The median sales price for a detached home in Orange County has risen to $1.1 million, up 22 percent from the $900,000 median sales price in 2020.
This rapid price increase is driven by strong demand and a low number of homes for sale.
Across all of Southern California, the average home is expected to be on the market for just 26 days, compared to 78 days about two years ago.
The data comes from The Orange County Housing Report, in which author and quantitative economist Steven Thomas said that the short market-to-sale period is “indicative of a market with rapid price appreciation, multiple offers, and an auction-like atmosphere that results in most homes selling above their asking prices.”
However, Thomas also said that as mortgage rates “rise in the future, the housing market will most certainly downshift.”
Looking at the median housing price, mortgage interest rates, and income data for Orange County, we can see just how high home prices have become.
Using Google’s online mortgage calculator, a $1.1 million home purchased with a 20 percent down payment and a three percent mortgage rate for a 30-year mortgage would result in monthly payments of $3,710 for principal and interest. Property taxes would be another $1,008 per month. Property taxes are assumed to be about 1.1 percent per year of the purchase price.
Mortgage payments plus property tax would account for about 56 percent of the Orange County median income of $101,000.
If mortgage rates rise to four percent, the monthly principal and interest payment would increase by about $500 to $4,201 per month, bringing the total monthly house payment along with property taxes to about $5,209. Under these circumstances, about 62 percent of Orange County’s $101,000 median income would be consumed by mortgage and property tax expenses.
According to the most recent Mortgage Finance Forecast published by the Mortgage Bankers Association on May 19, mortgage rates are expected to rise a full percentage point over the next year to reach four percent during the April–June quarter of 2022.
Of course, during that time, many more hospitality and tourism-related workers will return to work and many more homes are likely to be made available for sale as current homeowners exit their mortgage forbearance periods and renters get caught up on their rent payments (possibly with government assistance). There will be many factors impacting both the demand for housing and the supply of homes over the next year.
Certainly lower rent levels in the more urban areas, higher home prices in the suburban areas, and possibly rising interest rates will all be important factors. How it all comes together will determine housing prices and where people choose to live.
