Orange County’s recent history of ever-rising home prices, now amid a modest cooling of the local economy, brings out fears the local real estate market is getting overheated once again.
You know, “bubble” talk.
In some ways, an asset bubble is in the eye of the beholder. There is no formal definition of when any market reaches the bubble stage – but it’s typically when an asset’s value outstrips the underlying economic fundamentals behind ownership.
For local housing, the big question is when do obvious affordability challenges become a huge economic risk to the entire market? And what becomes of home values once the economic mismatch is exposed?
Two recent reports on the regional economy from well-known analysts have very different ideas about the housing market’s sanity.
Jim Doti and the economists at Chapman University think Orange County housing is in bubble territory with a big “but” … they see no signs of any immediate bursting.
Meanwhile, Mark Schniepp from the California Forecast sees no bubble. Yet.
Now, the two gurus do agree on a critical issue: a lack of supply. There’s a razor-thin inventory of homes to buy and those few residences listed for sale still sell swiftly. So these seller-friendly conditions have led Chapman to forecast a 6.4 percent jump in Orange County home selling prices this year.
Here’s my take on how these two analyses differ …
Doti’s main worry: Local home prices have grown faster than the typical local paycheck. Roughly speaking, buyers here pay triple the national cost by various measures. More and more buyers are stretching their budgets to acquire housing while others are simply priced out of homeownership. That imbalance cannot last.
Schniepp’s retort: The strength of the overall economy – currently going through a slow patch – justifies much of the recent upswing in home prices. Low unemployment – at levels suggesting there’s actually a worker shortage in Orange County – coupled with…