Orange County Realtist Research Team
The cost of homes in Orange County far exceeds the median cost of homes within the country. U.S. homes are currently $178,700 while Orange County home values sit at a stunning $616,400. Much of the region boasts waterfront properties or views. Although homes in Orange County are typically listed for more than their final sale prices, all the median values remain steep. However, the county is a vast area with varying home prices; for instance, the median cost of homes in Villa Park is $1,247,700 with much lower values in Laguna Woods at $271,800 – yet all are above the national level.
In the past year, home values in Orange County declined -0.8 percent on average. Although that’s almost no change for the year, it’s a significant deviation from the nationwide trend of 4.9 percent. The greater Los Angeles metro home values also appreciated by 4.5 percent throughout the past year. Even though the median appreciation rate in Orange County was negative, some areas such as Stanton (10.2 percent) and Lake Elsinore (9.5 percent) experienced exceptional home value growth. The communities with the most significant depreciation were Coto de Caza (-13.5 percent) and Laguna Beach (-9.6 percent).
Housing Crisis Effect
Figure 1: Zillow Home Value Index as of February 2015
On a national scale, the Great Recession caused home values to drop from their 2007 peak prices to their lowest prices in late 2011 to early 2012. Home values dropped by 20 percent from those pre-recession highs and have since recovered to just 9.3 percent below their peaks. In Orange County, home values followed the same trend but recently fell again, just slightly (as shown in Figure 1). In May 2006, Orange County home values had a median price of $721,000 and fell to a trough of $486,000. Recovery led to values steadily climbing back up to original housing bubble figures. But in May of last year, values capped at $627,000 and have since dropped to $614,000. Zillow economists predict home values will remain flat at this price point throughout the year.
Distressed Properties in Orange County
Many homeowners who purchased at the top of the market fell underwater on their mortgages when the housing market crashed – meaning they owned more on their properties than they were worth. The only options to escape negative equity are to accept market value from a buyer and bring cash to closing to cover the remaining loan amount, work with the lender to agree to a short sale or stop paying and go into foreclosure. The alternative is to continue paying toward a property that isn’t worth the investment – at least in the short term.
In Orange County, 1.4 homes are foreclosed out of every 10,000 homes. The foreclosure rate in Orange County is far lower than the U.S. rate of 3.9 homes (per 10,000). Late mortgage payments are the first step toward foreclosure, and Orange County is beating the national trend in mortgage delinquency, too. Both the country and coincidentally the Los Angeles metro have mortgage delinquency rates of 6.3 percent of all mortgages. In Orange County, just 4.8 percent of mortgages are delinquent and headed to foreclosure.
Another positive figure for Orange County residents is only 6.7 percent of its homeowners are underwater on their mortgages. Across the country, the median leaps to a shocking 16.9 percent of homeowners. Nationally, homeowners in negative equity are underwater by 38 percent of their loans, owing an average of $67,797. In Orange County, owners are underwater by 36 percent – essentially the same amount. But, because home values are much higher, these homeowners owe $154,040 to escape negative equity.
Rents in Orange County
Steep home values make Orange County a more challenging location for first-time buyers – even for affording starter homes. Renting often becomes the better option. However, rents in Orange County aren’t particularly affordable either, and they’ve increased by 3.5 percent through the past year. The median rent price in Orange County is $2,200 per month, well above the U.S. average of $1,499. Even Lake Elsinore, the Orange County region with the lowest median rent price ($1,613/mo.), is still above the national price; and high-end Newport Beach ($4,019/mo.) more than doubles the national rate.
Zillow’s breakeven horizon shows the number of years it takes for buying to be more cost-effective than renting, breaking even with the upfront costs of purchasing. In Orange County, the median breakeven horizon is just 1.7 years, in line with the national 2.1 years. Newcomers who plan to stay in Orange County for more than 1.7 years are financially better off buying. Because Orange County has such drastic home value variations, the median is far from accurate when applied to some specific areas such as Irvine, Costa Mesa and Newport Beach, with breakeven horizons as long as 14 years. In many regions though, the breakeven horizon is below 2 years like the median, including Stanton, Silverado, Anaheim, Santa Ana, Laguna Woods and others.
As mentioned, home values are not predicted to rise within the year and will remain flat instead. There is a significant distance that home values will have to rebound before reaching their pre-recession peaks, especially since settling at a slightly lower but still steep price point. National appreciation is predicted to slow to a more sustainable rate throughout the year, 2.6 percent. Rents across the country are anticipated to continue rising for at least another year.