The median home price in Orange County reached $1 million last month, becoming the first Southern California county to ever hit that pricey mark and underscoring just how expensive the region has become.
The threshold was crossed when the Orange County median sales price for new and existing houses, condos and townhomes rose from $985,000 in February to $1,020,000 in March, according to data released this week by researcher DQNews. It constitutes a 22% jump in median price from a year prior.
Million-dollar homes spread rapidly throughout Southern California during the pandemic, becoming commonplace in communities once thought to be relatively affordable like Highland Park and West Adams in Los Angeles County. The median price in Los Angeles County rose to $840,000 in March, up 12% from a year earlier.
The Orange County milestone marks a momentous rise in wealth, at least on paper, for local homeowners. But it comes as a regionwide lack of affordable housing has pushed people into homelessness and caused others to leave the state in search of shelter they can afford.
According to a recent survey from the Public Policy Institute of California, 64% of California adults view housing affordability as a big problem, with more than half of adults saying they are concerned they won’t have enough money to pay their rent or mortgage.
The $1-million home boom has been driven by several factors. An intense shortage of housing has sparked brutal bidding wars that push prices far above asking. Investors are also gobbling up more homes to flip or rent out, accounting for roughly a quarter of Southern California home sales.
Another major reason for the swift rise in $1-million homes is the fact that more people can afford such a high price.
Rising incomes, a booming stock market and mortgage interest rates that fell below 3% during the pandemic opened up the $1-million possibility to a wider pool of buyers.
If borrowers put 20% down and had minimal debts, they had a very good shot at getting a loan for a $1-million house if they made at least $150,000 annually.
In Orange County, home to many high-paying technology, healthcare and finance jobs, the median household income in 2020 was $94,441, and nearly 30% of households made at least $150,000, according to a Beacon Economics analysis of U.S. census data.
Though home prices were lower during the early 2000s housing bubble, more Orange County residents can afford a purchase today, a reflection of rising incomes and lower mortgage rates.
Back in the second quarter of 2006, the median price of an existing single family house in Orange County was in the $700,000s — a price only 10% of households in the county could afford, according to the California Assn. of Realtors.
By the fourth quarter of 2021, the median price of an existing single family house had already surpassed $1 million, according to the association’s calculations, and 17% of Orange County households could afford it.
The decadelong run-up in home values means many homeowners are sitting on piles of equity, enabling them to sell at a profit and buy a much more expensive house even if their incomes didn’t rise.
“It kind of feeds back onto itself,” said Christopher Thornberg, founding partner with Beacon Economics. “Equity gets traded into equity.”
Debbie Felix, an agent with Seven Gables Real Estate, said many parents are also gifting their adult children down payments.
Just a few years ago, she said, a three-bedroom house in Fountain Valley went for about $900,000, but it’s now common for such “starter homes” to go for above $1 million.
She is getting ready to list a three-bedroom, 1,633-square-foot house in Fountain Valley at nearly $1.15 million.
“It’s crazy,” she said. “That house will probably go $100,000 over asking.”
Whether home prices in Orange County and elsewhere surge from here is an open question.
Mortgage interest rates are rising rapidly, making the $1-million home a harder buy than a few months ago.
March data from DQNews represent closed sales, meaning many buyers opened escrow and locked in their rates in February. Rates were rising then but were still more than 1 percentage point below today.
The average rate on a 30-year fixed mortgage hit 5.11% this week, up from 3.55% in the beginning of February, according to Freddie Mac. In November, rates were under 3%.
Assuming a buyer put down 20% to buy a $1-million house, the monthly mortgage payment — including property tax and insurance — would be $4,840 if the interest rate was 3.55%, the average at the beginning of February.
At this week’s average mortgage rate of 5.11%, that monthly payment would be $5,574 — an increase of $734 a month, according to a Redfin mortgage calculator.
The change will knock some people out of the $1-million price point, and multiple real estate experts say they expect home prices across the market to rise at smaller increments now that borrowing costs are higher.
But analysts said they don’t expect prices to fall, citing rising incomes, low inventory and the hesitancy for homeowners to sell for less than their neighbors did.
Thornberg said Orange County and the rest of Southern California are relatively inexpensive compared with other major metropolises around the world. Given the area is home to major industries, entertainment and beautiful weather, home prices “are going to continue to go up.”
“It’s not a bubble,” Thornberg said. “Everyone has got to get used to it.”