As we make our way through the ongoing 2020 recession, it’s important to note that Orange County’s housing market never fully recovered from the 2008 recession. Home sales volume remained low throughout the elongated recovery of the 2010’s, as did job creation. Residential construction of all types continues to struggle in this region, leaving would-be homebuyers wanting for more.
As the 2020 recession maintains its grip on the economy, proactive agents will prepare for the slowdown in sales to linger here in Orange County and across the state. Job losses stemming from the coronavirus (COVID-19) pandemic, along with reduced MLS inventory, have held down sales volume. Prices have continued to rise due to the current supply-and-demand imbalance, propped up by record-low interest rates. But this brief boost will not last as the impacts from the recession linger in the months ahead and the end of the foreclosure moratorium injects distressed sales into the MLS inventory. Expect prices to decline later in 2021, bottoming in 2022 before the next recovery will begin in 2023-2024.
View the Orange County regional charts below for details on current activity and forecasts for its local housing market.
Updated March 3, 2021. Original copy posted March 2013.
Home sales volume dips
Chart update 03/03/21
2020 | 2019 | 2018 | 2003: Peak Year | |
Orange County home sales volume | 35,000 | 34,000 | 35,100 | 53,900 |
Home sales volume in Orange County remains weak and somewhat stuck at just over half the heights seen during the Millennium Boom. Echoing state trends, Orange County saw a decrease in total home sales volume in 2018, ending the year 9% lower than in 2017. In 2019, home sales volume was a further 3% below 2018. In 2020, home sales volume reversed course, rising a slight 3% above the prior year.
A sharp bounce in home pricing following the speculator interference of 2012-2014 has held sales volume back from any significant increases. Buyers’ incomes, already insufficient to keep up with quickly rising home prices, were further decimated in 2018 as mortgage interest rates increased.
In review, 2009-2010 Orange County sales volume rose slightly with the introduction of the housing tax credit, falling back in 2011 for lack of end user demand. From the latter half of 2012 through most of 2013, speculator hyper-activity bumped sales volume artificially yet again, as it did in all of California. The speculator buying wave receded and sales volume slumped in 2016-2019.
Looking forward, expect a similar dynamic in response to the ongoing 2020 recession. Today, federal stimulus and the eviction and foreclosure moratorium are providing a temporary boost to the housing market. Along with low interest rates, which have caused home prices to increase, the housing market has thus far inched forward despite the economic recession. A complete recovery with annual sales volume of around 46,000 in Orange County will be reached only after end user demand is buttressed by labor force participation and normalized job levels, expected in the 2023-2024 recovery period from the present recession.
Low turnover rate to continue
Chart update 09/07/20
2018 | 2017 | 2016 | |
Orange County homeowner turnover rate | 7.3% | 6.8% | 6.7% |
Orange County renter turnover rate |
19.5% | 17.8% |
18.5%
|
Without turnover, homes do not sell. The homeowner turnover rate in Orange County has remained mostly level since the end of the recession in 2009, at 7.3% as of 2018. The renter turnover rate has declined since 2010 and was at 19.5% in 2018, the most recently reported Census year.
Expect homeowner turnover reports to slip dramatically in 2020. With 2020 recession job losses alongside COVID-19 eviction moratoriums, significantly fewer renters and homeowners are currently changing residences.
The homeowner turnover rate will rise once home prices and interest rates align to produce desirable homebuying conditions. This is not expected before 2022-2023, when the additional and necessary factor of greatly increased residential construction will be experienced and a recovery from the 2020 recession will begin. Then, members of Generation Y (Gen Y) will collectively rush to buy and Baby Boomers (Boomers) will retire en masse, selling and mostly buying replacement homes. International and domestic emigration into California will also play a significant role in suburban housing demand.
Homeownership remains low
Chart update 05/26/20
2018 |
2017 | 2016 | |
Orange County homeownership | 57.4% | 57.4% | 56.6% |
Orange County’s homeownership rate has fallen since its 2007 peak of 62.7%. The most recent homeownership data shows a 57.4% homeownership rate in Orange County. Statewide homeownership has historically been about two percentage points below Orange County’s. The state average is currently 55%, thus homeownership reports in Orange County in 2020 likely remain around 57%.
