More than miles apart

By Marnell Jameson

March 27, 2005 12 AM PT

Special to The Times

When Erik Mellquist graduated from the University of Michigan in 2003 with an engineering degree, he had a plan: Get married. Find a job. Buy a house.

The bride and the job proved the easy part. He and his fiancee, Emily, also an engineering student, married three weeks after they graduated. About the same time, Erik landed a job at an aerospace firm in El Segundo. But when the newlyweds arrived, he said, “the housing prices blew us away.”

Based on Erik’s salary -- Emily returned to school for a teaching credential -- they could afford up to $350,000 for a home. Because that seemed high, they looked at properties for $300,000 or less.

“We figured for $300,000 we could get something half as big and half as nice as our parents have,” Erik said. Each set of parents owns a house worth about $300,000. His parents live in a 4,000-square-foot home on 2.5 acres near Columbus, Ohio, and Emily’s live just outside Detroit in 3,000 square feet.

They figured wrong.

The sticker shock the Mellquists experienced is typical for buyers moving into the Golden State, where home appreciation has far outpaced that in most of the country. Even recent softening in some spots at the higher end of the market won’t make a big difference to newcomers.

In the last five years, housing prices in the region have appreciated an average of 135.6, compared to just 41% nationwide, according to the California Assn. of Realtors and the National Assn. of Realtors. In November 1999, for example, the median price for a home in Southern California was $206,300; nationally it was $134,000. Fast-forward five years: The gap between home prices has widened to $486,100 in Southern California compared with $190,600 nationally. In just the last 12 months, the rate of appreciation in the Southland has been more than double that of the nation.

While housing prices have skyrocketed, Southern California paychecks have not. The median family income in Southern California last year was $55,103; nationwide it was $52,680, according to recent Census Bureau figures.

Californians who already own homes are basking in the rapid appreciation, but those who find the prices way beyond their means include people moving here from out of state. To make a move work, many are lowering their expectations and relying on creative financing and rising-but-still-low interest rates.

“Unless they’re coming from another pricey market, such as the Bay Area or New York, a buyer relocating to Southern California usually winds up with a smaller house, a smaller yard and a home that’s not built with the same quality,” said PK Jenican, a Coldwell Banker relocation specialist in south Orange County.

“I can’t tell you the number of times I’ve had women crying in my back seat,” she said. “They all say, ‘If you could only see my house back in so and so.’ ”

Cathy Abram was such a client. She and her husband, Scott, 41, moved to California in July from a 4,800-square-foot home on a wooded lot in Castle Rock, Colo., which they sold for $608,000. They bought a home in Rancho Santa Margarita for $769,000.

“Our new house is about half the size, on a smaller lot and cost more,” Cathy said, adding that although both houses are 8 years old, the California house isn’t built nearly as well.

“We loved Colorado and didn’t want to leave,” said Cathy, 37. But when her husband, who had left his job a year ago to start his own company, got an offer from a California-based medical care company that promised financial security and insurance benefits, they opted for security.

“Besides missing my friends, I miss the wide open feeling, the big sky and the pines,” she said wistfully. “I now look at the Santa Ana Mountains instead of the Rockies every day, but this was the best choice for us.”

Relocating from out of state is often tough, said Jenican, who represented the Abrams in their purchase. “I’ve had many [prospective] clients turn down jobs because they don’t want to compromise lifestyle. They often say that even though they got a promotion, they feel as if they’re downsizing. They feel like they’re taking a giant step backward.”

Aerospace engineer Mellquist, now 24, expressed that same sentiment. “Here I was making twice as much as all my friends, and they were buying houses and I couldn’t. In Michigan, people don’t live in apartments when they’re married. They get a house and a yard. Many times we said, ‘Maybe we should just move back.’ ”

Then their agent, Sandy Levy, with Horrell Realtors in Redondo Beach, got the listing for a probate property. The place was a rundown, 30-year-old, 1,000-square-foot one-bedroom condo in Rancho Palos Verdes with no garage and no yard. The Mellquists snagged it last March for $284,000.

