Southern California

Why Orange County and San Diego Continue to Outshine Expectations

Scott Wild

Scott Wild

March 18, 2024

Orange County and San Diego are currently the strongest US housing markets and will likely remain near the top of our ratings throughout 2024. Yes, the weather and beaches are nice, but what makes these two markets stand out from the rest of the country recently is a unique blend of:

  • Supply constraints on new development
  • High-paying jobs in a diverse array of sectors and locations
  • A rebound in demand from international buyers
  • Housing is also expensive in most other places now.

Orange County and San Diego are vastly undersupplied.

Over the last few years, builders in many US markets responded to spiking demand by ramping up their operations to build more homes. Mortgage rates of 6% to 8% quickly priced out a huge swath of prospective new home buyers. Sales slowed in some of the same markets where builders had increased supply. This led to flat or falling home prices, with new home prices often propped up by some massive incentives.

This played out somewhat differently in Orange County and San Diego. Sales also slowed during the interest rate spike but came roaring back, along with steady price growth. Two things caused the quick bounce back:

  • Development bottlenecks prevent overbuilding. With not much land left to build on and notoriously long and arduous approval processes for new projects, Orange County and San Diego builders were mostly kept in check from flooding the market with supply, even during the post-pandemic boom.
  • Years of undersupply create a buffer of pent-up demand. Land constraints and development nightmares are not new problems in Orange County and San Diego. Pent-up demand from years of persistent undersupply and historically low resale supply means these markets have no bloat.
  • A permanent condition? Despite the huge demand for housing, don’t expect the new home supply to suddenly spike here. The easy development projects are gone. ADUs aren’t going to solve the problem. Redevelopment of underused malls and offices is a great idea, but it typically takes a long time to become a reality.

Other positives for Orange County and San Diego

Aside from perpetually low supply, some other factors supporting the strength of these housing markets are:

  • International buyers are back in a big way. A long pause during pandemic-induced travel restrictions appears to have created pent-up demand from international buyers, who are again fueling demand in the luxury home market. International buyers dominate the top end of the new home market in Orange County.
  • High-paying jobs outside the urban core. The issues plaguing many West Coast urban areas are less of an issue for the most innovative employers in San Diego because most of the firms aren’t located downtown, clustering in areas like Carlsbad, University Town Center (UTC), and La Jolla. Orange County doesn’t really have a downtown. High-paying jobs are concentrated in Surban areas like Irvine, Costa Mesa, and Newport Beach.
  • Job markets buoyed by biotech, military, and aerospace. With less exposure to tech and venture capital than many, these markets have (mostly) skirted recent turbulence in these sectors.
  • Prices are up everywhere else—so why leave now? No markets feel like a bargain lately, so people are putting more value on living where they want to. Why uproot your life for a new state if you will still struggle to afford a home that meets your needs there? 

Some trouble on the horizon?

Will the good vibes continue? Yes, but these are some things to watch out for:

  • Affordability. At the current “crisis” levels, the dream of homeownership is becoming unattainable for most young families. However, this is also pushing municipalities to become more open to innovative housing solutions as their constituents demand action to address the housing crisis.
  • A shrinking labor pool. Low- and medium-income workers who cannot afford to live here are migrating elsewhere. Look no further than the trades that local home builders rely on—they continue struggling to find workers despite the hot market. For better or worse, this should lead to higher wages.
  • Companies relocating to lower-cost states. California is an expensive state to do business in. Most leading firms will maintain a presence in Southern California to tap into the rich talent pool here, but many are shifting as much of their operations as they can to lower-cost states.

In my (admittedly biased) opinion, Southern California is one of the nicest places to live in the country. As we put more value on time at home and overall quality of life, many are still willing to pay for the California lifestyle.

Reach out to Scott Wild for more details on these markets or your local Southern California market.

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About The Author

Scott Wild
Scott Wild
Senior Vice President, Consulting
Scott leads project specific consulting analyses throughout Southern California.

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