The zoom zones
SOUTHERN California’s housing market continued to sizzle in 2005, with the highest rate of appreciation occurring in the mostly modest or entry-level neighborhoods south of downtown Los Angeles.
Overall, Southland prices rose 16.5% last year over 2004 to a record median of $460,000, said John Karevoll, chief analyst for DataQuick Information Systems, a La Jolla-based firm that tracks property transactions. Although the increase fell short of 2004’s 23.1% rise, robust sales of houses and condos dropped only half a percentage point in what Karevoll described as a stronger-than-anticipated year.
“The greatest growth in sales, and the greatest growth in prices, occurred inland and in the more affordable regions of California,” said Leslie Appleton-Young, chief economist for the California Assn. of Realtors, which found homes staying on the market slightly longer statewide than in 2004 when there were record low inventories.
The 90006 ZIP Code, a swath of Los Angeles from Koreatown to Pico-Union, led Southern California with appreciation of 55.5% last year, based on a DataQuick analysis of per-square-foot sales prices by ZIP Code. The 90023 postal area, east of the Los Angeles River and bordering East L.A., came in second, with a 52.5% increase.
Most of the highest-appreciating ZIP Codes are in South Los Angeles communities, largely east of the Harbor Freeway and south of the Santa Monica Freeway, stretching to the unincorporated Los Angeles County areas south of Watts.
Rounding out the top 10 were the 92410 ZIP Code, at No. 8, near downtown San Bernardino with 44% appreciation and, at No. 10, Hesperia 92345, in the high desert of San Bernardino County, with 42.9%. In contrast, Beverly Hills 90210 posted a mere 7% gain for the year.
The rapid run-up in prices at the entry level didn’t stop Philippe Soler from buying his first house in July. Afraid of being shut out of the market, he paid $579,000 for a 120-year-old Victorian fixer-upper close to the inner-city campus of USC in the 90007 ZIP Code. The house was listed at $469,000, but a bidding war drove up the price.
“I was looking for a year and a half,” said Soler, 37, a sculptor. Every weekend, he left his apartment in West L.A. to go house hunting. Frustrated by the search, he considered chasing affordability far away from the city.
“I thought it would not be possible to buy a house in the city,” he said. Then he met Mike Medina of Jim Weber Realty Inc., who helped him find the five-bedroom, two-bathroom home with a fireplace, high ceilings and original moldings. Soler got a zero-down mortgage, which he pays with the help of two roommates.
In the six months he has lived in his home, the median price in his area has continued upward.
Although unusual, it is not unprecedented to see so many areas with appreciation above 40% in a single year, said DataQuick’s Karevoll.
“Many ZIP Codes got two bites of the appreciation apple in 2005,” he added. “They experienced the overall rise in prices and also played ‘catch-up,’ so they got appreciation that they hadn’t experienced in earlier years.”
“It’s incredible,” said Beverly Washington, a real estate agent with W. James Washington Enterprises, who has worked in South L.A. for 25 years. She described the price jump from 2004 to 2005 as “a phenomenal change.”
Alan Nevin, chief economist for the California Building Industry Assn., offered this explanation for the price acceleration. “It’s your entry level that is your hardest to achieve for the first-time buyer, and those units that are priced at the low end of the scale will be fought for.”
That competition has been keenly felt in the expanding condo market, especially in downtown Los Angeles, where twentysomethings and empty-nesters continue to gentrify blocks either adjacent to or previously part of skid row, reported Condosource, a boutique real estate brokerage firm that specializes in Los Angeles condos and lofts. The number of units sold downtown rose 115% and the average sales price increased by 22% from 2004, according to a year-end Condosource report based on Multiple Listing Service statistics.
The jump in prices at the lower end of the housing market could signal that the headiest times are over, said Karevoll, the DataQuick analyst.
“When the market took off, it took off from the top down,” he said. “They’re the last in line. It tells us the cycle is playing out.”
His assessment matches that of Ryan Ratcliff, an economist with the UCLA Anderson Forecast, who pointed to sales activity in San Diego County as evidence of the beginnings of a “classic” slowdown.
“Southern California has been a little bit of a tale of two cities. There’s San Diego and everybody else,” Ratcliff said. In San Diego County, “fewer homes are being sold. They’re staying on the market longer.... Price appreciation has slowed down from double digit to 5% or 6%.”
As San Diego goes, so goes the nation?
Maybe.
“San Diego is the market, not just in California but nationwide, that is being watched the closest,” DataQuick’s Karevoll said. “Prices have gone up there further than anybody ever anticipated, using the job numbers, the income numbers and the migration numbers. We’re watching very carefully to see how it plays out in this cycle, with an eye that what’s going on in San Diego is applicable to the rest of the region.”
As for the rest of Southern California, “between now and summer, we’re going to see a continuation of the trends we’re seeing today: somewhat lower sales level, lower rates of appreciation,” Karevoll said. “The market is going to reach its apex sometime between now and summer. The big question: Does this cycle play itself out with a crash or with a so-called soft landing?”
Other experts agreed.
“Generally speaking, the areas with the lowest-priced housing will have the highest rate of increase,” said Nevin, economist for the state builders group. “The ones with the highest prices will have the lower-priced increase. I don’t see the high-price housing going up that much. It could be 0% to 5%.”
Delores Conway, director of the Casden Real Estate Economic Forecast at the USC Lusk Center for Real Estate, takes the 2006 scenario a step further. “The high end definitely will see the least appreciation and may even see some depreciation.”
For home buyers, it means uncharted waters ahead, Karevoll said.
“The housing market is so big, it’s kind of a supertanker,” he said. “You turn the wheel, and it takes 10 miles to turn.
“We’ll see the rate of appreciation come down. It will probably go down on average a percentage point each month until summer. After that, you might as well throw a dart at a dartboard.”
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The top 10 hot spots
The Southern California areas with the greatest appreciation last year, based on price per square foot, were generally south of downtown Los Angeles.
*--* 2004-05 Zip Code Community % of change 90006 LA 55.5% 90023 LA 52.5% 90061 LA/August F Haw 50.4% 90003 LA 47.1% 90007 LA/Dockweiler 47.0% 90011 LA 45.0% 90002 LA/Watts 44.0% 92410 San Bernardino 44.0% 90059 LA/August F Haw 43.3% 92345 Hesperia 42.9%
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Note: Based on ZIP Codes with 100 or more sales for the year.
Sources: DataQuick Information Systems, ESRI, TeleAtlas.