“My parents thought we’d purchased some luxury beachfront condo.... In truth, the place was unlivable,” Mellquist said. He and his wife spent six weeks working 60 hours a week on the condo, while still living in a rental, before it was fit to move into. “When my parents learned the reality, they just thought we were stupid.”

Mellquist estimated that beyond their labor they put $10,000 into the home. Though they’re now “house poor” and can’t afford furniture, they’re also encouraged. Less than a year after they bought the place, it was appraised at $360,000, or 27% more than they paid.

Such rapid appreciation accounts for the fact that 20 of the top 25 most expensive metro areas in the U.S. are in California, according to Economy.com, an economic forecasting and consulting firm in West Chester, Pa.

But it can contribute to disillusionment and a perceived lower quality of life by those living in the region. A survey of Los Angeles County residents released this month from the Public Policy Institute of California captures the resulting feeling: Survey respondents listed availability of affordable housing as the second-biggest problem facing the county, after traffic.

Living in Southern California also costs more. Compared with the average cost of living nationwide in 2003, residents paid 19% more to live in Los Angeles County, 33% more to live in Orange County, 31% more to live in San Diego County and 6% more to live in Riverside and San Bernardino counties, according to Census Bureau figures.

“People moving to pursue a plum job offer need to consider these costs,” said Steven Cochrane, director of regional economics for Economy.com. “A person may be getting a 30% pay raise, but when they add up the housing costs and the cost of living, they may take a drop in lifestyle.”

Yet a slew of creative mortgages are helping buyers make the transition. Zero-down (or 100% financing) and interest-only loans allow many to afford homes they otherwise couldn’t. Mellquist was among those who used such financing.

“I was expecting to put 20% down and get a 30-year fixed loan, but I learned the game is totally different here,” he said. “Conventional loans go out the window.” The couple opted for a zero-down, five-year-fixed, interest-only loan. “I can’t see us staying in California forever,” Mellquist said, “because I can’t see us ever affording a 2,000-square-foot house for the children we plan to have.”

While a move into the state often means a move down in housing, for some the trade-offs are no surprise but are offset by other factors. Jeff and Stella Pickford, both 62, live in Glendale, Ariz., near Phoenix but plan to move to California this summer. They want a smaller yard and will take a smaller house because they want to travel more. But mostly they want to be closer to their six grandkids. Pickford retired last year from his management job at a credit card company. His wife is a retired schoolteacher.

The couple hope to sell their 1,800-square-foot home, which they bought new in 1997 for $170,000, for around $320,000. They then plan to pay “in the $350,000 range” for a 1,500-square-foot condo in the Riverside or Corona area.

For now, they’re watching the market closely. Pickford goes online almost daily and has created a spreadsheet of all the listings and sales in the neighborhoods he’s interested in. He has lived in Southern California three different times.

“People who haven’t lived in Southern California are shocked by the enormity of it, by the home prices and the congestion. But if you don’t have to work and can avoid the freeways, the quality of life is very good,” said Pickford, who likes the weather, the laid-back lifestyle and the proximity to coast and mountains.

Stella, however, is not in a hurry to move. “I love my kitchen and my house the way it is. I picked everything. There’s a sadness about leaving. I keep telling Jeff, ‘We could take a little longer.’ ”

She’s reluctant to move into a smaller house. “If I could have this house near my kids, minus the yard, that would be the perfect scenario.”

Meanwhile, Jeff remains practical: “We expect a smaller house and a smaller yard for more money and a higher cost of living.

“We’re reconciled to that because the quality of life will be better for us,” he said. “For us, it’s about being closer to family.”

(BEGIN TEXT OF INFOBOX)

How much prices have gone up

Appreciation of median-priced homes in the 12-month period ending November 2004:

Nationwide: 10%

Los Angeles County: 24%

Orange County: 20%

San Diego County: 24%

Riverside, San Bernardino counties: 37%

Five-year home-price appreciation from November 1999 to November 2004: