Mar082017

Orange County housing market report: March 2017

The new and improved USA Housing News reports launches soon! Now with complete national coverage!

The housing market reports are back! It’s a long story, but the bottom line is that I now have control over my housing market reports again. I am working on a website to sell subscriptions to these reports as the USA Housing News. I will talk more about this as I get closer to launch.

I found a new data source the allows me to provide national coverage. In fact, I now cover all 50 states, 443 metros, 1045 counties, 9,525 cities, 5,619 neighborhoods, and 11,325 zip codes. That’s a lot of data.

I can create custom reports with varying degrees of detail with up to 52 distinct areas in each report. For example, the Orange County report contains the county, 37 cities, and 14 neighborhoods. When I launch the service soon, I will have all the metros in California including San Diego and the Bay Area. I am excited to bring this analysis to other areas of the state and country.

Orange County housing market report: March 2017

Based on the new methods I use to interpolate and normalize past data, the premium measurements changed from my previous version. I believe these numbers are more accurate as the data is based on larger samples than my previous sources. Orange County now measures at a historic premium of 11.6% as the benchmark for fundamental value.

Rising mortgage interest rates since the election reduced the degree of undervaluation from -16.2% to -6.2%. House prices are certainly high because the sub-4% rates over the last several years allowed people to bid prices back up to peak levels. Despite the high prices, the low mortgage rates leave Orange County relatively affordable.

Mortgage interest rate spikes are notably painful. The last spike in 2013 caused a noticeable decrease in the rate of home price appreciation. I expect a similar response from this latest spike.

The tether to fundamental values is quite strong without exotic mortgage products in the mix. It’s possible, though unlikely, that Trump and the Republicans will let this Genie out of the bottle and inflate another housing bubble. If they do, we will see it clearly in the data.

Home price appreciation is within the band of safety — not to fast and not too slow.

Affordability relative to rent remains strong.

The market rating is still high, but the spike in mortgage rates is making the case for housing somewhat less compelling.

The Orange County report covers many additional cities and areas absent from the previous report.

The sea of green reflects the strong economy and growth in both rents and home prices at a measured pace.

Affordability is still strong, but the number of bargain communities is shrinking.

The premiums on the beach communities are smaller than my previous measurements. Unfortunately, I lack good data on Laguna Beach.

In my post, Reflections on 10 years of blogging, I said the housing market has become rather boring. This is what a normal — and thereby boring — housing market looks like. Valuations are reasonable, resale price appreciation is reasonable, and rent growth is near normal. This is what Dodd-Frank was intended to bring about, and based on this evidence, it’s hard to argue that Dodd-Frank isn’t working. The only reason we haven’t restarted the cycle is because toxic mortgage products are not a part of the scene. Let’s hope it stays that way.