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The Draining of the Reverse Repo Facility in Southern OC: Housing Market Impacts

Orange County Real Estate

The Draining of the Reverse Repo Facility in Southern OC: Housing Market Impacts
By Natalie Boyle, REALTOR®, Founder of Verso Homes (DRE #01329012)
TL;DR: The Fed’s Overnight Reverse Repo Facility has drained by 90%+, signaling tighter credit and higher funding costs. Mortgage rates stay elevated due to Quantitative Tightening, but Southern Orange County’s housing market shows resilience. Expect cooling prices, longer days on market, and more buyer leverage—not a crash.
The U.S. financial system has moved from an era of abundant liquidity to one of tightening credit, as highlighted by the collapse of the Federal Reserve’s Overnight Reverse Repo (ON RRP) facility. Once holding $2.4 trillion, the ON RRP has drained by more than 90%, signaling a new macroeconomic reality. Yet, Southern Orange County’s real estate market shows resilience, shaped by strong economic fundamentals and limited housing supply.
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What Is the Repo Market and Why Does It Matter?

The repo market is the plumbing of the financial system, where short-term borrowing and lending keep liquidity flowing. In a typical transaction, one party sells Treasuries or mortgage-backed securities with an agreement to repurchase them later at a slightly higher price. This system underpins interest rates and credit conditions nationwide.

The Federal Reserve uses repos and reverse repos to guide monetary policy. The Overnight Reverse Repo Facility (ON RRP) has served as a safety valve for excess cash since 2013, but its decline signals that buffer is gone.

The Draining of the ON RRP: A Liquidity Shock

At its peak in May 2023, the ON RRP facility held $2.4 trillion. By September 2025, balances had collapsed to just $18.8 billion. Two main drivers explain the shift:

  • Quantitative Tightening (QT): The Fed is reducing its balance sheet by letting Treasuries and mortgage-backed securities roll off, pulling cash from the system.
  • Heavy Treasury Debt Issuance: Record U.S. deficits mean more bonds are sold, diverting cash away from the ON RRP into government debt.

This has pushed up short-term funding costs and pressured sectors like commercial real estate, where $1.5 trillion in debt comes due by 2026.

From Wall Street to Your Mortgage Rate

Higher repo rates and QT directly influence the 10-year Treasury yield, the benchmark for mortgage rates. Even if the Fed cuts short-term rates, the runoff of mortgage-backed securities keeps mortgage spreads wide. That means rates stay elevated, prolonging the affordability crunch.

In Orange County, many homeowners are “locked in” at 3% mortgages and reluctant to sell, keeping inventory tight despite reduced demand.

Southern Orange County Housing Market Snapshot (2025)

  • Median home price: ~$1.2M (varies by city; Irvine +11.6% YoY, Laguna Niguel –6%)
  • Median days on market: 53 days (vs. 35 a year earlier)
  • Inventory: 3.8 months supply (up from 2.9 months)
  • % sold below asking: ~50% of homes in June 2025

This data suggests a cooling market, shifting negotiating power from sellers to buyers—but not a collapse.

See local breakdowns in our guides: Laguna Niguel, Mission Viejo, San Clemente.

What Buyers and Sellers Should Do Now

Pro Tip: Buyers—be patient but prepared. Sellers—price realistically to avoid sitting on the market.

For Buyers: More inventory and longer listing times create opportunities. Leverage your negotiating power, especially on homes lingering on the market.

For Sellers: Overpricing risks stale listings. Success now depends on realistic pricing, professional staging, and flexibility.

Conclusion: A Market in Transition, Not Crisis

The draining of the ON RRP signals that the era of “easy money” is over. For Southern Orange County, this means a more balanced housing market—cooling, not crashing. The region’s strong economic base and persistent supply constraints provide resilience, but discipline and vigilance are required from both buyers and sellers.

Natalie Boyle headshot – Verso Homes founder
Natalie Boyle
REALTOR®, Founder of Verso Homes (DRE #01329012)
Over 15 years helping South OC homeowners discover their perfect community.
Learn more about Natalie →

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