Orange Countians need 3.5 times the annual income of a U.S. homebuyer to qualify for a typical house.
A homebuyer would have to make $349,200 to buy the county’s $1.37 million median-priced, existing single-family home in the first quarter, according to affordability stats from the California Association of Realtors.
My trusty spreadsheet found this mortgage-qualifying standard grew by $99,200, or 40%, since 2022’s first quarter. That’s when the Federal Reserve started its war on inflation with rate hikes.
Contrast that required bounty to the $99,600 that house hunters require nationally. Yup, OC’s threshold is 252% higher.
The national requirement has grown, too, up $26,400, or 36%, in two years to buy a $389,400 median-priced US house.
This translates to an incredibly high financial bar for the locals, especially when you note that Orange County household incomes are just 42% higher than the nation – $105,000 vs. $74,000.
Realtor math tells us that only 11% of Orange County households had the financial muscle to pull off a purchase in early 2024 – the third consecutive quarter at that low level of affordability, last seen in the bubble days of 2007. By the way, affordability was 13% in 2022’s first quarter.
Compare that to national trends: US affordability ran at 37% to start this year, down from 47% in 2022 – but it also collapsed to 11% in 2007.
How’d we get here?
Consider what’s changed recently with an Orange County house hunter’s budget.
The average 30-year mortgage rate fell to record lows when pandemic stimulus was required – averaging 3.8% in 2022’s first quarter. Then, when inflation became the major concern, rates rose to 6.8% in 2024’s first quarter.
So over two years, a borrower’s purchasing power was slashed by 28%. That loss was also compounded by Orange County home prices, which rose 8% in the same period.
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Combine rising rates and prices, and you see a typical Southern California homebuyer paying $8,730 monthly, including taxes and insurance, in 2024’s first quarter. That’s up $2,480 since 2022 or 39%.
Oh, and the Realtor math assumes a buyer spends only 30% of their income on house payments – and puts 20% down as part of the purchase. This means an OC house hunter also must find $275,000 for the down payment.
Who can afford this?
Orange County’s affordability problem translates to shockingly few home sales.
Ponder the lethargic pace of completed local transactions for houses, townhomes and condos, existing and new, as tracked by CoreLogic. In 2024’s first quarter, only 5,270 OC residences were sold.
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That’s 30% below the sales activity seen two years earlier when the Fed began hiking rates.
It’s also the fourth-slowest-selling quarter in data reaching back to 1988.
And it’s 48% below the 36-year sales average.
Elsewhere
If you’re looking for a Southern California housing “bargain” – here’s how the Realtor affordability math plays out across the rest of the region, ranked by income requirements …
San Diego: $251,200 to qualify in the first quarter – 2.5 times what a typical American needs. It’s up $71,600, or 40%, in two years. The median-priced house was $981,000. Only 11% can afford to buy vs. 19% in 2022. Home sales in the quarter ran 46% below the 36-year average.
Ventura: $227,600 to qualify – 2.2 times US – up $52,800 or 30% for $889,000 house. That’s 15% affordability vs. 21% in 2022. Sales 57% below average.
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Los Angeles: $210,400 to qualify – 2.1 times US – up $53,200 or 34% for $823,000 house. That’s 14% affordability vs. 20% in 2022. Sales 51% below average.
Riverside: $161,200 to qualify – 60% above US – up $40,800 or 34% for $630,000 house. That’s 20% affordability vs. 28% in 2022. Sales 26% below average.
San Bernardino: $124,800 to qualify – 25% above US – up $33,600 or 37% for $488,000 house. That’s 27% affordability vs. 39% in 2022. Sales 39% below average.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
