ORANGE, Calif.—As the Federal Reserve continues to raise interest rates, economists say it would significantly lower demand in the housing market and impact local home prices.
According to the semiannual economic forecast recently released by Chapman University, economists predict Orange County’s median home price would fall by 12 percent down from $1,012,000 in mid-2022 to $891,000 a year after.
Average home prices are heavily dependent upon mortgage rates and housing appreciation will continue to decline for all four quarters of next year, according to the report.
Raymond Sfeir, director of the A. Gary Anderson Center for Economic Research and economics professor at Chapman, said he expects the 30-year fixed mortgage rate to reach 6.5 percent by the end of this year and can only go higher in 2023.
“The price is going to be a little bit lower at the end of the year and the beginning of next year. That’s a plus for the buyer. But if they wait that long, they’re going to pay more in mortgage rate,” he told The Epoch Times.
Whether homebuyers should buy a home now or wait until the home prices come down after several months, Sfeir said, it really depends on how much in loans they plan to take out. With the current trend, he said that potential homebuyers who are paying with cash should wait until the end of this year as they will not be affected by the high mortgage rates.
In terms of the rental market, he said it is “pretty bad” because apartment owners are now increasing the rent at a very high rate and puts people at risk of becoming homeless. However, the labor market is very robust, he said.
“Many people are going to continue to have a job and those who don’t have one can find one easily these days because demand is so high for workers,” Sfeir said.
For jobs, the average growth in Orange County this year is forecasted to be 5.1 percent versus 5.5 percent in California. However, the decline in population may negatively affect local businesses and services, according to Jim Doti, president emeritus and economics professor at Chapman.
At a Chapman’s June 23 Economic Forecast Update in Orange, California, Doti pointed out that the county is experiencing a drop in population annually and is seeing negative growth in the total population.
The population decline, Doti said, is neither due to low birth nor high death rates but domestic migration. In a three-year period from 2018 to 2020, Orange County has lost 2.4 percent of its population.
“More people are moving out of the county ... we have found that the major loss in population is as you would expect, given that migration. Migration is leading to the loss. It’s people in the prime working-age from 25 to 44,” Doti said.
