Orange County housing indicators

Orange County’s housing market never fully recovered from the 2008 recession. Home sales volume remained low throughout the elongated recovery, 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 ripples across the economy, proactive agents will prepare for the slowdown in sales and prices to continue 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. While prices have declined somewhat, they have thus far been 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. Expect prices to decline by the end of 2020, not to bottom until 2022 when the next recovery will begin.

View the Orange County regional charts below for details on current activity and forecasts for its local housing market.

Updated September 7, 2020. Original copy posted March 2013.

Home sales volume dips

Chart update 09/07/20

*first tuesday’s projection is based on monthly sales volume trends, as experienced so far this year.

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. As of July 2020, year-to-date (YTD) sales volume was 10% below a year earlier.

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 has since receded.

Looking forward, 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 2022-2023 recovery period following the 2020 recession.

Low turnover rate to continue

Chart update 09/07/20

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

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 09/07/20

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 total, 29% fewer SFR starts occurred in 2019 compared to the previous year.

Multi-family starts in Orange County totaled 5,200 in 2019, rising 33% from the previous year. This upward trend is a reversal of recent years, a result of legislative moves focused on adding more housing for the ever-growing resident population.

Construction starts have briefly slowed in 2020, the result of shelter-in-place orders in response to the COVID-19 pandemic.

The next peak in SFR construction starts will likely occur in 2021-2023 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 2022-2023 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 09/07/20

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 now 12.2% below a year earlier as of July 2020, 84,500 below the number of jobs held before the 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 this was just in time for the 2020 recession to arrive, causing significant job losses in the region. The share of jobs lost here in Orange County is greater than any other major metro area in California, and worse than the job loss experienced statewide, which is 9.5% below a year earlier as of July 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 09/07/20

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 2019. Jobs numbers in both of these industries have declined in 2020, as sales slow and construction struggles to gain momentum.

Construction jobs will likely be regained and will rise in 2020-2021, as state legislation focusing on adding more housing inventory is not impacted by the recession.

Per capita income plays catch up

Chart update 03/06/19

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.