Expect Orange County’s homeownership rate to remain near its present low level until 2022-2023, when the housing market will bounce back from the 2020 recession. Only with the return of jobs, higher wages and increased confidence will the first-time homebuyer population gain traction.
However, don’t expect the rate of homeownership to fully return to the inflated heights seen in 2007 anytime soon. This rate was elevated by unfettered access to easy money, which mortgage regulators tamped down in 2014 with enforcement of ability-to-pay (ATR) rules to protect society from certain destabilizing types of mortgage lending. These rules limit mortgage funding to those homebuyers with the financial ability to actually repay their debts.
Thus, the housing market won’t see a repeat of those Millennium Boom homebuyers who lacked the proper finances. Though this translates to a slightly lower homeownership rate in the near term, it fosters a more stable future housing market in Orange County and the state. The shift of Gen Y to rentals for a longer period before buying a home than in past generations also puts a cap on home sales volume.
Construction starts on the rebound
Chart update 03/03/21
2021 | 2020 | 2019 | |
Orange County single family residential (SFR) starts | 4,000 | 3,200 | 4,500 |
Orange County multi-family starts |
3,600 | 5,200 |
3,900
|
The recovery picture is mixed for Orange County residential construction. After years of increased single family residential (SFR) construction starts, 2018 and 2019 both saw a decrease in the number of new SFRs started. In 2020, the trend reversed, with SFR construction rising and multi-family declining.
Multi-family starts in Orange County totaled 3,600 in 2020, down 31% from the previous year. This decline resumes a long downward trend that was briefly broken in 2019. However, statewide legislative moves focused on adding more housing for the ever-growing resident population will see multi-family gradually climb in the coming years.
2020’s slowing construction starts were partly the result of shelter-in-place orders in response to the COVID-19 pandemic and decreased confidence in the economy from lenders and builders.
The next peak in multi-family construction starts will likely occur in 2023-2024 period due to a boost from state legislation. However, don’t expect SFR construction to recover fully anytime soon. The next peak in SFR construction starts will likely occur in the post-2024 era as renters shift to becoming homeowners following a statewide-push for more construction. Even then, SFR starts are unlikely to return to the mortgage-driven numbers seen during the hyperactive Millennium Boom.
Jobs are recovering, too slowly
Chart update 03/03/21
Dec 2020 | Dec 2019 | annual change | |
Orange County jobs | 1,553,000 | 1,695,700 | -8.4% |
California regained all jobs lost at the end of 2014, but Orange County didn’t catch up until the last quarter of 2015. Since 2018, jobs have struggled to gain in Orange County. The number of employed individuals in Orange County is 8.4% below a year earlier as of December 2020, amounting to a loss of 142,700 jobs compared to before the 2020 recession.
As seen in Figure 9, job additions were one-third slower to come about during the past recovery compared to the 2000s recovery, and at half the pace of the 1990s recovery, echoing the secular stagnation of the 1930s. When will all of these jobs catch up with Orange County’s continuously growing population?
Orange County was on course to return to pre-recession levels in 2020, but not before the 2020 recession arrived, causing significant job losses in the region. The share of jobs lost here in Orange County is worse than the job loss experienced statewide, which is 8.0% below a year earlier as of December 2020. Expect a W-shaped recession in the coming months, with jobs rising and falling, not to enter a true recovery until 2022-2023.
Jobs in the real estate industry
Chart update 03/03/21
Dec 2020 | Dec 2019 | annual change | |
Construction |
107,900 | 109,300 |
-1.3%
|
Real Estate |
36,400 | 40,800 |
-10.8%
|
The number of individuals employed in the real estate and construction industries fell during the recession, beginning to show mixed improvement in 2012. While the number of real estate professionals is now level with pre-recession levels, construction workers are still well below their Millennium Boom peak, and declining going into 2021. Jobs numbers have already begun to recover in the construction industry, but the number of real estate professionals continue to decline as sales volume slows.
Construction jobs will likely continue to rise in the coming years, as state legislation focusing on adding more housing inventory is not impacted by the recession. The real estate industry will see jobs increase beginning in 2023-2024 with the recovery from today’s recession.
Per capita income plays catch up
Chart update 03/06/19
2017 | 2016 | Annual change | |
Orange County per capita income | $69,300 | $65,700 | +5.4% |
California per capita income | $67,000 | $63,900 | +4.9% |
The average income earner in Orange County made $69,300 in 2018 (the most recently reported data from the Bureau of Economic Analysis).
