Seven and a half years after bottoming out amid the Great Recession, median home prices in Orange County finally surpassed their bubble-era heights last month.
The wealthy county is the first region in Southern California to hit that mark, but experts largely dismissed talk of a new housing bubble.
Instead, they cited strong job growth, historically low mortgage rates and a meager supply of homes for sale as the chief causes for the price appreciation.
"It was a lot different back in 2006," said Nela Richardson, chief economist for real estate website Redfin. "That price growth was fueled by a lot of crazy toxic mortgage products."
The median price for new and resale houses and condominiums in Orange County jumped 5.9% from a year earlier to $651,500 in May, according to figures released Tuesday by real estate data firm CoreLogic.
That's $6,500 more than the $645,000 peak reached in 2007, though that does not account for inflation.
The rest of Southern California has further to climb than Orange County, though prices across the six-county region rose 6.9% from a year earlier to $459,500 in May.
May's median in Los Angeles County – $525,000 – is 4.5% below the county's bubble-era peak of $550,000. Riverside County is 23.6% below, San Bernardino County 25% below, San Diego County 5.3% below and Ventura County 17.9% below.
The rise in Orange County prices comes as a lack of affordable housing across the state has become a pressing political issue, with some businesses citing California's high cost of living as a reason to move jobs elsewhere.
"How the heck long can this continue?" asked Steven Thomas, a housing analyst who focuses on Orange County.
Many economists said price gains can continue for quite a bit – given strong underlying economic fundamentals – though likely not at the levels of price appreciation seen today, which has hovered around 6% annually.
In May, Orange County's job growth clocked in at 3.5% year over year, while much larger Los Angeles County saw a 2.4% increase from a year earlier. Wages have also shown signs of picking up, and though listings have increased, inventory levels have kept the market firmly in sellers' hands.
Mix that along with rock-bottom mortgage rates and you get a recipe for continued price gains, economists said.
Anaheim real estate agent Paul Kott said he's seeing bidding wars in the middle of the market – around $500,000 – as buyers take advantage of interest rates that are around 3.5% for a 30-year fixed loan.
"There's still a huge demand for purchasing property and not many homes from which to choose," he said.
Christopher Thornberg, founding partner of Beacon Economics, scoffed at the notion that a bubble was forming, citing tight lending standards and the fact Orange County's median remains nearly 13% below its 2007 high-water mark after adjusting for inflation.
Indeed, the California Assn. of Realtors' Housing Affordability Index, which measures the percentage of households that can afford to purchase a median-priced home, is nowhere near the level of 2006 and 2007 amid the housing bubble.
At that time, only about 11% of Orange County households could afford the median-priced single-family home. In the first quarter of this year, that figure actually rose one percentage point to 23% from a year earlier as incomes rose.
Thornberg, one of the few economists who predicted last decade's crash, said there could be a couple more years of price appreciation around 6% in California because the state has consistently built too few homes relative to population growth and that shows little sign of changing.
"I think this is in the works for a couple more years easy," Thornberg said. "There isn't enough housing in California."
Home builders are constructing new residences in Orange County, particularly at the Great Park neighborhoods in Irvine and in the Rancho Mission Viejo community.
However, such large swaths of land are scarce, forcing developers to increasingly look toward parking lots or old retail centers in cities such as Costa Mesa to redevelop into housing, said John Burns of John Burns Real Estate Consulting.
But the new building only added about 11,000 new homes in the past year, far fewer than the amount needed to keep up with current job growth, he said.
"You really need about 30,000 units built to satisfy that level of demand and we are not even close," Burns said.
Redfin agent Rob Brandon said the new home communities have had some impact in Irvine. Sellers of older houses are now competing with a swath of new supply and have had to adjust their expectations.
"Sellers are bringing down their prices just a little bit," he said.
Indeed, sometimes sellers are being forced to, particularly in the market above $2 million, said Leslie Appleton-Young, chief economist of the California Assn. of Realtors.
"The buy-at-any-price mentality appears to be waning at the upper ends of the market," she said.
Jenean Hill, a real estate agent who specializes in the Lake Forest area, said she has had clients nearing retirement who wanted to cash out now, fearful that prices can't go up anymore. Instead of staying in California, they've moved out of state, bought a home and still had a "little nest egg" left over.
"They wanted to get their equity out," she said. "A lot of people can't afford to retire in California."
If lots more homeowners decide to make that decision, it could put a chill on the red-hot housing market and lead to a price correction next year, said Thomas, the housing analyst.
"I think we are kind of hitting a top right now and it'll be really interesting to see if it can continue in 2017," he said.
Most economists, however, said it would continue – just at a less frenzied level. And that's even if the Federal Reserve decides to raise its benchmark interest rate later this year.
Svenja Gudell, chief economist for real estate website Zillow, said the increasingly unaffordable nature of housing will eventually lead more buyers to balk and cause home price appreciation to mellow out, probably to around 3% by year's end.
But she called the overall market strong. "There are no declines on the horizon," Gudell said.
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