Home Sellers Get Top Dollar Fast in Orange County

All Gordon Liechti wants is a pool and some privacy. Problem is, finding a house with those qualities in Orange County isn’t easy these days.

In fact, finding any kind of house isn’t easy. Even for Liechti, and he is willing to pay $400,000.

The first house he visited the other day was a $465,000 home on a hilltop in Mission Viejo with only a few feet of grass separating it from the next house. And no pool.

Houses in that price range are selling fast, and Joan Wilson--the Grubb & Ellis agent showing Liechti the house--says it will probably sell within two weeks.

“This is crazy,” Liechti said.

A lot of other people would say “amen.” Nevertheless, they are still buying. Sales of used houses rose 5% in the county during the first three months of the year compared to the same period last year.

Realtors say they could have sold more--if the right homes were available.

It’s a seller’s market out there, which is not unusual for Orange County. What is unusual is the intensity of the market, as measured by the small number of new and used homes available for sale and the rate at which they are snatched up by eager buyers, sometimes the same day they are offered.

In Irvine’s Turtle Rock neighborhood, a Century 21 Professionals Realtor recently set out signs around the city for an unlisted house with an asking price of $545,000. By the time she had finished, several cars were following her. When she got to the house, more were waiting. The house sold for $550,000.

“The market’s so strong that by the time you close escrow, your house has appreciated,” said Hana Simon, another Realtor at Century 21 Professionals.

Of the 970 houses listed for sale through the Irvine multiple-listings service in the first three months of the year, more than half--500--were sold by March 30.

For those whose budgets are a little more constrained than Liechti’s, the problem of finding a suitable house is even worse. Even in the county’s less glitzy neighborhoods, houses are selling fast.

A three-bedroom townhouse in the modest Stanton neighborhood recently garnered two offers in less than two weeks and sold for what the buyer had asked--$111,000.

“Most of our transactions involve one or more offers,” said Bonnie Wernecke, manager of one of Tarbell-Realtors’ offices in Anaheim.

“If it’s on the listings more than two weeks, there’s usually some difficulty with it.”

After two years of strong home sales, far more people are still in the market for houses than anyone had expected.

“Demand for housing continues to exceed our expectations,” said Joel Singer, chief economist for the California Assn. of Realtors. “I would have thought it would have petered out by now.”

And local home builders have been turning out fewer new homes, meaning the market is likely to get tighter still.

Prices Soar

Because of the strong demand for homes and the short supply, prices have soared.

The average new house in the southern half of the county--where most new homes are being built--cost $262,000 during the first three months of the year, according to Market Profiles, a Costa Mesa consulting firm.

A used home sold for an average of $184,000 across the county during the first quarter, according to the California Assn. of Realtors.

Why are so many people buying? First, because interest rates are still relatively low.

The average rate for fixed-rate mortgages during the first quarter of the year was 10.24%, compared to 9.55% last year, according to the Federal Home Loan Bank Board. The rate on adjustable-rate mortgages averaged 8.51%, compared to 8.57% a year earlier.

Lower rates in 1986 and 1987 put even expensive Orange County homes within the reach of more buyers, making those years the best for the real estate industry since the last boom in the late 1970s.

People are still looking now because--with rates beginning to rise again--they suspect this may be their last chance to buy for a while.

Homes are also appreciating rapidly. Not only is a house still considered a desirable investment and tax shelter, but buyers of more modest means may fear that rising prices will push a house beyond their reach.

Prices of used homes in Orange County rose 16% in the last year, according to the California Assn. of Realtors.

The county is now one of the most expensive housing markets in the nation.

And one of the least affordable. Fewer than one in four households can afford the $1,477 monthly payment needed to buy the average existing house, said the Realtors association.

Nationwide, about half of all households can afford the average home, which is much less expensive than the average California house.

The county has come a long way from the 1950s, when it was an inexpensive dormitory suburb of Los Angeles.

One measure of exactly how far it has come is the growing disillusionment of many residents with what they consider overdevelopment.

Polls show a majority of those residents are likely to vote in June for a slow-growth initiative that the building industry says will curtail construction of new homes.

Some observers suggest anticipation of the initiative’s passage may also be pushing buyers into the market.

That’s a sticky political issue because supporters of the initiative say it won’t stop housing construction appreciably and won’t raise prices.

Initiative’s Impact

If prices are going up, the supporters say, it is largely because the building industry has pushed people to buy now by exaggerating the initiative’s impact.

“They make out well either way,” said Tom Rogers, a leader of the slow-growth movement.

Several local Realtors said they doubted the impending initiative had pushed many buyers into the market.

“If it has, I think it’s a minority,” said Robert S. Licata, a Grubb & Ellis Co. vice president and district manager in Irvine.

Strong demand and low inventory is characteristic of the entire state, the Realtors association said. Consequently, prices statewide jumped almost as much--15%--as they did in Orange County--16%--over the last year. It seems unlikely the county’s impending initiative is driving the local market much.

