Resale Housing Prices Keep Spiraling in Orange County
Orange County’s resale housing prices--driven by relatively low interest rates, escalating new home prices and a seemingly limitless supply of well-to-do buyers--continued to lead the state and nation last month.
The median price of a used, single-family home in August was $224,828, up more than $5,000 for the month, the California Assn. of Realtors reported Thursday.
And though home sales statewide dropped 1.4% from the pace recorded in July, leading association economists to conclude that the resale market is cooling down, the Orange County market still appears to be superheated, with a 2.8% increase in sales activity from the prior month.
Residential real estate specialists said there is no sign that the market is slowing appreciably in Orange County, either in price or in sales volume.
The association’s monthly price survey is based on information supplied by local and regional realty boards throughout California, including five in Orange County. It does not include new homes or attached housing.
Statewide, the median resale home price in August was $172,406, up a scant 0.3% from the previous month but a healthy 18.6% increase over the year-earlier median of $145,261.
In contrast, Orange County’s August median was 2.4% higher than July’s $219,542 and a whopping 32.1% ahead of the $170,211 posted in August, 1987.
The state’s second-most-expensive housing market, according to the association, was the San Francisco Bay Area, with a median price of $216,216, followed by Santa Barbara at $202,000.
Orange County overtook Honolulu and New York as the nation’s most expensive used home market in the second quarter, according to the National Assn. of Realtors.
Interest Rate Sensitivity
“When will it stop?” mused Randolph R. Brusca, president of Assured Home loans in Tustin and a director of the California Independent Mortgage Brokers Assn. “The best answer I can give you is, who knows? I’ve been in this business since 1974, and all I do is ride the roller coaster.”
Peter Reeb, senior associate at the Robert Charles Lesser Co. regional office in Newport Beach, said that his consulting and marketing firm “did a big analysis recently of buyer sensitivity to interest rates and concluded that if rates hit 13% to 13.5% we will see a big drop-off in sales and price. But below that, we don’t see any lessening of demand.”
Reeb said mortgage interest rates are expected to remain well below 13% until the end of the year but could rise after that as the economy responds to a new president’s economic policies.
How fast they increase, he said, depends on how the nation perceives the candidate who wins the election in November.
One factor affecting resale home prices, Reeb and other residential resale estate specialists said, is the constantly escalating price of new homes in Orange County and most other areas of Southern California.
“New home prices certainly drag used home prices along with them,” said Walter Hahn, director of real estate consulting for Kenneth Leventhal Co. in Newport Beach.
Prices Go Higher
And no one is reporting rollbacks in new home pricing, said Reeb. “Everything I’ve seen in new homes shows that prices go higher, not lower. It used to be that a developer got approval to build 200 homes and he built them and then sat with an inventory of finished homes until he sold them all.” The empty homes helped keep prices flat, he said.
“But now, the builder gets an OK for 200 homes, he builds 50, auctions them off, then builds 50 more and auctions them off at a higher price. And the next 50 go for even more” because the inventory is so tightly controlled that there are few vacant new homes on the market, Reeb said.
The demand for new homes in Orange County would eat up about 14,000 units a year, according to Bill Farris, vice president and sales manager for Chicago Title in Costa Mesa. “But we’re only building about 7,000 new units a year, so that leaves quite a gap for the resale market to fill.”
Farris said he has been surprised by the continuing strong demand for housing and “never would have thought a year ago that prices would get this high. But now, I don’t see any decline as long as we have a healthy regional economy.”
Asian Influence
Farris and Brian Theriot, investor relations director for J.M. Peters Co., a large Southland home builder, both said that prices and demand in the county are affected by what Theriot called a “heavy Asian influence in the market.”
With the decline of the dollar against the yen, with the Japanese economy booming and with a lot of moneyed Hong Kong residents looking for a safe harbor for their wealth before their island reverts from British to Chinese control in 1997, a large number of Asian investors are acquiring residential properties in Orange County, they said.
Dana Clor, president of Clor Realty in Fullerton and head of the North Orange County Board of Realtors, said he is concerned that soaring prices are forcing many young buyers out of the market in Orange County, “but I just don’t know where it ends.”
According to the state association, only 18% of Orange County households had enough income to buy a median-priced home with a 20% down payment in July. August figures have not yet been calculated, but the percentage is certain to decline with prices rising.
Next Recession
Hahn, the Kenneth Leventhal consultant, said he knows what will stop the upward spiral but doesn’t know when it will happen.
“The logical stopping place is when the next recession happens. We had a boom like this in the late 1970s, and it was crimped by skyrocketing interest rates and then a recession. We saw the really high-priced stuff, homes over $200,000, come down 20% and 25%,” he said.
But until and unless a recession does occur, Hahn said, “all I can say is that there is probably a limit on prices, but nobody knows yet what it is. Orange County is part of a huge Southern California market where there is so much population and so much migration that the pool of buyers is virtually unlimited.”
Home builders, he said, “are going to keep increasing prices as long as they can keep an adequate sales rate. Things will slow down when people quit buying.”
CHANGE IN CALIFORNIA HOME PRICES
Comparison of median prices by region in California for August, 1988, and August, 1987.
Region August ’88 August ’87 % Change Orange County $224,828 $170,211 32.1 Santa Barbara 202,000 145,333 39.0 Barstow/ High Desert 79,534 66,249 20.1 Ventura 214,146 168,347 27.2 Los Angeles 193,106 153,999 25.4 San Francisco 216,216 176,182 22.7 San Diego 152,147 132,787 14.6 Sacramento 99,358 89,374 11.2 Riverside/ San Bernardino 106,533 102,615 3.8 Monterey 194,680 164,571 18.3 Central Valley 89,575 84,335 6.2 Palm Springs/ Lower Desert 110,000 99,444 10.6
Source: California Assn. of Realtors
