Orange County median home price hits $1 million

The median home price reached $1 million last month in Orange County, making it the first Southern California county to ever hit that 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 last week by researcher DQNews. This constitutes a 22% jump from a year prior.

Southern California homes priced around $1 million took off during the COVID-19 pandemic, becoming commonplace in communities that were once thought to be relatively affordable, such as 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 affordable shelter.

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 boom in homes around $1 million has been driven by several factors.

The shortage of housing has sparked brutal bidding wars that push prices far above asking. Meanwhile, investors are gobbling up more homes to flip or rent out, accounting for roughly a quarter of Southern California home sales.

Another major reason 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 possibility of buying at that range to a wider pool.

If borrowers put 20% down and had minimal debts, they had a good shot at getting a loan for a house priced at $1 million if they earned at least $150,000 annually.

In Orange County, which is 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.

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 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 that many homeowners are sitting on piles of equity, enabling them to sell at a profit and buy a more expensive house, even if their income didn’t increase.

“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, noted that many parents are giving their adult children down payments for homes.

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 sell for more than $1 million.

She is getting ready to list a three-bedroom, 1,633square-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 homes in the $1-million range a tougher 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 less than today.

The average rate on a 30year fixed mortgage hit 5.11% last week, up from 3.55% at the beginning of February, according to Freddie Mac. In November, rates were less than 3%.

Assuming that a buyer puts down 20% for 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 last week’s average mortgage rate of 5.11%, that monthly payment would be $5,574 — an increase of $734, according to a Redfin mortgage calculator.

The change will knock some people out of the $1-million price point, and 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 homeowners’ hesitancy to sell for less than their neighbors did.

“It’s not a bubble,” Thornberg said. “Everyone has got to get used to it.”