Sellers Get Their Prices--and More : ‘Feeding Frenzy’ Engulfs Southland Home Market

A surge in demand for houses has engulfed the Southern California real estate market, lifting prices for mansions and bungalows alike to new heights and drawing prospective buyers in packs to each freshly listed property.

The real estate rush pervades the entire region. From Beverly Hills, Diamond Bar, Irvine, Arcadia, from neighborhoods of the rich and the not-so-rich, the dispatches all seem to read the same: Prices are in steep ascent, houses are sold within days, if not hours, of their market debut, and even rather ordinary properties sometimes can command more than the seller originally sought.

Most industry experts describe the acceleration as a classic exercise in supply and demand. Also at play are relatively low interest rates, a strong regional economy, foreign investors, a burgeoning slow-growth movement, traffic tangles that make new subdivisions in distant suburbs less attractive and a reluctance by present homeowners to plunge into the roiling market, shortening the supply of houses for sale.

Whatever the reasons, the market has taken off. And nowhere in California is it as hot as in Orange County, where the median price of an existing single-family home has skyrocketed to $198,031, the highest in the state.

The California Assn. of Realtors said the $198,031 figure represents a healthy 18% jump over prices just a year earlier.

For newer homes in Orange County, the news for prospective buyers is even worse. Market Profiles, a Costa Mesa consulting firm, reports that the average new home in the southern half of the county cost $262,000 during the first three months of this year.

The market began to build steam more than a year ago and has reached full force this spring. Disagreement exists over whether the frenetic trading represents just one more turn in a notoriously cyclical industry, or the advent of a potentially troublesome epoch of largely unaffordable housing. Whatever the long-term implications, the present run has lent a rollicking, Wild West atmosphere--bid first, appraise later--to the essential task of finding a place to live.

“It’s absolutely crazy,” said Pat McCurdy, an agent with Century 21 in Irvine. “Houses used to sell right after they showed up in the multiple listing books. Now, we don’t even hardly use our book anymore. By the time it’s in the book, it’s gone.”

“It’s like a feeding frenzy,” added LizBernard-Anderson, who manages a real estate office in the Hollywood Hills. “The property is so scarce that you can put something on the market at almost any price and have people standing in line to buy it. The situation is such now that a full-price offer is not good enough.”

Carl A. McMahan’s baptism in the market was not atypical. A 34-year-old Los Angeles attorney, McMahan was at work downtown one Saturday afternoon when his broker called, almost panting, it seemed. A modest, two-bedroom, 1,500-square-foot house had just popped up on the market in Pasadena, and the price seemed right: $329,000.

McMahan sped to the house, where he encountered a bizarre scene:

“These cars were lined up all around this place, all these Mercedeses and Jags, all the Realtors in their real estate wagons. They were parked around this place, like vultures, waiting it out with their clients. And nobody was talking to anybody. Nobody was saying a word. They didn’t want the others to know what they had offered and come in with a higher bid. The sellers were sitting in their living room like river boat gamblers, very smug.

“It was very tense.”

On Market Just 5 Hours

After a hasty tour of the house, McMahan submitted a bid of $349,000--$20,000 above the asking price--and presented a $5,000 check as earnest money. Then he went outside and waited, like the others, in his broker’s Mercedes-Benz. The house sold at 5 p.m., after only five hours on the market, for $369,000, and the pack dispersed.

Although the dynamics behind it differ, veteran agents and brokers compare the current climate to the late 1970s, a booming period of frantic trading and extreme inflation that, interestingly enough, preceded one of the industry’s roughest depressions ever.

“It is an overheated market,” said Fred Sands, head of a large Brentwood-based real estate firm. “People are bidding against each other. There are multiple offers on properties. Prices are moving up at a very hefty pace across the board, and there is just basically a shortage of inventory. It’s a situation of supply and demand. Everybody wants in.”

“Spring,” said Tom Carnahan, president of the San Fernando Valley Board of Realtors, “has always been a peak buying and selling period. This year, however, we’re getting blown right off the charts.”

“I’ve never seen a real estate market like this,” said Lynne Tillman, a Realtor associate with The Prudential Bird-Valentine Realty Group of Tustin, which specializes in north Orange County properties.

“There is a new development in Yorba Linda where the houses are starting at $333,000 and go to $472,000,” she said. “That is without landscaping, a swimming pool, any interior decorating. People are literally camping out to buy those homes.”

While hyperbole, certainly, is a favored tool of the real estate trade, the brokers’ descriptions do seem to be borne out by statistics.

Figures kept by the California Assn. of Realtors show that the median price of an existing home in Southern California has increased 18.3% in the last year, from $144,030 to $170,457. Various other surveys yield roughly the same numbers.

Fewer Homes for Sale

The volume of transactions is down, reflecting a limited inventory that itself has propelled appreciation. At the current rate of sales, it would take roughly five months to exhaust the inventory of houses listed for resale in the region. In the early 1980s, the figure was as high as 22 months. Also, residential construction is way off. Brokers believe the greatest shortage exists in houses priced in the middle ranges, from $200,000 to $350,000.

