Outlook: Orange County Home Prices Could Rise in 2014, But Less Than This Year

Every November, the Home Buying Institute begins issuing real estate market predictions for key metro areas across the country. There’s a lot to cover this year, so we are starting early. Here is our latest forecast, which includes predictions for the Orange County, California housing market in 2014.

Home prices in Orange County have risen steadily over the last 12 months or so. The exact amount will vary based on the source and the method of measurement (average versus median prices, etc.). But the overall trend was positive.

Here is a quick look back:

  • According to Zillow, the median sales price (MSP) for the Orange County metro area rose 20.1% from October 2012 to October 2013.
  • Reports from DataQuick show a 22.2% rise in the MSP during 2013.
  • According to Realtor.com’s monthly housing summary, the median asking price for the metro area rose 22.37% over the last year.
  • According to the California Association of Realtors (CAR), the median selling price for Orange County homes rose 19.7% from September 2012 to the same month in 2013.

Prices surging in Santa Ana, Irvine, Anaheim

Prediction: Additional Price Gains Expected in 2014

Our 2014 forecast for the Orange County housing market calls for continued price gains over the next 12 – 14 months. This prediction is based on the market forces of supply and demand, increased economic stability, housing inventory, local population trends, and job growth over the last two years.

While we expect to see additional home-price gains in 2014, they probably won’t be as steep as the gains of 2013. The Orange County real estate market has cooled a bit, since the peak of activity seen earlier this year. Rising home prices continue to drive away investors, reducing demand and softening prices. It’s a trend we are seeing in other hot markets as well, including Phoenix and Las Vegas.

Meanwhile, the major inventory declines of the last 18 months have slowed significantly. These changes on both the supply and demand side could lead to more modest price gains in 2014, when compared to those of the last 12 months.

Forecast: Orange County Housing Market Could See Fewer Foreclosures

Here’s a positive development. Over the last year or so, the number of Orange County homeowners entering foreclosure has declined significantly. This bodes well for the local housing market in 2014, as it will likely contribute to upward price mobility.

This real estate trend can be measured in two ways. We can look at notices of default (NoDs) to find out how many homeowners are falling behind in their mortgages. We can also look at trustees deeds, which are issued when a home is officially lost to foreclosure. These measurements represent the first two stages of the foreclosure process, before the property goes to auction or comes back on the market.

Orange County has made significant improvements in both areas:

  • NoDs were down 60.2%, year over year, when last measured in October.
  • Trustees deeds were down 66.2% during the same 12-month period.

This should benefit Orange County’s real estate market in 2014, and in two ways. First, it will further reduce the inventory of distressed properties that are on the market, striking a healthier balance of supply and demand. Secondly, it will reduce the number of “bargain-priced” bank-owned foreclosures on the market. Both of these trends should put upward pressure on local home prices in 2014.

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Inventory Reversal Could Slow Price Growth in 2014

Here’s something to watch. The inventory situation in Orange County’s housing market has changed dramatically over the last couple of years, and it will change further in 2014. Lately, more homes have been coming onto the market. This could take some of the steam out of the rapid price gains that occurred over the last 18 months or so.

The Orange County real estate market shrank considerably during 2012 and 2013. The number of homes for sale dropped by nearly 50% in just over a year. That is an unprecedented level of contraction. This was largely the result of institutional investors, but it came at a time when demand was rising among “regular” home buyers as well. More than anything else, this is what drove the tremendous home-price gains of the last 12 – 18 months.

But the inventory trend is reversing. According to Realtor.com, one of the largest property-listing websites in the U.S., the number of O.C. homes listed for sale rose by 14% from September 2012 to September 2013. Our prediction for the Orange County housing market is that inventory stabilization (and growth) will reduce the upward momentum of home prices, leading to smaller gains in 2014.

This is good news for home buyers. Over the last 18 months or so, many local buyers had trouble finding a suitable property. Purchase offers above the asking price were common, and bidding wars popped up here and there. In 2014, buyers should have a much easier go of it.

Forecast: Based on all of these trends, we anticipate that home prices across the O.C. metro area will rise somewhere between 7% and 11% in 2014. Please see disclaimers below.

Disclaimer: This article contains forward-looking statements (predictions and forecasts) about the Orange County real estate market in 2014. Such statements are matters of opinion and should not be viewed as facts. Conditions within the housing market change constantly, so there is no way to predict future events or conditions with complete accuracy. You should not make any financial decisions based solely on the information presented above. We encourage you to conduct extensive research before deciding to buy or sell a home.