Is the Orange County Housing Market About to See the Bottom?
Warren Buffet, the Oracle of Omaha and economic savant (well, usually), stated recently that the housing market is stabilizing in important locations such as California. Closer to home, Jon Lansner has crunched some numbers to see if the Orange County housing prices are currently in line with the traditional “Orange Premium.” (”O.C. homes aren’t a true bargain“)
Most of us know that, in good times or bad, Orange County housing prices are higher than in most other parts of the country. For example, Lansner pointed out that the Orange Premium was 3.4 in 2004. In other words, for every one Orange County home that was priced at the Orange County average, 3.4 homes that were priced at the national average could have been purchased.
With the Orange Premium currently at 2.54, Orange County homes are obviously more affordable than in the recent past. Reports by the National Association of Home Builders and Wells Fargo Bank, John Burns Consulting, and the California Association of Realtors also state that the affordability of Orange County homes has increased drastically. But “more affordable” doesn’t necessarily mean “affordable.” So have we hit the housing price bottom in Orange County? As Lansner’s numbers show between 1982 to 2001 this Orange Premium was 2.1. Therefore, the current Orange Premium of 2.54 is still higher than the more traditional Orange Premium of 2.1 and “we might not have suffered enough.”
Larry Roberts, otherwise known as IrvineRenter, has some predictions of his own. Most of the price declines up to this point have been in the low-end of the market, so this portion of the housing market might be at or near the bottom. However, Roberts predicts the following for high-end Orange County homes:
“Prices must fall back to equilibrium levels sustainable by the new lending standards. In these high-end neighborhoods, I believe we will see 65%-70% declines across the board. Stable price levels are going to be determined by people’s real incomes applied to conventional mortgage financing; people only make enough money to support prices 1/3 as high as they currently are. Prices in these neighborhoods quadrupled or more since the late 90s—incomes have not.”
—Larry Roberts, “HELOC Abuse Laguna Beach Style”
Have we hit the price bottom for Orange County homes? Not yet. The decline in Orange County housing prices has slowed, but we have not seen the bottom.
