Dark clouds are brewing in Orange County real estate, with home prices expected to drop more than 10 percent this year in the wake of a national recession.
With local home prices falling 11% over the next six months, the OC economy will struggle along with the nation, According to the Orange County Registerciting an economist at Chapman University.
The Orange-based university’s semi-annual economic outlook points to a mild recession in the national economy in the second half of the year. The culprit: the Federal Reserve’s rising interest rates.
“We’re getting more convinced that there’s going to be a recession,” said Chapman professor Jim Doti. School December forecast predicts downturn in late 2023.
Chapman’s pessimistic outlook sees an overheated national economy being hit by rising prices for real estate financing as interest rates rise, leading to the worst inflation in four decades.
The Fed’s tightening monetary policy is expected to lead to a sharp drop in hiring and real estate investment.Economist at Cal State Fullerton last spring Mild ‘normal’ recession predicted to stagnate local economy until 2024.
Chapman predicts that the impact of the coming recession on OC could result in the loss of 1 percent of the county’s 1.7 million jobs by the end of the year. Housing in the county will be more impacted.
Homebuyers are being spooked by high home prices and high mortgage rates.
Home sales are projected at 23,679 this year, down 11% year-over-year and 22% below the pre-pandemic pace of purchases in 2018-2019.
With limited housing demand, Chapman forecasts the local median year-end sales price of $885,000, down 11% from June’s $993,000 and down 19% from the spring 2022 high of $1.1 million.
Chapman predicts an 8 percent drop in home prices in California and nationally.
Mortgage rates for 30-year loans averaged 3.8% last year and are now 6.4%. Chapman expects rates to fall to 5.8% by the end of the year as the economy slows.
Chapman economists estimate that by the end of the year, the median local income will reach 60% of the income needed to successfully purchase a median-priced home, up from 49% in June. The 2018-2019 local affordability standard averaged 77%.
Weak sales and pricing will cool home construction. Forecasts show single-family home permits for the next six months are down 24% from the first half. Multifamily permits will drop 21%.
Forecasts show real estate-related hiring will suffer. OC construction jobs will fall 1% to 103,500 in the second half of the year. Financial services jobs should fall 2% to 110,500.
— Dana Bartholomew
