Economists at Chapman University expect Orange County’s economy to tumble along with the rest of the country as local home prices fall 11% over the next six months.
The school’s half-year economic outlook, released on Thursday, June 22, forecasts a mild recession nationwide in the second half of the year.
“We’re more confident we’re going to have a recession,” said Jim Doty, an economics professor at Chapman. The school’s December forecast predicted an economic downturn in the second half of 2023.
The cause is not surprising. An interest rate hike by the Federal Reserve. Mr. Chapman’s pessimism sees soaring funding capping an overheating national economy that has sparked the worst inflation in 40 years. These tightening monetary policies will significantly constrain employment and property investment towards the end of 2023.
And Chapman is not alone.Economist at California State University Fullerton predicted in April that a mild “horticultural” recession would hit, slowing the local economy for the rest of 2023 and into 2024..
Let’s take a look at the impact of the upcoming recession on Orange County, detailed in Chapman’s predictions.
- At the end of the year, countywide employment of 1.7 million people was down 1% from the first half and remained flat for the year. Employment in 2022 increased by 5.3%.
- Local personal income is expected to end 2023 up 3.2%, up from 0.5% in 2022 but half the 6.4% in 2021.
- And consumer spending in Orange County, as measured by taxable turnover, is expected to continue its moderate decline, rising 3% in 2023. However, this is far from the early pandemic spending spikes of 12% in 2022 and 23% in 2021.
Homes in Orange County will experience even harsher cold weather.
Home seekers are put off by high prices and high mortgage rates. Projected home sales for 2023 are 23,679 units, down 11% for the year and 22% below the pre-pandemic buying pace in 2018-19.
With limited housing demand, Mr. Chapman expects the median local selling price to end the year at $885,000. That’s down 11% from June’s $993,000 and down 19% from the spring 2022 high of $1.1 million. Chapman expects U.S. and California home prices to fall 8%. Also the price until the end of the year.
It’s not that Orange County residents don’t want to own a home, it’s that few people are looking for a home they can afford to buy at current prices.
“A lack of affordable housing is wreaking havoc,” the forecast said.
Starting in 2022, mortgage rates averaged 3.8% for 30-year loans and are now 6.4%. Chapman expects rates to fall to 5.8% by the end of the year as the economy slows.
Strangely, higher mortgage prices this year may have prevented a significant price drop, Doty said. Homeowners who took out cheap loans during the pandemic won’t give up their low-interest loans. Therefore, they are in no hurry to sell.
“If there was even a little supply to buy, the price would have been even lower,” Mr. Doty said.
The expected cheaper loans and expected price cuts should help more Orange County home seekers qualify for the purchase. But the affordability situation is still not pretty.
Chapman economists found that median local income at the end of the year was 60% of what a successful median-price homebuyer would need, compared to 49% in June. I expect it will. However, the region’s affordability benchmark averaged 77% in 2018-2019.
Weak sales and prices will dampen housing construction. The forecast shows that permits for single-family homes will decline by 24% over the next six months, compared to the pace of the first half of the year. Permits for multi-family housing are reduced by 21%.
The lethargic situation is predicting that real estate jobs will also plunge into an ice age. Construction jobs in Orange County are expected to fall 1 percent in the second half to 103,500. Employment in financial services is expected to fall by 2% to 110,500.
Jonathan Lanzner is a business columnist for the Southern California News Group. You can contact him by: firstname.lastname@example.org
https://www.ocregister.com/2023/06/22/recession-will-cut-orange-county-home-prices-11-in-next-6-months-chapman-forecasts/ Orange County Home Prices Fall 11% in Recession, Chapman Predicts – Orange County Register