal in narratives or clickbait. He deals in numbers. Real numbers that tell us what's actually happening in our market right now and where we're headed in 2026. Here's what you need to know.

The Interest Rate Story: Why We're Not at 8% Anymore (And Why It Matters)

Let's start with the elephant in every room: mortgage rates. Remember when rates hit 8% two years ago? That wasn't just Federal Reserve policy at work—it was something called "the spread." Thomas explains that mortgage rates are tied to 10-year Treasury bonds, and historically, there's been a 1.75-point spread between the two. During times of uncertainty (think: the Great Recession, COVID shutdowns, or the Fed rapidly hiking rates), that spread widens dramatically. Lenders want to protect their profits when everyone's refinancing, so they charge more. Two years ago, that spread ballooned to 3 points—meaning rates were far higher than they should have been based on underlying economic conditions. The good news? That spread has been shrinking throughout 2025. Today's rate of 6.36% is the lowest we've seen all year, and the only reason is that the spread has normalized. Even without the Fed cutting rates dramatically, we're seeing real improvement. What this means for you: If you've been waiting for rates to drop before making a move, you're already seeing better conditions than any point in 2024 or early 2025. And if rates dip below 6% in spring 2026—which Thomas considers highly probable—we'll see a significant surge in buyer activity.

The Inventory Reality: Why Orange County Won't Crash

One of the most persistent myths in today's market is that we're headed for another 2008-style crash. Thomas's data dismantles this narrative completely. Here are the facts: During the 2007-2008 housing crisis, Orange County had approximately 18,000 homes on the market. Today? We have 4,485. That's not even close to the inventory levels needed for prices to plummet. Even more telling: Orange County is still missing about 26% of the homes that would normally come to market compared to pre-pandemic years (2017-2019). We've improved from being down 41% in 2023 and 31% in 2024, but we're still far from "normal" inventory levels. Why aren't more homes coming to market? The answer is what Thomas calls "hunkering down." In California, 79% of homeowners have a mortgage rate at 5% or lower. Another 63% have rates at 4% or below. When you're sitting on a 3.25% mortgage, the idea of trading up to 6.5% feels financially painful—even if you want or need to move. But here's what's changing: after 38 months of waiting for rates to drop, some homeowners are simply tired of waiting. We saw more homes come to market in 2025 than in 2024, and significantly more than 2023. The psychological dam is starting to crack.

What's Actually Selling in Orange County Right Now

Here's where the market gets interesting—and where working with an experienced local agent becomes crucial. The hottest price range? Homes between $1 million and $1.5 million are moving fastest, with an expected market time in the low 80-day range. In Cypress specifically, we've seen the expected market time increase from 31 days last year to 46 days this year. That might sound concerning, but context matters: 46 days is still remarkably fast compared to most markets. And remember—31 days last year was almost absurdly hot. But here's the critical nuance that gets lost in broad market statistics: not all homes are experiencing the same market. Thomas's data shows that in August, 26% of Orange County sales closed above the original asking price. In a market where the overall expected market time is 83 days and 41% of listings have had at least one price reduction, how is that possible? The answer: properly priced homes in desirable areas with dialed-in buyers are still generating multiple offers and selling quickly. Meanwhile, overpriced properties languish. This creates a bifurcated market where your experience as a buyer or seller can be dramatically different based on pricing strategy, property condition, and location.

The Luxury Market: A Different Animal

If you're buying or selling in the luxury market (now defined as $2.5 million and above in Orange County—yes, that threshold just jumped from $2 million), the dynamics are notably different. Luxury inventory is up 54% compared to early 2025, but demand has surged 88%. That means the expected market time for luxury properties has actually improved from 228 days to 187 days. Thomas's advice for luxury sellers? List in mid-February, around Valentine's Day. That's when luxury expected market time hits its annual low point. Listing a $3 million home in November means you're likely looking at a spring sale anyway—so why not wait and launch when buyer demand is naturally highest?

Three Scenarios for 2026: Which Will We See?

Thomas presented three potential scenarios for 2026, each hinging on different economic conditions. Here's the breakdown:

Scenario 1: Most Likely (Economy Continues Cooling)

• Mortgage rates: 5.75% - 7%
• Orange County inventory rises to 3,250 homes (still historically low)
• Demand picks up due to lower rates
• Bidding wars become common in entry-level price ranges
• Closed sales: UP 3-6%
• Home values: UP 1-4% year-over-year

Scenario 2: Least Favorable (Economy Remains Resilient, Rates Stuck)

• Mortgage rates: 6.5% - 6.75%
• Inventory rises to 6,500 homes in Orange County
• Demand similar to 2025 with only a brief spring boost
• Sluggish market with significant seller competition
• Closed sales: DOWN 1% to UP 2%
• Home values: DOWN 1-3% year-over-year

Scenario 3: Hot Market (Labor Market Breaks, Rates Plunge)

• Mortgage rates: Drop into the 5% range
• Inventory rises to only 4,000 homes (not enough to meet demand)
• Demand accelerates dramatically, especially among Millennials and Gen Z
• Bidding wars intensify starting in spring
• Closed sales: UP 7%+
• Home values: UP 6-9% year-over-year

Thomas's take? Scenario 1 is most probable. But here's his interesting caveat: he's not rooting for Scenario 3, even though it would mean more transactions. Why? Because a rapid drop to 5% rates would create a frenzy in the $750,000 to $1 million range, potentially pricing out first-time buyers and younger Millennials and Gen Z buyers who've already been "taking it on the chin" for years. He'd rather see a measured approach—get to 6% first, let smart buyers win, then gradually move lower.

