Orange County, CA – What’s causing home price to rise? We’ve been hearing about the dropping prices of real estate for year upon year. For many people the falling price of property is something that refuses to go away. Negative equity is something that borrowers have feared for years, with the reduction in the value of property even threatening some people’s ownership. In fact, of all the states nationwide, California ranks 6th for homeowners with underwater mortgages. 29.9% of California homes are underwater. But thankfully, we’ve been experiencing a change in market conditions. In some areas of the country like, Orange County, the reversal has been extreme.
A recent report by the California Association of Realtors states that home prices in October increased 10.2% against 2011 levels. The average median price for all homes in Orange County for October was $558,680. Last year at this time the average median price of homes sold was $484,390. That’s a 15.3% price increase year over year. This marks the ninth consecutive increase in monthly real estate prices. This clearly indicates a strong upward trend in home values.
Of course, two big questions come out of this information. What’s causing the home prices to increase? What does it mean for the mortgage market?
What’s Causing the Home Prices to Increase?
- The chief component is a lack of housing supply. That is especially true in Orange County, CA where inventories are at a record low. Currently there are 3,482 homes for sale in Orange County. At the same time last year there were 8,905 homes listed for sale. Inventory is slow to come back on the market because 29.9% of homeowners are still underwater and may not have the cash or the desire to come up with the cash needed to close. Therefore, they are waiting to re-establish equity in their homes.
- Consistent increases to home prices have signalled to buyers that the bottom has actually passed and it’s a great time to buy.
- Record low interest rates are also fueling demand. Home prices are only one component. Factoring in record low interest rates is akin to hitting the real estate lottery. Low payments allow you to afford even more home for the same payment.
- Increased household formation is putting a burden on the available housing supply as well. People are still having children. Couples are still getting married. And individuals are still looking for a place of their own.
- As housing supply dwindles the rates for rental homes is increasing as well. This is causing some people to look into buying instead of renting. And with home affordability the best it’s been in decades, people are taking advantage.
What Does It Mean for The Mortgage Market?
The second question can realistically be answered with the answer from the first – cautious optimism. By this, we mean that mortgage lenders are likely to be cautiously optimistic about the housing market going forward. We may see underwriting guidelines relax somewhat, and we may also see mortgage rates drop slightly.
Of course, it’s all speculation at the moment, but things certainly appear to be looking up! For the time being, rates are low, home prices are low and the real estate market is improving. Despite the frustration that abounds for buyers in markets with few homes, if you can find one, it’s a great time to buy it. If home prices appreciate at annual rate of 3.3% then a $500,000 home today will cost $588,000 in just 5 years.