After looking at more than 30 homes and getting outbid on at least a dozen, Aliso Viejo renters Beth and David Von Sands gave up their quest to buy a home in Southern California.

“We got priced out,” said Beth Von Sands, 39, a working mother of two. “We can’t live here and have a house.”

So, the couple decided to leave California, buying a three-bedroom house in Gilbert, Ariz., with a large den, a “gigantic swimming pool” and good schools. They paid $555,000. A similar house in Aliso Viejo likely would cost them $1 million or more. Since they both work from home, they can easily move out of state.

“It’s beautiful,” said Von Sands, who expects to close the deal on July 6. “It’s everything that we wanted.”

With home prices climbing almost $2,000 every week, tens of thousands of Southern California homebuyers got priced out of the homebuying market in the past few years.

Price gains — spurred by record low mortgage rates, increased demand, all-cash investors and sluggish homebuilding — have outpaced incomes, leaving aspiring homebuyers searching for alternatives.

Some plan to continue renting, waiting for a market crash economists say is unlikely to occur. Others are looking to team up with family members or roommates to pool their resources.

And some, like the Von Sands, are moving out of California in droves, taking advantage of higher affordability rates and remote work opportunities.

To be sure, the housing market has slowed in the last few months after 30-year mortgage rates increased at the fastest pace in four decades.

But the past five years have been particularly brutal for buyers following a spell in which rates fell to all-time lows. Bidding wars became the norm, creating a buying frenzy some likened to the “housing Hunger Games.”

As home values ascended, the number of priced-out households jumped 13% from 2017 to 2022 in Los Angeles, Orange, Riverside and San Bernardino counties, California Association of Realtors figures show.

That’s an increase of nearly 522,000 priced-out households in the past five years, totaling 4.5 million in the first quarter of the year.

“It’s tougher for renters to get into the market vs. 10 years ago,” said CAR Senior Economist Oscar Wei. “Prices have come up, and (mortgage) rates are higher.”

A recent Bankrate study found that Los Angeles and Orange counties have the worst market for first-time homebuyers out of 50 U.S. metro areas.

“Los Angeles households headed by 25- to 44-year-olds have a median income of $80,643, according to the Census Bureau — barely more than in Pittsburgh,” the study said. Yet, Pittsburgh’s home prices are one-fifth the amount paid in the L.A.-Orange County market.

Key factors

Four key factors are behind this trend:

Mortgage rates: While rates are rising this year, borrowing costs averaged less than 4% for the preceding 10 years, according to Freddie Mac. That juiced demand to the point where the inventory of homes for sale fell to an 18-year low. Bidding wars — which push up home prices — became prevalent.
Demographics: Millennials are entering what economists call their “prime homebuying years,” when they marry and start families. The 26- to 41-year-old generation made up 43% of U.S. homebuyers in 2021, the largest share of any age group, the National Association of Realtors reported. Boomers made up 42% of buyers.
Work from home: The pandemic and the ability to work remotely spurred workers to move to more affordable areas with more space for a home office, further boosting demand.
Homebuilding: Construction added an average of 98,000 homes per year in California over the last decade, well below the 180,000 needed annually to meet demand, per  the California Housing and Community Development Department.

As a result, runaway home prices far outpace income growth. While home prices doubled from 2012-20, Southern California’s median household income rose just 30-35%, Census figures show.

Ask Huntington Beach renter Debbie Marcusson, a California State University technical training director with two master’s degrees. After saving for two years, she looked into buying a house in 2016, only to discover she didn’t earn enough to afford one at the time. In the six years since, Orange County’s median house price jumped 67% to $1.2 million, rapidly outpacing her income.

“The down payment keeps going up, and it’s a never-ending problem,” said Marcusson, 55. “I have two master’s degrees and still can’t ever get ahead.”

Crash unlikely

Brittney Dales, 28, has been living with her parents in San Bernardino to save up for a down payment on a home. The legal assistant thought it would take her three or four years to have enough, but “that slowly dissipated” as home prices rose.

In 2019, when she first started looking, “some of the houses that I did walkthroughs on were just above my price range,” Dales said. “Then a year later they were $100,000 over what they were a year before, if not more. So, it was like those aren’t even remotely near my price range.”

Dales said she either needs to double her salary or prices would have to drop by at least $200,000 before she could afford to buy.

“So, like, roomie, marriage, any of those options obviously make that more feasible,” Dales said. “But right now it’s just kind of a waiting game.”

Brittney Dales, 28, has been living with her parents in San Bernardino since college to save for a home. But units that were just above her price range a few years ago now are more than $100,000 above what she can afford to pay. “I’d have to make double my income (to afford a home). So, like, roomie, marriage, any of those options obviously make that more feasible.” (Photo by Will Lester, Inland Valley Daily Bulletin/SCNG)

Many said a recent rent hike spurred them to consider buying.

