So, how can Orange County be coming off its best year for home sales in a decade when, by one measure, only 1 in 5 households can comfortably finance a home purchase?
One word: Jobs.
Last year, 37,881 homes sold in Orange County, the fastest pace of purchasing since 2006. And the year finished with the median selling price for all residences hitting a record $665,000, according to CoreLogic.
That homebuying surge and the ensuing price upswing, though, put a dent in the budget of many Orange County house hunters.
By one measure of affordability – by the California Association of Realtors – just 22 percent of Orange County households could afford the median-price, single-family home in the fourth quarter. Households must earn $146,880 to comfortably pay house payments of $3,670 on the $745,160 median-priced house, by this math.
This affordability measure has run between 19 percent and 23 percent for the past 21 quarters after coming off a cyclical high of 29 percent in the first quarter of 2012.
However, there’s one key problem with this kind of traditional affordability yardstick. It is built to combine home-price patterns, interest-rate moves and income trends into a statistical measurement of a local house hunter’s chance to own a home – without wrecking their finances.
These “affordability” indexes barely account for one big factor, the swings in the number of people working locally. You need a job, and a good one, to buy a home.
Ponder local employment’s progress since the bubble burst a decade ago. Orange County employers had 1.6 million workers at year-end 2016, up 250,000 positions since the start of 2010. The extended upswing in homebuying proves that plenty of those new positions paid well enough to help a household afford to buy.
Let my trusty spreadsheet explain with the help of an index I created. To loosely estimate the number of Orange County jobs with homebuying power, I multiplied employee counts by the corresponding CAR affordability index.
For the fourth quarter, this math – 1.6 million jobs times 22 percent affordability – estimates there are 356,000 jobs making enough to buy a typical single-family home. That may not sound like much, but that count is up roughly 32,000 in a year – curiously near 2016’s Orange County sales count. That’s the largest year-end jump in “qualifying jobs” in five years and its up 72,000 from the recent low of my “qualifying jobs” index in the third quarter of 2013.
My qualifying jobs math is far from perfect as a predictor of Orange County homebuying activity. When it reached its post-recession peak in 2012 at 543,300, one-third higher than current levels, the homebuying pace was well below 2016.
Why weren’t more people buying?
The Great Recession was still a fresh memory five years ago. As a result, confidence in the Orange County real estate market was lacking from both house hunters scared of ownership risks, and lenders, who weren’t in a lending mood. That angst existed despite greater “affordability” from lower-priced homes and cheap mortgages.
It took a modest-but-methodical economic recovery to slowly rebuild housing optimism. The real estate market’s ability in 2016 to generate 10-year high sales amid limited “affordability” is another example of the quiet oomph in Orange County’s economy.
This math, though, doesn’t cure the financial stretch of local housing ownership nor does it make it any easier for those with employment opportunities that don’t add up to “qualifying job.”
But if you want to guess if Orange Countians will still buy homes at today’s high prices, keep a keen eye on the local job market.
Contact the writer: jlansner@scng.com
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