According to a recent report, Orange County is the fourth-riskiest housing market among the 50 largest metropolitan areas in the United States. The report also found that Orange County’s risk level is double the overall risk rate for the entire country and is higher than the rate of all but nine states. It is important to note, however, that the high-ranking risk is very relative with the chance of home prices declining over the next two years being just 8 percent. So, while Orange County may be among the riskiest markets in the country, the chance of seeing price declines still remains quite small.
Housing-Friendly Conditions Seen Throughout the Country
Overall, the report has found that housing-friendly conditions can be seen locally as well as throughout the state and most of the country. This is due to a solid economy, low mortgage rates and a limited supply of homes available to purchase, including both existing stock and new construction. Historically, this combination has supported lofty real estate valuations. Therefore, while Orange County was ranked as having one of the riskiest real estate markets (with only Miami, West Palm Beach and Houston ranking higher and Denver coming in at a tie), the likelihood of it becoming an issue for most homeowners is quite slim.
Crunching the Numbers
Historically speaking, Orange County’s risk score has reached as high as 25 percent, making the current risk score just a third of those levels. Los Angeles County is also showing a significantly lower risk score at 2 percent compared to the 28 percent average. The Inland Empire is also just at 2 percent with a 26 percent historic risk score.
At the state level, the risk of California experiencing price declines in the next two years is three percent. Meanwhile, the riskiest states, such as North Dakota, Wyoming, Alaska and West Virginia, have a chance of loss at 27 percent or more. Factors that helped California include its almost-average unemployment rate, its low share of mortgages in the foreclosure process and its just-above-average price gains.
The Effects on Homeowners
Ultimately, the report found that a homebuyer in Orange County who is earning the median income and purchasing median-priced home will theoretically commit about 55 percent of his or her pay toward house payments, taxes and insurance. This is not much better than Los Angeles, where the figure is at 49 percent, or Ventura County with its 43 percent figure. At the national level, the figure is at 36 percent while New York, which is known for its high housing prices, is at 35 percent.
Interest rates, which are forecast to go up in 2018, will also be a contributing factor. Not only will increased rates make the affordability challenge even worse, but it will slow down the economy. Continued low supplies of homes to purchase, however, may help to minimize the damage from more expensive mortgages.