The Federal Reserve Factor (And Why You Should Stop Worrying About It)

Every client asks about the Federal Reserve. Will they cut rates? What happens when Jerome Powell's term ends in May? Here's what Thomas wants you to understand: the Fed doesn't control mortgage rates. They control overnight short-term banking rates. Mortgage rates are long-term rates controlled by investors who are constantly trying to predict where the economy is headed. The Fed has 19 members, and Powell is just one vote. Even if he's replaced, it won't dramatically change monetary policy. The institution is designed to be apolitical and data-driven—staffed by 500 economists with master's degrees and doctorates who care about two things: maximum employment and price stability. The real drivers of mortgage rates? Economic data like jobs reports, consumer price index readings, and 10-year Treasury yields. These indicators shift daily based on economic performance, which is why rates can change multiple times in a single day even when the Fed hasn't met. Bottom line: Don't make buying or selling decisions based on Fed speculation. Make them based on your life circumstances and current market realities.

What This Means for Cypress Families Right Now

After nearly three decades in this market, here's our advice heading into 2026: If you're thinking about selling: The fall and winter market is actually showing surprising strength thanks to rates below 6.5%. While spring is traditionally the hottest season, waiting until February or March 2026 could mean more competition from other sellers. If you're ready to move and can price competitively, the current market offers opportunity. If you're thinking about buying: Rates are the best they've been all year, and inventory is higher than it's been in three years—but still constrained. You'll face less competition than you would have in spring 2024, but properly priced homes are still getting multiple offers. Get pre-approved, work with an agent who knows how to identify value, and be ready to move quickly when the right property appears. If you're a Millennial or Gen Z buyer: This is your moment. Before rates potentially drop into the 5% range and trigger a buying frenzy, you have a window to compete without facing ten other offers on every property. Take advantage of these next few months.

The Biggest Mistake Sellers Are Making

Here's a sobering statistic: 41% of Orange County listings have reduced their asking price at least once. Another telling number: homes being pulled off the market (delisted) are up 78% compared to last year. Thomas's message is blunt: overpricing costs you money and time. The old advice of "get in and out of a listing presentation in under an hour" is terrible guidance. The best listing presentations take two, three, sometimes three-and-a-half hours—because that's how long it takes to properly analyze 30 comparable sales and arrive at the right price. An overpriced listing that takes six months and two price reductions to sell wastes everyone's time. A properly priced listing that goes into escrow in the first ten days? That's a success story built on doing the homework upfront.

Looking Ahead: What We're Watching

As we close out 2025 and move into 2026, we're monitoring several key indicators:

• The 10-year Treasury yield: This is the best predictor of where mortgage rates are heading
• Initial jobless claims: If weekly claims jump above 300,000, it signals labor market weakness that could trigger Fed rate cuts
• Monthly jobs reports: The government shutdown has left us operating without recent data, but when reports resume, they'll be critical
• Inventory trends: Will more "hunkering down" homeowners finally decide to move in spring 2026?
• New pending sales activity: Early indicators of whether lower rates are pulling buyers off the sidelines

Your Next Steps

The Orange County real estate market isn't simple—anyone who tells you it is either doesn't understand it or is trying to sell you something. But it's also not impossibly complex. It's a market driven by supply, demand, and interest rates, filtered through the unique characteristics of our local communities. At The Whitney Team, we've been helping Cypress families navigate markets of all types for 28 years—from the boom times to the crash to the recovery to today's unique environment. We don't deal in hype or fear. We deal in data, local knowledge, and a genuine commitment to helping you make the best decision for your family. Whether you're thinking about buying, selling, or just want to understand what your home is worth in today's market, we're here to help. Contact us at 4RealEstateHelp.com/contact-us or give us a call at (714-888-6692) to schedule a no-pressure market consultation. Let's cut through the noise together and figure out your best path forward.

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The Whitney Team | First Team Real Estate Serving Cypress and Orange County Since 1996

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Frequently Asked Questions

Q: Should I wait for rates to drop to 5% before buying? A: Waiting for perfect conditions means competing with everyone else who was also waiting. Current rates are the lowest of 2025, and inventory is higher than it's been in years. If you wait for 5% rates, you'll likely face significantly more competition and rising prices. Q: Is now a bad time to sell? A: It depends entirely on your motivation and pricing strategy. Properly priced homes are still selling—26% of August sales closed above asking. But overpriced listings are struggling. Work with an agent who will invest the time to price your home correctly from day one. Q: Will Orange County home prices crash? A: The data says no. We'd need a massive increase in inventory (we're nowhere close), sustained low demand (demand is actually rising as rates improve), and a wave of foreclosures (foreclosure rates are at historic lows). None of these conditions exist. Q: What's the best time to list my home? A: Historically, spring (March-May) sees the highest buyer demand. However, if rates drop below 6% in early 2026, expect significantly more seller competition during that window. Sometimes being a bit early to market means less competition from other sellers. Q: How long will my home take to sell? A: In Orange County, the current expected market time is 83 days. But this varies dramatically by price range, location, and pricing strategy. In Cypress specifically, we're seeing about 46 days on average—but properly priced homes in great condition can sell in two weeks while overpriced properties can sit for 150+ days.