OC Median Price Up Again in May

Median Increases 3rd Month Out of 4

As reported in the Orange County Register, "By one measure, Orange County home prices increased for a third time in four months, perhaps indicating that housing is ricocheting off the bottom of the worst recession since the 1930s." The median home price rose about $20,000 to over $400,000. That's the same measure that they most frequently site, even though by their own admission, it is easily skewed by the number of homes sold in a given price range rather than actual price changes for a given market.

Price Per Square Foot

Let's take a look at what I feel to be a more accurate measure of actual market value, the sales price per square foot. In the same article linked above, the Register said "one local broker predicted that the price per square foot of Orange County homes could fall another 10 percent in the next nine months", but provides no further evidence or even explanation for why this might happen.

In 2006 Orange County's average price per square foot stood at $532, and it peaked in 2007 at $540, just before the 'bubble burst". Since then, there has been a steady and continuous decline to the bottom reached in February of this year at $246 per square foot - a drop of 53% over 2 years. That all seems pretty grim, but let's look at the monthly data:


The Good News

As you can see from the above chart, the average price per square foot for all homes sold in Orange County has held steady for 4 consecutive months at about $248. That flattening of the trend is not surprising considering the feeding frenzy for homes priced below $500,000, as well as the continual drop in available inventory. When was the last time that Orange County homes were selling for less than $250 per square foot? The first quarter of 2003! Prices are at a 6 year low, almost 50% of households can now afford to buy a home, the number of homes sold has increased year over year for 11 consecutive months, and interest rates continue to hover around 40-year lows.

The Time to Buy is Now

The message is clear - the current housing market represents a once-in-decades buying opportunity. First-time buyers may never see conditions this favorable, especially taking into account the Federal $8,000 Income Tax Credit. Investors have recognized the opening, and are bidding up lower priced homes with multiple all-cash offers.

The Move-Up Market

There's another group that has an excellent opportunity, and some are beginning to recognize it - homeowners with equity. Yes, they've taken a hit from the peak value of two or three years ago, but for those who didn't "cash out" the depressed prices and excess inventory of larger homes represent a unique chance to "move up". Let's say you bought your 1500 square foot home 8 years ago for $350,000 with 20% down. Through all the ups and downs, it's still probably worth $100,000 more than you paid, and your loan balance as actually fallen some. That $200,000 or so in equity represents the chance to buy a home in the $500,000 to $1,000,000 range at a time when such homes are priced at 6-year lows, and there are hundreds of motivated sellers to choose from!