“The rent has been raised here once last year, and I hear it’s going to be raised again,” Daniel Arreola, 46, said of the two-bedroom house he rents in San Dimas for $1,920 a month. “I’m seeing a pattern here. So that’s what inspired me to go look into buying a home.”

He hasn’t gotten far in his home search, however. He can only afford a payment of about $2,500 per month, which “doesn’t get me anything here,” the social media manager said. “To be honest, I’m waiting for a crash to happen.”

Even though home sales have slowed in the face of newly rising mortgage rates, economists say it’s unlikely home prices will crash. And even if they do drop, it will be nothing like the Great Recession. Lending standards have been tightened, making drastic price drops doubtful.

“(Prices) won’t come down 20-30%,” said Wei, the CAR economist. “You may see a price level similar to 2021.”

Leaving California

Melissa Spolar has two dreams: To start a coffee house church and to own a home.

But to afford a home, the part-time pastor will have to move out of state or go in on a house with her brother and sister-in-law.

“In Southern California, when you’re single and a middle income earner, it’s a bit of a pipe dream to own a home,” said Spolar, 29, of Pasadena. “We are talking about pitching in all three of our incomes to buy a fixer-upper. … So, three incomes in order to be able to own a home around here.”

Although Spolar’s parents had middle income jobs — her mom as a teacher, her father in construction — they still managed to raise six kids and own a big house in a decent area.

“It’s crazy to think that most of us cannot afford a home,” Spolar said.

Housing Hunger Games: This three-bedroom Covina house had 126 showings and received nearly 50 offers within four days of coming on the market in April 2021, said listing agent Crystal Wang of Re/Max 2000 Realty in the City of Industry. It originally listed for $650,000 but received eight offers for $60,000 or more over that amount. “I don’t really like this market. It’s too crazy,” Wang said. (Photo courtesy of Crystal Wang)

Lakewood resident Wesley Wilson, 35, got so frustrated with the Southern California market, he bought a two-bedroom townhouse in Las Vegas last January.

It cost him $258,000, vs. $720,000 for a median-priced condo in L.A. County.

“I started obviously (looking) in Southern California, in the greater Long Beach area. And I even looked in the desert, Palm Springs-type areas,” the software engineer said. “I could probably find something that I could buy, but I would also be house poor, and I didn’t want to be in that situation.”

Related links

How much house can you get for $1 million?
Home sales plunge in Southern California, and prices level off as mortgage rates rise
50 offers, 1 house: Buyers squeezed in bidding frenzy as prices vault again
‘Explosive growth’ leads to record-high rents for Southern California apartments
Southern California housing plans contain ‘fake sites,’ lack analysis, critics say

Like Wilson, Mission Viejo renters Miguel and Laura Santana have been home shopping in Las Vegas.

The couple started looking last year because the rent for their two-bedroom apartment has gone up $600 in the past three years. They looked at houses, but they seemed too “expensive for what you got.” Most of the houses in the Santanas’ $450,000-$500,000 price range needed remodeling, said Miguel Santana, 37, a public health worker.

Then, the couple switched to looking at condos. They took a break, and “when we went back, we saw condo prices have reached the level of the houses we were looking at,” Santana said. “Southern California is just not affordable.”

The couple made one home-shopping trip to Las Vegas already and is planning a second foray soon. Santana said he wouldn’t have trouble finding a new job in the public health field. His wife will be able to keep her current job, working remotely with a trip back to Southern California two or three times a month.

Demographers say unaffordable housing is a key reason why Los Angeles and Orange counties lost nearly 176,000 people from July 2020 to July 2021. U.S. Census figures show most L.A.-Orange County residents leaving the state in 2019 moved to Las Vegas, Phoenix and Dallas-Fort Worth.

The Phoenix area was the Von Sands’ top choice after they outgrew their two-bedroom apartment in Aliso Viejo. Their son and daughter, ages 10 and 8, need their own bedrooms, Beth Von Sands said. Their rent has gone up $100 every year since they moved there 10 years ago.

They began their house hunt in March of 2021, considering both houses and townhomes. But every time they found a place they liked, “we got outbid,” she said.

“Then, my husband said, ‘Why don’t we move to Arizona?’ ” Von Sands said. As in Southern California, they kept getting outbid on houses in Arizona as well, with one house going for $55,000 over the asking price.

“But, there’s a shiny rainbow to this story,” Von Sands said. “We have a house. Right now, we’re in closing, and it will be ours within days.”

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