Market taps the brakes, slightly
Reports of real estate’s decline have been greatly exaggerated, to paraphrase Mark Twain.
Southland home prices, especially in the entry-level market, continued to rise robustly during the first quarter of 2005, according to data released Thursday. Home appreciation at the higher end of the price spectrum is slowing compared with last year, but sales are still strong.
Although not on a par with the record-breaking pace of early 2004, the number of home sales across the board is “way above the norm,” said John Karevoll, chief analyst at DataQuick Information Systems, a La Jolla real estate research firm.
Sales of houses and condominiums in Southern California in January, February and March were down 3.3% compared with a year ago, but that still was the second-best first quarter in 17 years.
The median price of a home in Los Angeles County during the first quarter of 2005 was $428,000, up 18.6% from the same period a year ago, according to DataQuick. The median in Orange County was $554,000, up 17.1%.
The slight slowdown from last year’s 20%-plus rate of appreciation in median prices is welcome news, analysts say.
“The pace of appreciation was quite unsustainable in the middle of last year,” Karevoll said. “Right now it looks like we’re headed for a soft landing. No one will get hurt.”
In the million-dollar-plus range, which some experts view as a bellwether of the market as a whole, prices dipped in some areas late last year. Currently, those homes are appreciating again but not at the levels of the last two years, according to DataQuick. The high end is notoriously fickle, however. It can experience home-price depreciation for a few months, then shrug it off and bounce back.
Raphael Bostic, an economist with USC’s Lusk Center for Real Estate, conservatively estimates that home price appreciation could end up at 5% to 7% by year’s end.
The California Assn. of Realtors forecasts a more bullish 15% increase in home prices this year, while California sales are expected to drop 2.5%, said chief economist Leslie Appleton-Young.
“We’ll still see a strong season,” she said.
An array of easy-to-get mortgages, an intense demand for housing -- especially at the entry level and in some move-up markets -- and a sense of urgency to buy before interest rates climb higher have buyers still flocking to open houses, agents say. Creative financing options, such as negative-amortization loans, have helped even the most credit-challenged borrowers enter the real estate market.
“It’s amazing what’s going on,” said Syd Leibovitch, owner of Paramount Properties in Calabasas. “The population is increasing, there is limited new land to build on, so this may not change any time soon.”
The Inland Empire is leading the pack in price appreciation and home sales, with San Bernardino County posting a first-quarter median home price of $291,000, up 37.3% from the same period a year ago. It was the only county where sales were up for the quarter -- by 2.3%. Riverside County saw price gains of 28.5%, although 1.8% fewer homes sold. The two-county area now accounts for a third of all Southland home sales.
The hottest Inland Empire locales for first-time buyers, said Mike Teer of Teer One Properties in Riverside, are Colton, Rialto and parts of San Bernardino, where buyers can find homes for under $300,000. Farther out, in Victorville and Hesperia, first-time buyers who may need to commute long distances can find four- or five-bedroom homes in 1,900 square feet starting at $250,000.
Not all are willing to live so far from their jobs, however. In Los Angeles County, some first-time and move-up buyers are finding less expensive homes in Highland Park, Inglewood, Culver City and Eagle Rock, said David Toyama, head of a Coldwell Banker real estate business in Eagle Rock.
Two of Toyama’s clients, independent TV producer Janet Martinez and her partner, Kate Johnston, a grant writer, wanted to move up from their Highland Park home, which they had bought for $145,000 in 1993. Although their home appreciated nicely in the interim, so did others in Highland Park, and they were priced out of the area.
They opted for Eagle Rock, where they bought a three- bedroom home with an office for $510,000. They sold their Highland Park house for $482,000, and they were able to put $350,000 down. They chose a “hybrid” mortgage, in which the interest rate is fixed for seven years, then turns adjustable. Their monthly payment is now about $800.
Martinez said they looked at about 70 homes online last year and, beginning in October, physically checked out 15 houses. They made three offers on homes they didn’t get before buying the Eagle Rock house in January.
“This market is so crazy and overpriced,” Martinez said. “You feel like you have to act now because there are five bids on every house. It’s easy to get caught in the whirlwind of making an offer because you’re afraid you’ll lose the house.”
The competition is even more intense in the San Fernando Valley. A Sherman Oaks tear-down in a prime location that was listed earlier this month for $750,000 had 54 offers. A client of Coldwell Banker agent Dan Drantch made an offer $110,000 over the asking price but was outbid.
A 750-square-foot house in Reseda recently sold for $25,000 over its $390,000 asking price, Calabasas agent Leibovitch said. First-time Valley buyers seeking bargains -- that’s roughly in the $500,000 range -- are purchasing in Sylmar, Mission Hills, Van Nuys and North Hollywood, he said.
The San Fernando and Santa Clarita valleys had only 2,455 single-family homes, condos and town houses listed for sale on Thursday, compared with 12,429 listings in May 1997, for example, before the rapid runup in prices, according to the Southland Regional Assn. of Realtors.
Many first-time buyers seeking homes in Orange County are instead purchasing in Los Angeles County. Homes in Norwalk, Bellflower, La Mirada and Whittier still are available for $400,000, said Barbara Kerr, a Fullerton Realty Executives agent. That no longer is the case in Irvine and Orange.
“Entry-level buyers are struggling to get in almost anywhere in Orange County,” Kerr said. “Ten years ago, I called Fullerton Orange County’s best-kept secret. Not anymore.”
Relaxed qualifications and a mountain of mortgage options allow many home seekers who wouldn’t have qualified in the past to buy a home.
One of the most popular loans today -- and the one with the greatest potential for problems -- is the adjustable rate, negative-amortization loan, said Mitch Ohlbaum, president of Legend Mortgage in Los Angeles.
These negative-amortization loans offer a first-month rate of 1%. The following month, the fully indexed interest rate -- about 4.6% -- goes into effect. At this point, borrowers can decide to make the larger payment or they can continue at the 1% rate, which keeps the monthly payment low. But that adds to their loan balance each month, eating away at their home equity.
“People are fixed on the cheapest payment they can get,” he said. “They don’t care about the risk.”
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A risky option
How negative amortization works: On a $500,000 home purchase, a buyer puts down $50,000, takes a $400,000 first mortgage and a $50,000 second.
The first mortgage is a 30-year negative-amortization loan with an adjustable rate that starts at 1% and a $1,287 monthly payment. The second is a home-equity loan.
After one month, the 1% on the first rises to the fully indexed rate of 4.6% or more and the monthly payment increases $247 to $1,534, said Mitch Ohlbaum of Legend Mortgage.
The borrower can duck the higher monthly payment by tacking the higher interest rate costs -- $2,964 the first year -- on to the loan principal. As a result, the borrower ends up with a bigger loan than when the house was purchased.
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First-quarter median prices
Figures are for sales of new and existing single-family homes and condominiums.
Median prices (in thousands)
*--* County First-quarter First-quarter Percent 2005 2004 change Los Angeles $428 $361 18.6% Orange $554 $473 17.1% San Diego $476 $411 15.8% Riverside $370 $288 28.5% San Bernardino $291 $212 37.3% Ventura $525 $446 17.7% Southern California $428 $357 19.9%
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Source: DataQuick Information Systems
