The “housing bubble” is a phenomenon where home prices rise to the point where buyers are no longer able to purchase them and the increasing demand suddenly drops, which results in a market crash.
This begs the question many have: With prices rising for Orange County real estate and buyer income staying relatively the same, could we experience this bubble bursting?
LACK OF SUPPLY
The biggest influence in the housing market is how many homes are available, the “inventory.” When there are a lot of homes for sale and a limited number of buyers, home prices tend to be lower. However, in Orange County, homeowners are holding on to their homes longer, reducing the housing supply. This, in turn, drives prices up as buyers compete for the best homes.
RISING PRICES AMID A COOLING ECONOMY
A market imbalance occurs when home prices exceed buyer capabilities. While Orange County may have a low unemployment rate, the higher cost of living coupled with higher home prices, make it difficult for new workers or businesses to settle into the area. When wages fail to keep up with the higher prices and living costs, fewer individuals are able to purchase a home in the area.
THE WAGE GAP
One issue that is greatly affecting Orange County real estate is the increasing gap between what buyers can afford and what sellers are asking for. The long-standing housing shortage, coupled with the high demand, naturally causes prices to increase, however, more and more potential buyers are finding the cost too high and are foregoing homeownership for the time being, reducing the demand.
Evidence suggests that we are at the end of a long economic expansion and if prices continue to climb while income stagnates and buyer demand decreases, we could see the housing bubble burst before too long. It is hard to predict if this will happen slowly over time or suddenly with little to no warning. Either way, the market is likely to balance itself in the coming months or years.
WHAT THIS COULD MEAN
Prices on homes in the area have slowly gone up since the last market crash in the early 2000’s. If they continue to outpace the buyer’s ability, however, sellers could see a drastic decrease in offers and selling price. This will either result in less buyers or more sellers, and both can cause prices to drop as demand becomes more in line with the supply.
WHAT BUYERS AND SELLERS SHOULD DO
Orange County Real Estate is in a constant state of flux, influenced by many aspects of the community and country, and can be very difficult to predict. If you are considering buying or selling your home in the Orange County area, you should speak with a real estate professional. He or she will be able to help you understand the current market and how that will affect your goals and home buying experience.