Showing signs of a healing housing market, home values in Southern California turned positive for the first time in almost two years, according to a report released from the Institute for Economic and Environmental Studies at Cal State Fullerton.
Per the report, Orange County is showing the strongest value increase in Southern California. The median housing price for a detached single-family home in Orange County stood at about $562,000 in September—approximately 12 percent higher than in 2011, according to California Association of Realtors statistics.
“Both the demand and supply side for housing are turning positive,” said Institute for Economic and Environmental Studies director Anil Puri, Ph.D. “Our forecast is that O.C. housing prices will increase 5 percent to 7 percent in 2013.”
The last three years of economic decline suppressed home building, which aided in shrinking the supply of houses, Puri said.
Recently, the rising demand for houses and a leaner market have increased the value of homes, said Puri, who is also the dean of the Mihaylo College of Business and Economics at CSUF.
Record-low mortgage interest rates, investors who see a chance at capitalizing on a spurring market and a low supply chain are also fueling the rise in home values in the desirable Southern California market.
With home construction down from the recession and sellers reluctant to list their homes, government affairs director for the Orange County Association of Realtors Dave Stefanides said Orange County has hit a shortage of houses on the market.
“California needs to see some 200,000 to 220,000 new homes constructed annually to keep pace with natural population growth and household formation,” Stefanides said. “We’ve not done that for at least five years.”
Entry-level homes below $500,000 are in short supply, Stefanides said, and investors are swooping in and purchasing them fast in addition to the expectation of inflation in the next five years.
“If you are concerned about inflation, as many are, then real estate investment provides a hedge against it, ” Stefanides said. “Add in the fact that Orange County is a desirable place with a fantastic climate, coastline, colleges and diverse economy, then you will understand why so many investors are in the market.”
Leading into the housing bubble, banks practiced shoddy lending techniques.
The past decade saw these practices produce “exotic” loan products, collateralized debt vehicles and risky underwriting techniques, Stefanides said. As a result, many borrowers found themselves unable to afford mortgage payments, leading to an increase in foreclosures.
These homes in the past helped in holding down home values.
But recently, the sale of foreclosed homes have declined or slowed down, leaving some people speculating what might happen to the market when foreclosures begin to rise again.
The foreclosure process today is “complicated, due in part to requirements put in place by Congress, the State Legislature and Attorney General, which were meant to help distressed borrowers, but whether they do or not is yet to be seen,” Stefanides said.
However, Orange County is starting to see a positive price appreciation, fueling expectations for a strong overall economy.
“We see shadow demand for both new and resale homes beginning to reveal itself as more owners, and former owners, rebuild their credit and reduce debt,” Stefanides said. “Demand might very well take off in the near term if our local economy continues adding jobs.”