Geography seems to influence the frenzy level. Prices in West Los Angeles are rising at a faster rate than those in the Inland Empire. In Orange County, where the median price for existing houses ranks highest in the state, the market is ablaze. “Where is it hot? Anywhere there is a good home,” said an Irvine agent. In San Diego, houses sell briskly, but prices are climbing a bit more slowly than in Los Angeles and Orange counties.

For real estate brokers, the game has shifted from selling to finding properties to list. It is now routine for homeowners to receive post cards from real estate firms informing them that another house on the block has just sold for a boggling price. The message is implicit: Wouldn’t it be a swell time to place your home on the market, too?

“People have a tendency to whisper into the phone when they find a property,” said Bernard-Anderson. The industry is replete with battle lore, stories of agents presenting offers in the dead of night to avoid detection, or hiking blocks to meet with sellers so that rivals won’t spot their car and be alerted to a potential listing.

‘It’s Getting Crazy’

Long lines and lotteries have returned at new residential developments. “It’s getting crazy,” said Larry Bovshow, a San Fernando Valley real estate broker who this spring sought to purchase a four-bedroom house in a Calabasas development.

Bovshow said the houses initially were to be offered on a first-come, first-served basis: “That idea lasted until somebody panicked and parked a car at the entrance three months before the sales office was scheduled to open up.” By the day’s end, 20 automobiles were waiting in line. Eventually, neighbors pressured the developer to conduct a lottery. Seven hundred people participated, vying for 60 houses.

For sellers, it can all seem quite glorious. Able to pick and choose among offers, many rule out bids with low down payments, hoping to ensure swifter passage through the escrow thicket. Sometimes their haughtiness works against them.

“The seller,” said Sands, “sometimes will get carried away and ask for too much, and the buyer gets carried away and follows through. So you have the house sold, and go into escrow, and the lender can’t appraise it for what you sold it for, and the deal falls out.”

There are many forces driving the market. Fear of a climb in interest rates after the November elections is one factor, although naturally not limited to any region.

Heavy Foreign Demand

Southern California’s market runs counter to national trends and in part reflects Los Angeles’ emergence as a Pacific Rim boom town. Industry figures show only a 3.1% rise nationally in median prices of houses. In and around San Francisco, residential real estate also is quite hot, although slightly less so than in Southern California.

Foreign investment is strong. Like Hawaii, Los Angeles has attracted Japanese real estate investors. “It is the biggest run we have ever had on Japanese,” said Elaine Young, who deals in Beverly Hills mansions. California real estate is now shown in Japan via satellite television transmissions.

Advocates of slower, more controlled growth have placed numerous measures before Southern California voters. While not all have succeeded, the mere threat of future controls can spook developers.

“The slow-growth influence we have felt over our area has slowed the recycling of urban property,” said Richard Rosenthal, president of a Venice real estate firm. “That puts a fairly continuous press on the demand and drives up prices.”

Overworked infrastructure also has played a role. Los Angeles County, facing a crisis of sewer capacity, has restricted building permits. And it appears the congested freeways have taken luster off the suburban frontier, increasing competition in neighborhoods closer to work centers.

“We’ve got commuters moving back to Pasadena from the east,” said Berton M. Tibbett, president of a Pasadena real estate firm, “because they’ve been hitting a wall in Azusa. Rather than fight the traffic every day, they’re moving back.”

Many Fixing Up Homes

Although technically they are in a “seller’s market,” those who sell their homes must either exit the region or wade into the wild and woolly real estate game themselves, as buyers. Many homeowners have decided to stay put and fix up their houses.

How long the delicate harmony of market-exciting forces will last is a source of disagreement among industry experts. There are brokers who recall the hard days that followed the 1970s buying frenzy. Others believe that the present market portends a new day--with potential for profound societal impact.

“I really am troubled very much by it,” said Sands. “I think that what we are going to have is almost like in foreign countries, where houses will be passed from generation to generation. And the only people who will be able to buy houses--and we are starting to see it happen--are the people who own them. . . .

“It’s becoming a situation of haves and have-nots.”

Said Sanford R. Goodkin, a San Diego real estate analyst: “The problem with the whole housing market today is that the people with low and moderate incomes, computer programmers, police, teachers--people we can’t get along without--are rapidly being priced out of the market. . . . That is the tragedy of what is happening today, and that is a direct result of the fever and frenzy of the marketplace.”

Various long-term remedies have been advanced: increased reliance on apartments, workable rapid transit, regentrification of rougher neighborhoods, more compact developments. Such solutions offer little solace to those engaged in the hunt today. They must either run with the snarling pack or give up. It is a frustrating--and humbling--exercise.

“I am really perplexed,” said lawyer McMahan, who has been searching for a suitable house for 18 months. “I thought it would be easy. . . . Sometimes, I feel like a poor guy. Here, I drive up in my BMW, with the car phone and the alarm, and I got this nice watch and ring, and I have got this beautiful office--and then I go look at some dump for $350,000 that I can’t afford to buy.”

Contributing to this story were Times staff writers Alan Citron, Charles Finnie and Edmund Newton in Los Angeles; Richard Beene in Orange County and H.G. Reza in San Diego.