The resilience of Orange County’s housing market in 2016 surprised many folks.
Challenges were numerous. Home listings were thin. Builders didn’t construct many “affordable” homes. Questions swirled about the durability of the local economic rebound and the quality of the jobs it was creating. Where would mortgage rates go and would lenders keep lending? And would foreign buyers, a noteworthy force, stay interested?
Nonetheless, pricing hit new record highs and sales activity was the best in 10 years.
So, was the surprisingly good 2016 a harbinger of more upward momentum or the last gasp of the rebound from real estate’s ugly crash? Is a boom building or a bubble brewing?
I tossed into my trusty spreadsheet some historic data from CoreLogic, ReportsOnHousing.com, the Consumer Price Index and state jobs counters to produce my list of nine housing trends to watch in 2017, ranked by my impression of their relative importance to the overall health of this year’s local housing market.
9. Luxury homes
The higher the home price, the less logic to the buying patterns.
In Orange County’s 27 priciest ZIPs – a median sales price beginning at $727,500 – 12,142 homes sold. That’s up 7.6 percent compared with a year earlier, slightly better than the countywide pace.
But in the upper crust – the nine Orange County ZIP codes with median selling prices above $1 million – the 2,389 sales were up only 2 percent.
Is this disconnect meaningful? Probably not. We love to talk about the local mansions, but in 2017, million-dollar homes will be a sideshow to the must-watch trends.
8. Prices
Does “record high” matter?
Orange County’s median selling price for all residences for 2016 – that is, the midpoint of all sales completed – was $645,000. That was up 5.9 percent vs. 2015.
Gains were pretty widespread, with prices up in 70 of 83 Orange County ZIP codes. Curiously, the 13 ZIPs without gains included the second-cheapest (Santa Ana 92701 at $304,000, off 16 percent in a year) and the most expensive (Newport Beach 92662 at $2.63 million, down 9.5 percent.)
But the median’s march higher may be more of a reflection of few cheaper homes to buy than fast-appreciating homes.
But will house hunters continue to pay up? Great question.
7. Affordability
No matter how you slice it, local housing has been pricey – and will stay that way.
But it depends on your viewpoint. Look at this example:
The typical mortgage used by a 2016 buyer resulted in an estimated monthly loan payment of $2,960, up 6 percent in a year, according to CoreLogic.
Perhaps worse, that’s up 41 percent from 2012. But exactly how many folks wanted to buy a home in those early days of the market rebound?
Note that last year’s estimated house payment looks cheap vs. the bubble days: It’s 14 percent below the $3,422 payment made by the typical 2006 buyer – back when the market peaked amid a buying frenzy.
Affordability measures must be gauged wisely.
6. Supply
Forget affordability. Finding a home is a big challenge.
Last year, an average of 5,965 residences were listed for sale on broker networks. That’s down 2 percent vs. 2015.
But look at the historical perspective: House hunters the past two years have had basically one-fifth fewer choices to buy an existing home or condo than the average supply of 7,544 since 2005.
Unless something dramatically changes in the broad economy or owner psyche, or builders go crazy, tight inventories won’t change much as homeowners dig in for the long haul. But watch out if inventories do skyrocket!
5. Real estate jobs
If anybody knows the future, it’s real estate bosses, who’ve been on a six-year hiring spree.
Property-related industries – from building trades to agents to suppliers to lenders to designers and planners – employed 221,000 people in Orange County last year, up 11,600 workers or 5.5 percent in a year. It’s the highest employment level since 2007, but still 7,300 below 2006’s frothy peak.
Leading the way is construction, employing 100,900 last year, up 10,500 workers or 11.6 percent in a year. Again, the building boom created the biggest construction payrolls since 2007.
But there’s a warning sign. The businesses who plan development – architects and engineers – collectively cut 450 workers last year to 25,150 people.
Does this first dip in planning jobs since 2010 mean the flow of new projects is slowing? Carefully track this trend.
4. Rents
Landlords are one of the great creators of new house hunters.
If rents go too high, tenants with good jobs and credit histories are often nudged to buy. And local rents have been on the rise.
Ponder one benchmark: The “renting primary residence” slice of the Consumer Price Index for the five-county region rose 4.7 percent in 2016 vs. 3.9 percent in 2015.
That’s the fastest pace of rent increase since the 6.1 percent jump in 2007 at the peak of the past decade’s economic surge. (Since 1970, FYI, SoCal rents have averaged 4.7 percent annual gains!)
Watch rents carefully this year. Continued increases are certain to create more demand for homes to buy. Whether there’s enough to satisfy that urge is a grand question.
3. New homes
Builders were the 2016 MVP.
For the year, 4,690 new homes were sold, up 29 percent vs. 2015 and the highest since 2006. That means 12.4 percent of all sales were new homes, the highest share since 2007.
So though developers are adding much-needed supply to a thin market, at new homes’ median selling price of $830,000 last year – down 1 percent from 2015 – it’s little help for bargain hunters.
2. Bargain hunters
Are the small fry priced out of the market, or simply unable to find homes in their price range?
In the 27 least-expensive ZIPs – median sales price at $571,000 and below – 10,245 homes sold. That’s up only 1 percent compared to 2015.
Same flatness was seen in bargain lovers’ condos with 10,403 sales – up 0.4 percent in a year. Competition for this rarity helped push up the median by 6 percent to $445,000.
Keep a keen eye on the low end. Without it, the market rally could be in jeopardy.
1. Home sales
Despite many hurdles, such as rising mortgage rates and political uncertainty, it was the fastest-selling year for housing since 2006.
Buyers snapped up 37,874 Orange County residences in 2016. That’s up 3 percent vs. 2015. But gains were not universal.
Sales rose in only 46 of 83 Orange County ZIPs compared with 2015 as lower-priced markets suffered the most. Was it a shortage of homes to buy or a shortage of house hunter conviction?
Sales matter. So what will house hunters do next? The pace of buying will be the key number to watch in 2017.
Contact the writer: jlansner@scng.com
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