Loan Rates Sink : Fever Pitch Returning to Home Sales
Pat Fitch, her husband Stan and their dog were cruising around northern San Diego County on a home-hunting expedition one day last month when they happened on an unexpected scene at a housing development named Summerhill east of Oceanside.
About 30 other prospective buyers were already there, lined up, waiting for homes that would go on sale that weekend. The houses had not been completed, but the crowds were there anyway, drawn by deals where even four-bedroom dwellings were going for less than $125,000.
On impulse, the Fitches stayed. Two days days later--tired and dirty after sleeping in their car with a restless collie--the couple finally had the home that would allow them to leave the congestion of Los Angeles behind.
‘A Lot of Fun’
“We look back on it as a lot of fun,” said Pat Fitch of the wait in line. “But if we had to do (it) all over again, we’d probably be more prepared. . . . By the time we got back home (to Santa Monica), we were a real mess.”
What the Fitches went through to get their new home is one indication of how the housing market in California is starting to go slightly mad again, thanks to the tumble of fixed-rate mortgages to below 10%. The drops are particularly welcome in California, where it is much more difficult to qualify for mortgage loans because housing prices are 50% higher than most of the rest of the nation.
A mood of almost giddy optimism is permeating the housing business, buoying expectations of buyers, builders and real estate brokers alike. “Buyers are saying: ‘Yeah, rates are down and we can afford a home again,’ ” said Joan Wilson, a real estate agent in Orange County.
In scenes reminiscent of the frenzied 1970s, determined buyers are hopscotching across the California terrain in tornado-like fashion, touching down where the price is right and location attractive.
Long lines at new housing projects are increasingly familiar sights around the state’s major urban areas. Buyers are camping out for days to stake out houses that are suddenly affordable because home-loan interest rates have fallen more than 3 percentage points in the last year.
Like Lines at Bloomingdale’s
“It’s just like people lining up at Bloomingdale’s for their sales,” noted Bruce Karatz, an executive of the Los Angeles home-building and financial services firm of Kaufman & Broad.
Malibu public relations executive Bruce Beck recently waited four days in line to put down $3,000 in good-faith money on a $190,000 home in Ventura County that will not be built for several months.
“I wouldn’t be looking for a new home if rates hadn’t come down,” Beck said. “And I wouldn’t be able to sell my home if rates hadn’t come down.”
Nationally, California and the Northeast are the hottest housing markets, while activity has been slowest in oil-producing regions like Texas, Oklahoma and Louisiana, real estate experts say. But figures released by the Commerce Department last week suggest that the entire country is starting to benefit.
Sales of new homes ballooned in March to an annual rate of 903,000, the fastest selling rate ever recorded, the Commerce Department said. Economists pay close attention to new-home construction and sales because of the jobs and taxes they generate.
All of the activity, though, is having worrisome side effects.
The housing surge, coupled with the well-publicized flurry of mortgage refinancings, has so clogged the system that sale closings are being delayed weeks, real estate brokers say. The logjam “is causing enormous problems” and hurting sales, said Joel Singer, chief economist for the California Assn. of Realtors.
Housing industry support firms are staggering under the increased workload. Appraisals that normally take two weeks are taking up to two months, lending officials say, and title company reports that used to take a day or two to complete are now taking two weeks.
“Everybody is up to their eyeballs in work,” said Ira Gribin, a broker in the San Fernando Valley.
Home-Buying Lotteries
Some builders, resurrecting a symbol of the 1970s, are starting to turn to lotteries again to keep the surge in demand from getting out of control. At a new development in southern Orange County known as Rancho Santa Margarita, promoters are planning a drawing to handle thousands of buyers who want to rent or buy fewer than 500 homes.
A few real estate experts worry that the housing market is growing ripe for speculators--the bane of the 1970s boom--because demand may so far outstrip supply that steep inflation will inevitably occur. It was common practice a decade ago for speculators to make huge profits buying and selling homes--never intending to live in them--because prices were rising so fast.
“We don’t have the speculators, yet,” said Orange County real estate consultant Ken Agid. “But they’re coming, maybe in a few months.”
So far, prices have stayed under control, but they are rising. The Bank of America forecasts that the median sale price of an existing home in California will be almost $124,000 in 1986, up from $118,000 last year.
