Inside Edition: THE ORANGE COUNTY CHAPTER
Strong demographics are driving demand for homes, namely the 21–40-year-old cohort, including the Sharers born in the 1980s who are in their prime home buying years and the 1990s Connectors in prime household formation years. Surging home equity is also fueling demand from move-up buyers.
Some Headwinds To Plan For Include: Eroding Affordability. Affordability (monthly payments/income) conditions are now worse than usual in Orange County and most US markets— despite the historically low interest rates. The Burns Affordability Index compares a market to its own historical average affordability level, which is defined as the mid-point (5.0) on the scale shown below. Orange County is currently rated 8.0 in the least affordable tier. Mortgage interest rates are already trending upwards, and this should continue over the next few years. Price appreciation coupled with rising rates will make homes less affordable at all prices points if incomes do not keep pace.
Low supply and strong demographics are pushing prices higher. The Burns Home Value Index™ (BHVI) provides our view of home value trends in existing single-family homes. Each month’s BHVI is based on an “electronic appraisal” of every home in the market, rather than just actual transactions, removing the influence of shifts in mix of home sales. The BHVI has increased 11.8% over the last 12 months in Orange County. We expect home values to increase by 10.9% in 2021. Expect fewer international buyers. This is particularly impactful in Orange County, where buyers coming from China were driving sales for luxury homes more than in any other Southern California market. Some builders have already pivoted away from the luxury market to more affordable sectors targeting a broader demographic.
Surging home equity is fueling the move-up market. An all-time high stock market is boosting confidence to spend on a new homes and home improvements. A projected strong economic recovery (with the highest forecasted GDP growth in 15 years) will likely get stronger with significant government stimulus.
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Some households are leaving high-cost California markets, including Orange County. This trend can be overstated in the media, but it is real. Families are fleeing to more affordable locations farther from the coast like the Inland Empire or to states with lower costs like Arizona, Texas, and Idaho. All that said, Orange County remains an economic powerhouse and a place where people want to live— if they can afford to do so. Demand for homes will Southern | April 2021 California
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