The median home price in Orange County hit $1 million last month, becoming the first county in Southern California to hit that high price and underscoring just how expensive the area has become.

The threshold was crossed when the Orange County median selling price for new and existing homes, condos and townhouses rose from $985,000 in February to $1,020,000 in March, according to data released this week. by researcher DQNews. It constitutes a jump of 22% in the median price compared to the previous year.

Million-dollar homes have spread rapidly across Southern California during the pandemic, becoming commonplace in communities once considered relatively affordable like Highland Park and West Adams in Los Angeles County. The median price in Los Angeles County rose to $840,000 in March, up 12% from a year earlier.

The Orange County milestone marks a massive increase in wealth, at least on paper, for local homeowners. But it comes as a lack of affordable housing across the region has driven people into homelessness and caused others to leave the state in search of affordable shelter.

According to a recent study According to the Public Policy Institute of California, 64% of California adults see housing affordability as a big issue, with more than half of adults saying they’re worried about not having enough money to pay their rent or bill. mortgage.

The $1 million real estate boom was fueled by several factors. An intense housing shortage has sparked brutal bidding wars that push prices well above demand. Investors are also gobbling up more homes to flip or rent, accounting for about a quarter of Southern California home sales.

Another major reason for the rapid increase in the number of million dollar homes is the fact that more people can afford such a high price.

Rising incomes, a booming stock market and mortgage interest rates that have fallen below 3% during the pandemic have opened up the million-dollar opportunity to a wider pool of buyers.

If borrowers made a 20% down payment and had minimal debt, they had a very good chance of getting a loan for a $1 million home if they were earning at least $150,000 a year.

In Orange County, home to many high-paying jobs in tech, healthcare, and finance, the median household income in 2020 was $94,441, and nearly 30% of households earned at least minus $150,000, according to a Beacon Economics analysis of US Census data.

Although home prices were lower during the housing bubble of the early 2000s, more Orange County residents can afford a purchase today, reflecting rising incomes and falling mortgage rates .

In the second quarter of 2006, the median price of an existing single-family home in Orange County was around $700,000 – a price that only 10% of households in the county could afford, according to the California Assn. real estate agents.

By the fourth quarter of 2021, the median price of an existing single-family home had already topped $1 million, according to the association’s calculations, and 17% of Orange County households could afford it.

Rising home values ​​over the past decade mean many homeowners are sitting on piles of equity, allowing them to sell for a profit and buy a much more expensive home even if their income hasn’t increased .

“It sort of trickles down to itself,” said Christopher Thornberg, founding partner of Beacon Economics. “Equity is exchanged for equity.”

Debbie Felix, agent at Seven Gables Real Estate, said many parents are also offering installments for their adult children.

Just a few years ago, she said, a three-bedroom house in Fountain Valley cost around $900,000, but it’s now common for such “starter homes” to cost more than $1 million. .

She is set to list a 1,633-square-foot, three-bedroom home in Fountain Valley for nearly $1.15 million.

“That’s crazy,” she said. “This house will probably cost $100,000 more than asked.”

Whether home prices in Orange County and elsewhere rise from here is an open question.

Mortgage interest rates are rising rapidly, making the $1 million home harder to buy than a few months ago.

DQNews’ March data represents closed sales, meaning many buyers opened an escrow and locked in their prices in February. Rates were rising then, but they are still more than a percentage point lower today.

The average rate for a 30-year fixed mortgage rose to 5.11% this week, from 3.55% in early February, according to Freddie Mac. In November, rates were below 3%.

Assuming a buyer pays 20% to buy a $1 million home, the monthly mortgage payment – ​​including property tax and insurance – would be $4,840 if the interest rate were 3.55%, the average at the beginning of February.

At this week’s average mortgage rate of 5.11%, that monthly payment would be $5,574, an increase of $734 per month, according to a Redfin mortgage calculator.

The change will knock some people off the $1 million price, and several real estate experts say they expect home prices on the market to rise at smaller increments now that the costs of loan are higher.

But analysts said they did not expect prices to fall, citing rising revenues, low inventories and owners’ reluctance to undercut neighbors.

Thornberg said Orange County and the rest of Southern California are relatively inexpensive compared to other major metropolises around the world. Given that the area is home to great industry, entertainment and great weather, house prices “will continue to rise.”

“It’s not a bubble,” Thornberg said. “Everyone has to get used to it.”