Chapman University President Emeritus and Professor of Economics Jim Doti gave more than the red meat of prognostication at the recent mid-year update on the economic forecast from the A. Gary Anderson Center at the Argyros School of Business and Economics.
Doti also offered a couple of headscratchers to the crowd that gathered at the Musco Center on Chapman’s central-casting campus in Orange. It was the sort of stuff that takes an economist to come up with but offers a fair intellectual challenge to anyone who cares to consider the data and analysis behind the econometrics involved.
Here’s the short version: Doti told the crowd that Orange County’s housing market is a bit underpriced these days.
Underpriced?
With a median price for a single-family home well above $700,000?
Yes, declared Doti, who backed up his contention with some research by a class of Chapman students under his supervision.
The research was based on four key data points produced with the application of regression analysis to assign dollar values to certain aspects of OC’s housing market.
All of that was factored into an equation to compare OC with 107 other metro markets across the U.S., as measured by the federal government as of 2016, the most recent data available.
The four factors were:
• Median prices for single-family homes, as reported by the U.S. Census Bureau
• Median household income, as reported by the Bureau of Economic Analysis of the U.S. Department of Commerce
• A score for natural amenities that considers factors such as weather and other quality-of-life conditions, as reported by the U.S. Department of Agriculture
• Pacific Ocean shoreline
The analysis compared OC’s 2016 median home price of $733,000 to the $322,000 median nationwide.
Then it applied the regression analysis to account for the difference, figuring how much a higher median income, plentiful natural amenities such as a Mediterranean climate and varied topography, and 42 miles of coastline add to the value of a house in OC.
Here’s how Doti and his econometrics crew figured it:
Take the national median home price of $322,000.
Consider that OC’s median household income was $86,000, about 25% higher than the national level of $68,800. Factoring that in as part of a mean-regression calculation adds $137,000 to the price of a home in OC, based on a broader market of would-be buyers able to pay more.
Also consider OC’s amenities score of 8.74 from the USDA compared with an average 3.05 for the 3,142 counties throughout the U.S. That’s good enough, according to Doti’s analysis, to tack another $95,000 to the price of a home in OC.
Then there’s the proximity to the Pacific Ocean, which adds another $194,000 to the market for OC homes.
Add it up: $322,000 + $137,000 + $95,000 + $194,000=$748,000.
That’s slightly more than the median of $733,000 recorded for 2016.
And that’s economics – as explained by Doti with the help of some econometrics that help drill down on the supply and demand of OC, where homes are so expensive in no small part because the market is so attractive.
Jerry Sullivan is founder and chief columnist for SullivanSaysSoCal.com.
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