Could the O.C. Median Home Price Fall to $300,000?

That’s the opinion of Bob Simpson, who runs an Irvine company called IMARC that investigates mortgages for mortgage insurers. In an interview with the Orange County Register, he says that home prices need to come more in line with O.C. household incomes.down-arrow.jpg

[W]hat’s the median income in Orange County? I’d say multiply that by three or four and that’s the median home price. That’s about $300,000. Right now, anyone who bought their home since 2003 has lost money. … I’ve been on record that the median is going to return to 1999 or 2000 or worse. That’s about $300,000….Who exactly can pay $700,000 for a home? You should make $250,000 or $275,000 to carry that debt load.

He also confirms that mortgage fraud contributed to the runup in prices.

I think that the majority of stated-income loans are fraud. There’s a report by the Mortgage Asset Research Institute on fraud, which said 60 percent of stated-income borrowers inflated their income by more than 50 percent. So that means someone who makes $5,000 says they make $7,500 a month. That means there are people with $5,000-a-month incomes with $2,500-a-month payments. There’s no way they can pay that much.

Meanwhile, UCLA issued a dim economic forecast for Southern California, saying that the housing slump was largely responsible.

Edward Leamer, also an author of the report, said the housing turmoil did so much damage in large part because the economy is too dependent on consumer spending.

“The low rates of interest, the innovations in the financial markets and the tax cuts have turned us into a consumption-loving, debt-ridden, foreign-depending society,” he wrote in the forecast.

As homeowners lost equity in their homes — or lost them altogether — they were no longer able to borrow against the properties to pay for remodeling jobs, vacations, college tuition or other expenses.

I’m sure there are plenty of people who would love to believe Mr. Simpson, because there are plenty of people with decent jobs who still can’t afford an Orange County house.  It’s not such good news for homeowners, however, unless they’re the buy-and-hold types who bought 10 or more years ago and are paying down their mortgages.

Recent Redfin posts:
The Costa Mesa Market Report:  Condo Housing Stats, September 2008
Santa Ana: Fraud, Fraud, Fraud
Bail Out, Bail Out, Bail Out

  • dafox

    the historic price to income ratio for OC is ~4.7 (aka an income of 100k will buy a 470k home). The problem with history is that both energy and healthcare costs have risen faster than inflation. therefore when things return to normal, that 4.7 will likely be closer to 4.4 or even less.
    OC median income = ~70k. 70k*4.4 = 308k. I’d say Bob is dead on.
    And I just read the article.. he’s 100% right on everything.

  • Max D.

    $300k? Yes, please! My wife is getting impatient. She keeps looking at $600k houses and I have to keep telling her that although we might be able to make the payments, we wouldn’t want to. (“How’s your ramen, honey? Only four more years…”) Plus we’d still be catching a falling knife.

    I’ve been saying all along that absent the price run-up, we’d be seeing prices around $350k in our current neighborhood, where prices were just under $200k in 1997.

    I’m hoping to see $350k, but for the right house I’d pull the trigger at $400k.

  • Grouchy teacher

    Patience, Max, my wife is doing the same thing but our range is 300-400K max. I bid on 2 short sales that climbed way above 400 k due to eagerness so I’m gonna drop out till after the election…. Anyone know any good historical info on house prices right after elections?

  • ellem

    Yes, it seems many of us are continuing to play the waiting game . . . we’re willing to pay a bit more since “this is So. CA” (as opposed to buying somewhere like OH or MI, etc) — but for anything more than $400K it has to be spectaculaire!

    I don’t feel one bit of commiseration/pity/sympathy/etc for “homeowners” who might “lose their homes” — they won’t be homeless, renting works for many (like us!) and for every ex-homeowner/homedebtor who is forced back into rentals due to a lack of intelligence/foresight, there are many more waiting on the sidelines to move right into their freshly vacated house –it sounds harsh, but it’s always better to do things the right way rather than cheat/lie/try to finagle one’s way into a situation that isn’t going to work if done honestly.