O.C. Median Home Price Tops $500,000…
March’s increase was the biggest annual price gain in the county since 2004.Orange County’s median home price soared to $505,000 in March, crossing the half-million-dollar threshold for the first time in five years and reflecting a trend of rising prices seen throughout Southern California. Home sales, meanwhile, rose 7.2 percent year over year in March, Data-Quick Information Systems reported Wednesday. The median price – or price at the midpoint of all sales – increased by $105,000 or 26.3% since March of 2012. It was the biggest annual price gain since 2004.
Industry observers warned that much of the price gain was due to a shift from foreclosures and short sales toward more standard sales. For example, 26% of last month’s existing home sales were either foreclosures or short sales, vs. 50% a year earlier, Data-Quick figures show. That shift skews the median price upward because there are more higher-priced sales. “There is no individual property that has increased (in value) at 26%t,” said Pat Veling, president of Real Data Strategies, a Brea real estate consulting firm. He pegged the actual price appreciation rate at 9 to 11 percent.
The median price for a Southern California home hit a 56-month high in March, up 23.4% from March 2012, as sales of mid- to high-end homes rose and those of distressed properties dropped. Los Angeles County, for example, saw a 24.2% year-over-year price increase, to a median of $380,000. San Bernardino County had the region’s biggest jump: The median increased 26.7% to $190,000.
“It’s remarkable how much the housing scene has changed in a year,” said John Walsh, Data-Quick president. “At this point in 2012 there were still plenty of folks sitting on the market’s sidelines, waiting to be sure the recovery was real. “But gradually the psychology shifted as the economy picked up steam and mortgage rates fell to historic lows,” he said. “We’re seeing the release of a lot of pent-up demand, especially in the middle and higher-priced neighborhoods.” Southern California sales reached the highest level in six years for a March, Data-Quick reported, though sales still were 15 percent below the March average.
A drop in affordability
A year ago, Orange County’s median price was $400,000. “I’m not sure that the O.C. home median price reaching $500,000 will create a psychological change in the minds of sellers,” said Mike Cotter, a broker associate with Century 21 O.M.A. in San Clemente. “But I think it will in the minds of buyers. And therefore we are likely to continue with a seller’s market and low inventory.” Cotter said sellers tend to have “a number in their head” they have to achieve, while buyers simply see prices rising indefinitely into the future. ”Buyers have no reason to wait,” Cotter said, “whereas sellers do.”
Orange County’s median home prices first crossed the half-million-dollar mark in April 2004, eventually hitting a high of $645,000 in June 2007. A month later, the housing bubble burst, with the median price dropping below $500,000 in May 2008. While record-low interest rates have chopped the typical monthly mortgage payment on a $500,000 house by nearly $300 since 2004, the past year’s run-up in home prices has taken a bite out of affordability. A minimum income of $95,500 a year is needed to afford a median-priced home today, assuming that house payments on a 30-year, fixed-rate loan account for a third of the buyers’ income. That compares to $79,000 annually a year ago.
No ‘magic number’
Realtor Robert MacLean said the March price gain reflects what he has seen. “A house on the same street with the same square feet in the same condition that would have sold for $450,000 a year ago is going for over $550,000 now in Huntington Beach,” said MacLean, with First Team Real Estate. But crossing the $500,000 median threshold in Orange County isn’t that significant to the average homebuyer or seller, said Cedric Ferrell, a Realtor with Keller Williams in Mission Viejo. “I haven’t experienced that there’s a magic number,” he said. “I think there’s a magic number for each community and area.” Ferrell listed a three-bedroom house in Costa Mesa at $529,900. He said 85 visitors came to a weekend open house. He got eight offers. “Every offer we received was above the asking price,” he said.
“It’s a supply and demand situation,” Ferrell said. “There are very few homes that are for sale now. The inventory is still significantly below where last year was.” Competition among buyers remains fierce. Realtors said investors and cash buyers still play a large role in home sales, especially in the lower price ranges. “If you were to take away the investors and foreign buyers we would probably have a normal market,” MacLean said.
But, he added, “My fear is that we are creating another bubble. I do not see that the average person working here in O.C. has the income to support the rising house prices which got us into the housing problem in the first place. The average buyer is being pushed out into the Inland Empire again.” Veling, however, doesn’t think that prices are being artificially inflated. “As long as mortgage lending remains realistic about the value of the property and the ability to repay, we don’t have a bubble,” he said. “We have competition among buyers, but we don’t have a bubble.”
Mortgage credit standards have not changed much in the past few months, said Dustin Hobbs of the California Mortgage Bankers Association. “Lenders remain cautious in extending credit to borrowers,” he said. “As new laws and regulations continue to be absorbed by lenders, credit standards are likely to remain consistent.” Data-Quick shows that in March, 7.4% of Southern California home purchase loans were adjustable rate mortgages, up from 5.6% in February and 6.2% a year earlier. The March figure was the highest since adjustable rate mortgages were 8.5 percent of the purchase loan market in August 2011.
Housing experts explain median price jump
Housing industry experts cited buyers bidding up a limited supply of homes and fewer distressed homes in the mix as key reasons for the jump in the Orange County median home sale price in March. Some observations about the current market:
“There have been significantly fewer short sales this year compared to the same period last year. The fact that the sellers do not have to compete with the distressed sales has been a significant factor in rising prices.”
– Frank Agahi, Re/Max Associated Realtors, Irvine
“The demand is definitely high, and the supply has been so low in the last couple months, anybody who has been on the fence … they definitely have gotten off the fence. They want to buy before it goes higher. I don’t think the sellers are asking for more. The buyers are offering more. It’s competition among the buyers.”
– Preeti Bhathal, Keller Williams Realty, Mission Viejo
“Unless they are leaving the area or wanting to cash out and rent they are not going to sell unless they know they can find another home to purchase. Also bottom line: People are still not convinced that our economy is really improving. People are staying put.”
– Sue Turner, real estate agent with Windermere Real Estate SoCal, Laguna Niguel.