Meanwhile, the average length of time it takes to sell a house in California has fallen from 74 days three months ago to 38 days today and may fall to 21 days in the near future, according to a real estate brokerage firm known as Re/Max of California.
Builders say new projects are getting overwhelming responses. “I just sold 31 homes in Culver City without spending a nickel” on major media advertising, Los Angeles-area home builder Jona Goldrich said with a laugh.
Sales Doubled
Kaufman & Broad said its California home sales are running at nearly double the levels of a year ago. It took the company only two weekends to sell 66 homes in Chino Hills priced at up to $125,000.
Mortgage rates have fallen so rapidly that economic prognosticators are having trouble keeping pace. The Bank of America has already revised its recent projection for 1986, saying that sales of existing homes should be up 8% this year, not 5% as originally predicted. Meanwhile, construction of new homes, including apartments, should be about even with last year, not down 5%.
The fact that construction is not increasing is worrisome because it raises the prospect of buyer lines growing longer as the year goes on. Building permits for single-family homes, a key bellwether index, have risen only 3% so far this year, said Ben Bartolotto, research director of the Construction Industry Research Board.
“I would think the shortfall may get worse as the year goes on,” he said.
Builders remain cautious because they remember the widespread foreclosures and bankruptcies during the housing recession of 1980-82. They are wary of constructing houses without firm buyers--a practice that boomeranged on them a few years ago when housing demand collapsed as mortgage rates soared.
“Everybody is more conservative because they had their fingers singed” in the last recession, real estate consultant Sanford Goodkin said.
Planning Is Tricky
In addition, builders have no way of forecasting how long mortgage rates will stay down, which makes long-term planning tricky. “The great fear is, no one knows how long this is going to last,” Peter Ochs, a builder in Newport Beach, said. “Everybody is nervous about that.”
Today’s lines have led to inevitable comparisons with the boom years of 1976 through 1979, when the housing market in California attracted national attention because of overheated demand and limited supply.
And, in some spots at least, history does appear to be repeating itself.
According to Ochs, “there is a buying frenzy going on in Orange County and San Diego County. It’s a flashback to 1978 and 1979.” Ochs’ firm, Fieldstone Co., normally has about 150 homes for sale. Now it has 20, he said.
Large planned communities, such as EastLake in San Diego County and Rancho Santa Margarita in Orange County, are also attracting the type of attention that was prevalent in the last decade.
Housing Madness
One memorable example was the Woodbridge neighborhood in Irvine, which remains a symbol of the housing madness of the 1970s. So many people wanted homes in Woodbridge at one point in 1976 that more than 8,000 people signed up for a lottery on fewer than 225 homes.
Something similar is cropping up at Rancho Santa Margarita, where besieged builders say they plan to hold a lottery later this month to determine who will be able to live in the 300 to 500 homes in the first phase of the project. One of Rancho Santa Margarita’s chief attractions is its affordable housing, a scarce commodity in Orange County, with prices starting at less than $60,000.
So far, about 7,000 people have showed an interest in living there, project developers said. “It’s going to be a mind-blower,” said the enthusiastic Agid, who is helping promote the development.
Some builders contend that lotteries are preferable to lines, which they consider unseemly and nothing more than sales gimmicks to lure even more potential buyers. Sometimes the queues form after builders tell prospective buyers by letter that the homes will be sold on a first-come, first-served basis. Sometimes, the lines form through word of mouth.
Buyers who survive the ordeals best are those best prepared--like Ruth and Joe Da Pena, who rented an $80-a-day motor home for their stay at Summerhill. The Fitches, meanwhile, were lucky to have blankets in their car so they could keep warm at night.
Meeting of Future Neighbors
Those who have endured the lines appear determined to make the best of what could be an unpleasant situation. “Gee, it was a nice way to meet our future neighbors,” said Da Pena, a retiree who is moving to Summerhill from Huntington Beach.
Not everyone is wild about the experience, though. Take Tim Sparks, waiting in line as a stand-in for his parents for a home in Irvine. “It’s not the easiest thing to do to stay here at night,” the 25-year-old truck driver said. “Some people have trailers, but I have to sleep in a tent.”
Those in line often form informal enforcement groups that take roll several times a day and set up schedules dictating the hours when people may go to eat.
“These people are dedicated,” said Chris Manzo, a 19-year-old college student who was paid $500 to wait in line in Irvine by “some guy named Joe” who works with Manzo’s cousin. “They really want these houses.”