So who is buying, especially at Orange County prices?

Most of the buyers are people who already own a home and can use the equity for a down payment on another.

Of these, many are couples who both work. They may be having a child and need a larger house. Or they may just be looking for more lavish digs, said Tom Williams, president of Coldwell Banker’s Irvine-based residential brokerage business in Southern California.

Liechti, for instance, is a 31-year-old senior sales representative for an Irvine computer company. He and his wife--who also works--already own a home in Lake Forest. They are expecting a child and seeking larger quarters.

Many buyers already live here, though some have been transferred to the county by its flourishing high-technology companies.

At more expensive subdivisions, builders and Realtors are noticing an influx of affluent Korean, Japanese and Chinese buyers who--the Realtors speculate--are benefiting from the weakness of the dollar against Asian currencies.

At Barratt American’s Belle Maison project in Laguna Niguel--where the houses cling to a scenic hillside and start around $400,000--as many as 40% of the buyers are Asians, said Barratt American President Mark L. Frazier.

On the other hand, only about a quarter of the people buying used houses in the county are renters, the Realtors association estimated.

“The rest of the first-time buyers go out to Riverside County if they’re looking for a single-family home,” said W. Steven Johnson, a vice president at The Meyers Group consulting firm in Corona.

“They just can’t afford anything in Orange County.”

Or they give up on the goal of owning a detached house in Orange County and begin looking for a condominium. That way they won’t face an arduous commute on the choked Riverside Freeway into Orange County, where most of the new jobs are.

That has caused a boomlet in condominiums, a market that had been flat for the last several years.

“Last year you could list a condo for six months to a year” before selling it, said Joan Wilson, the Grubb & Ellis Co. broker in Mission Viejo who is helping Liechti look for a house.

The Fast Sellers

“Now people are able to sell their condos, and they’re even appreciating.”

What are people buying? Realtors can’t find enough houses to sell priced between $150,000 and $225,000, they say. And houses between $400,000 and $500,000 are also selling well.

It may soon become even more difficult to find a house in Orange County. During the first three months of the year, builders constructed fewer new homes.

Nearly 5,600 new homes were on the market during the first quarter of 1987, but the number fell to 4,450 this year, according to Market Profiles.

Why? Experts and builders say an enormous backlog of requests from developers means it takes longer to get permission to build from the county in unincorporated areas, where most of the undeveloped land is located.

Requests to build nearly 33,000 new residential units in the largely unincorporated south county were in various stages of consideration before local governments during the first quarter. That was up from only 24,000 at the same time last year.

The developers hope to get building permits for their projects before the slow-growth initiative makes it tougher to get approvals.

Because most of the northern half of the county is already developed, few big new housing developments can be built there.

But even in the south county, land is getting scarcer, more expensive and harder to find.

“Lot prices are going crazy,” said Carl Akins, president of home builder Akins Development Co. in Newport Beach. “They’re jumping as much as 50% every time you look.”

Sales of new homes, meanwhile, dropped by 14% during the first quarter of the year compared to the same quarter a year earlier, partly because there were simply fewer new houses for sale. In both quarters, builders sold about three-quarters of the homes on the market.

But experts suspect some buyers who might have bought new homes were finally turned off by the rapidly rising prices: $262,000 for the average new detached house in south county, and $154,000 for the average condominium, according to Market Profiles.

During the first three months of the year, some of those buyers probably bought less expensive used homes instead, accounting for the strong surge in sales of used homes during the quarter.

“The drop in new home sales could be partly a softening trend,” said Ken Agid of the Irvine consulting firm The Marketing Department.

“There are some relative bargains in the resale market compared to new homes.”

Higher land costs helped pushed housing prices up. But builders also discovered there were buyers for even their most expensive houses, and they began building more.

“More builders are selling the very expensive products,” said Peter Ochs, president of The Fieldstone Co., a Newport Beach home builder.

Still, a lot of condominiums and town houses are also being built to appeal to buyers of more modest means. And they are selling, accounting for almost as many sales as single-family homes in south county last quarter, an unusually high proportion.

The condos also allow builders to pack more units onto a piece of land that may have cost too much to build single-family homes on profitably.

Profits are excellent for local builders--if they are still building on land they bought before prices began soaring last year. If they are using newly acquired, more expensive land, they may be feeling a little pinch.

Is Orange County all that different from other prosperous areas around the country or in California? Not really.

Outside economically depressed areas such as the oil states and the Midwest, the supply of housing is also tight compared to the number of people who want to buy. In California, the supply has been steadily decreasing for years compared to demand.

That’s not much consolation to people like Liechti, the computer salesman, who was still in search of a house with a pool after walking through the $465,000 Mission Viejo home and admiring the view of the surrounding mountains.

“This is a good time to be looking because interest rates are still reasonable,” he said. “But finding something you like is getting hard.”