Sustainable home price increases (not driven by cash-heavy investors or market momentum) are limited to a ceiling set by personal income, the annual rate of increase from 2018 to 2019 in this region being 5.4%. These annual income and price increases will remain low until an optimal employment level is attained with a full jobs recovery for the 10%+ population growth since 2007. Orange County will likely achieve these job numbers in 2020. Meanwhile, price increases will remain low since homebuyer occupants ultimately determine selling prices — they can only pay as much for a home (or rent) as their savings and income qualify them to pay — nothing more for a sustained period of time.
However, per capita income increases will likely slow somewhat in 2020-2021 following the 2020 recession. This, along with higher interest rates, will hold back home sales in the next few years. Look to 2021-2023 for the next significant increase in home sales volume and prices. This period will be driven by the shifting demographic trends of retiring Baby Boomers and their Gen Y children who will become homebuyers en masse following the next recession.
Great presentation, but how do the numbers play under our new Covid19 environment?
Curious if the slow down in China is factored into these numbers. There are huge swaths of Irvine that are nearly 100% Chinese nationals purchasing with cash. The slow down in China (along with the Russian sanctions), have already caused a huge price drop and slow down in NY City’s apartment sales. Not that I expect Irvine to suffer in the same way as NY City, but I would think it would shave a point or two off these projections. Irvine has been a huge factor in new and existing home sales for some time now. Any effect in that market would have an out sized effect on Orange County’s numbers overall.
Great charts and information.
We’ve had modest rises in home price appreciation so far. Jobs are strong, demand is strong. No crash coming as borrowers aren’t buying with fake income like back in 2007. It is verified.
Orange County market is going to see a big crash and minimum 30% drop in value in 2017. It will become a buyer’s market as it was in 2010. Builders are building and property owners are selling higher than the new homes sales! It is time for a big change.
Orange County will remain a heavily demanded destination for home buyers. There is not going to be any drop in prices or increases in inventory. Where else are Orange County residents going to move and have the same benefits, nowhere. Also, the boomers are retiring and are going to have the freedom to enjoy more fully all the amenities available to them this location offers. My tenants are asking for multi-year leases, the first time since the recovery and so far I am keeping them at 1 year only. My advice if you are in the market to purchase grab something and lock in the still historically low interest rates available now.
I hope it crashes and burns to the ground. After it does, im coming in strong and buying! Brun baby, burn!!!
Azar = wrong
$1,000,000 house in Orange County will drop to $700,000? Ok AZAR time to take your medication…
Turnover rates are likely to rise dramatically in the convergent 2019-2021 boomlet period raising rental vacancy rates. Then, members of Generation Y (Gen Y) will collectively first rush to buy but since their income and job security is considerably low they end up renting and housing market is going to crash sometimes between 2017-2020.
This author is using a lot of definitive verbiage on the future. As an example, “Sales volume will bottom again in 2017 before rising continuously into 2019-2020.” Shouldn’t the word “likely” be in there somewhere, since the author is making a prediction based upon a range of possible outcomes and the future is inherently uncertain?
Sam it’s. Common for analysts to use definitive language. It strengthens their prediction by showing they fully believe it and are not riding the fence by saying what it might do.
this article is post 2015…. yet above comments were make 2013?? there is research done by citi, regarding if central bank in china or Russia or Norway sell 2 trillion t bills that will make rate jump 4.4% adding current 3% to around 7.4%!!! if that happened imho…. we could c house prices 5 to 6 folds in a snap??? 2015-11
Good incos, Thank you.
Home prices aren’t limited because we have 30% cash buyers in the market with a low inventory hang over. The market is not the best indicator to correlation to DTI this time because to many cash buyers who don’t need income to buy and a major inventory crisis here
home price appreciation is limited to a ceiling set by personal income, the annual rate currently being 3.4%
Not correct. This is only one of many factors.
Housing Inventory Crisis is # 1 reason why home prices are rising. Prices are now rising faster than incomes and because CASH buyers are so prevalent it creates distortion in market prices. We will pay for this down the line. Mini Bubble 2.0 in full motion
http://loganmohtashami.com/2013/02/27/housing-inventory-hangover-will-continue-in-2013/