Orange County's robust housing market appears to be topping out. And much of Southern California may not be far behind.
New figures out Wednesday show that both median home prices and sales volume climbed across the region in December. But the numbers were weakest in the priciest part of the six-county Southland: Orange County.
The number of sales fell 6.8% compared with the previous year in Orange County, while rising 4.3% for Southern California as a whole, according to CoreLogic DataQuick. And while median prices rose 5.1% from December 2013 for the six-county region, to $415,000, they picked up just 3.7% in Orange County, to $591,000.
The market there is softening thanks largely to its own success, said Esmael Adibi, an economics professor at Chapman University in Orange. Orange County powered out of the housing crash faster than the rest of the region, with prices there up 36% from their bottom. But those gains have priced many buyers out of the market once again, he notes. And that's putting a lid on sales.
"Everything goes back to affordability," Adibi said. "The increase in income is not really keeping up with the increase in home prices."
By one measure of home prices, incomes and long-term trends, Orange County is the second-most-overvalued housing market in the country, behind Austin, Texas (Los Angeles County is third). That came from a report out Wednesday from real estate website Trulia, where chief economist Jed Kolko noted that while Orange County has seen fast home price gains in recent years, economic growth has been middling relative to other big markets.
"The housing rebound ran ahead of job and wage growth," he said.
In that sense, a price slowdown is a good thing, said Steven Thomas, who analyzes the Orange County market at ReportsonHousing.com. It will give buyers a chance to catch up.
"The market just zoomed so fast and went so high we couldn't sustain it," he said.
Thomas forecasts little growth in prices this year and expects a market that's more balanced between buyers and sellers. Rita Tayenaka, president of the Orange County Assn. of Realtors and a broker with Coast to Canyon Real Estate in Mission Viejo, is starting to see that too. Pending sales, she notes, were up 13.2%, and with the holidays over, more would-be sellers are considering whether now is a good time to list their home.
"We haven't gotten the January push we normally get," she said. "Now we're looking maybe at February."
Sellers will be key to a stable market this spring, in Orange County and across the Southland, said Andrew LePage, an analyst with CoreLogic. If people start listing their homes, tight supply will open up, prices will remain in check and buyers will have more opportunity, he said. If not, rising job and wage growth could heat up the market again.
"If demand continues, we're going to need more supply to keep up with it," LePage said.
Adibi said if there aren't more homes for sale, prices will keep outpacing incomes, and more and more people will move, either east to the Inland Empire or north to pockets of Los Angeles County that are still relatively affordable.
That will drive prices up in those areas too — in December the median price in Riverside County grew 7.1%, nearly twice as fast as Orange County — and begin to pose some of the same challenges that the highest-end parts of the region are already seeing.
"The Inland Empire always lags Orange County by a year or two," Adibi said. "They're catching up."