It was a big year for the Orange County, California real estate market. Home prices across the metro area rose steadily in 2016, with the median house price climbing above $660,000 for the first time.
But what’s in store for 2017? Will home prices keep rising? Will they level off? And what’s the forecast for mortgage rates over the coming months? To answer these questions (as best as possible), we have compiled some Orange County housing market forecasts for 2017.
Let’s start with a look at current trends in the local real estate market.
Orange County Real Estate Trends at the End of 2016
Home sales in Orange County, California surged during November 2016, according to a recent report from CoreLogic. The company reported there were 2,978 existing and new homes sold in November 2016, which marked a 21% increase from the same time the previous year. That was the busiest November for the real estate market since 2005.
CoreLogic also reported a 5.9% increase in the median sales price, from November 2015 to November 2016. The median price rose to $660,000 in November, which is very close to Zillow’s December figure of $671,100.
So clearly, there is still a lot of demand for homes right now. Maybe that’s why most forecasts for the Orange County real estate market call for additional price gains in 2017.
Housing Market Forecast for 2017: Smaller Gains Ahead?
Predictions for the Orange County housing market in 2017 suggest that prices could rise more slowly over the coming months. You’ll recall that CoreLogic measured a 5.9% increase in the median sales price this past November. Additionally, Zillow reports a year-over-year gain of 4.8% during 2016.
But by comparison, Zillow’s forecast for 2017 is more conservative. The company’s economists have predicted that the median home value in Orange County, California will rise by 2.4% during 2017. This is close to the historical average for annual price gains seen across the country in recent decades. So maybe what we’re seeing here is a return to normalcy, with house values rising at sustainable levels.
Housing inventory is still tight in many parts of the county, and it could remain that way throughout 2017. According to a recent economic forecast from Chapman University, Orange County home builders would have to build 11,602 residential units in 2017 to meet demand. But that’s roughly the construction pace of the past five years combined, so it’s highly unlikely we will see that level of construction next year. As a result, the Orange County housing market of 2017 will bring stiff competition among home buyers.
Mortgage Rate Outlook, and Recent Surge
Mortgage rates began to climb just after the U.S. presidential election, and they haven’t stopped rising yet (though they have slowed down). You can see this in the chart below, which is based on the weekly mortgage market survey conducted by Freddie Mac.
The Mortgage Bankers Association (MBA) expects rates to continue rising gradually throughout 2017. Their latest forecast, which was issued in December 2016, predicted that the average rate for a 30-year fixed mortgage loan would rise to 4.7% by the fourth quarter of 2017.
This could be why economists are offering more conservative real estate market forecasts for Orange County in 2017. Rising mortgage and housing costs tend to reduce sales activity over time, and this in turn can lead to smaller home-price gains.
But none of this is cause for concern. In fact, home values in Orange County — and in much of the U.S. — need to rise more slowly next year. In many cities, home-price gains have outpaced wage and income growth over the last couple of years, and this kind of trend can lead to housing affordability issues. So, from an economic standpoint, a cooling trend could be just what the market needs right now.
Disclaimer: This article includes forecasts and predictions for the Orange County, California real estate market in 2017. Such statements were provided by third parties not associated with our company. We have presented the forecasts here as an educational service to our readers.