OC Home Prices Expected to Fall by 11% as Recession Looms

Storm clouds are brewing for Orange County real estate, with home prices expected to tumble this year by more than 10 percent in the wake of a national recession.

The OC economy will sputter along with the nation as local home prices fall by 11 percent in the next six months, the Orange County Register reported, citing Chapman University economists.

The Orange-based college’s semi-annual economic outlook calls for a mild national recession in the second half of the year. The culprit: the Federal Reserve’s rising interest rates.

“We’re even more confident that there will be a recession,” said Chapman Professor Jim Doti, who predicted a late 2023 downturn in the school’s December forecast.

Chapman’s somber outlook sees pricier real estate financing driven by higher rates hammering an overheated national economy that resulted in the worst inflation in four decades.

It expects the tight-money Federal Reserve policies to result in sharply curtailed hiring and real estate investments. Cal State Fullerton economists had last spring predicted a mild, “garden-variety” recession that will stall the local economy through 2024.

Chapman projects the OC fallout from the oncoming recession could result in the loss of 1 percent of the county’s 1.7 million jobs by year’s end. The county’s housing would suffer more.

House hunters are reeling from high prices and lofty mortgage rates.

The 23,679 projected home sales this year will be an 11 percent drop in a year and 22 percent below the pre-pandemic buying pace of 2018-2019.

Limited housing demand translates to Chapman’s forecast of a year-end local median sales price of $885,000 – an 11 percent drop from $993,000 in June and 19 percent off the $1.1 million high of spring 2022.

Across California and the nation, Chapman predicts an 8 percent home price dip.

Mortgage rates that last year averaged 3.8 percent for 30-year loans now run 6.4 percent. Chapman sees rates falling to 5.8 percent by year’s end as the economy slows down.

Chapman economists estimate that at year’s end, the local median income will be 60 percent of what’s required of a successful buyer of the median-priced home, compared to 49 percent in June. The local affordability yardstick averaged 77 percent in 2018-2019.

The weak sales and pricing will cool homebuilding. The forecast shows permits for single-family houses down 24 percent in the next six months versus the first half’s pace. Multi-family permitting will drop 21 percent.

Real estate-related hiring will suffer, the forecast shows. OC construction jobs will be off by 1 percent in the second half to 103,500. Financial services jobs should fall 2 percent to 110,500.

— Dana Bartholomew