Like most of California, the Orange County metro area was hammered by the housing crisis. Home prices plummeted as buyers pulled back from the market. Homeowners lost equity and were often flipped upside down in their mortgage loans. The market ground to a halt. You know the rest of this story.
But what about the current story? What’s happening in the Orange County real estate market today? What can we expect through the end of 2015 and into 2016? Here’s a current look at the O.C. housing market, with an eye on home prices in particular.
Orange County Home Prices Near Pre-Recession Levels
According to CoreLogic, a data firm headquartered in Irvine, home prices in the Orange County metro area recently climbed to their highest level since before the housing crisis. The company reports a 4.6% increase in the median sale price from June 2014 to June 2015. When last measured, the median (or midpoint) for selling prices in the Orange County real estate market was $680,000.
Clearly, O.C. property values have risen strongly over the last couple of years. By some measurements (the median for existing home sales, for example), local home prices are about where they were at the peak of the housing bubble. But can they go much higher? That’s the million-dollar question right now, literally. And some analyst think not.
Is the O.C. Housing Market Hitting a Plateau?
The economists at Zillow recently published a prediction for home prices in Orange County through the end of 2015 and into 2016. In July, the company reported it expects to see an annual change of -0.5% in Orange County house values. In other words, they believe prices will actually dip slightly over the next year or so (July 2015 – July 2016).
This seems logical. After all, house values typically don’t outpace local wage growth — at least not for long. So perhaps that’s what we are seeing within the Orange County real estate market. Perhaps home prices in the area are about to start leveling off. Only time will tell. But it certainly looks like a high-water mark has been reached.
As early as January of this year, some housing analysts and economists were suggesting that Orange County home prices might be nearing their peak. Dr. Esmael Adibi, an economics professor at Chapman University, pointed to the disparity between housing appreciation and income growth in the area. He told the Los Angeles Times that “[e]verything goes back to affordability. The increase in income is not really keeping up with the increase in home prices.”
In other words, house values in Orange County have risen so fast, and so sharply, that they are now creating housing affordability issues for many residents. Typically when that occurs, house values begin to level off onto a plateau. The exception to this “rule” is when there’s a severe shortage of inventory. But housing inventory appears to be on the rise in O.C.
Also in 2015, Orange County, California was ranked as the second most overvalued real estate market in the country, behind Austin, Texas (#1). According to the economists at Trulia, home prices in the metro area are overinflated relative to such fundamentals as historical prices, incomes and rents.
There’s no doubt this is a hot real estate market. But is there a major cooling period on the horizon? All signs seem to point to yes.
Disclaimer: This story contains third-party data and commentary relating to the Orange County real estate market, and home prices in particular. Such statements may not necessarily reflect the views of the publisher. Forward-looking statements regarding housing conditions should be viewed as an educated guess, and not as financial advice. We make no claims or assertions regarding Orange County home prices in 2015 and 2016.