Hot Housing Sales Belie Doom Forecast
Those dire predictions in Barron’s financial weekly that the U.S. housing market is headed for a crash don’t apply to California.
That’s the consensus of nearly two dozen real estate lenders, escrow and title insurance representatives, consultants, investors and brokers in the Southland.
And from what they say, despite the contentions in Barron’s by several Wall Street money men that prices are much too high and consumers far too deep in debt for homes to keep appreciating, the market in California is still, as the pop song by the same title goes, “Hot, Hot, Hot.”
“Those people are so myopic in New York, they’re focusing on the Hudson River sewage they’re still drinking,” Stanley Reyburn, senior vice president of Sterling Bank in Los Angeles, said.
In an article he prepared for the California Escrow Assn. News, he wrote: “If one happens to reside in an area where more people move (out) than stay, like Thermopolis, Wyo., or Zap, N.D., there may not be buyers flocking to your door unless Toyota or Nissan decide to locate a plant utilizing 10,000 employees in your back yard.”
By comparison, he describes California as a state of “net in-migration,” meaning that more people move here than move out. He attributes this mainly to the economy, which, especially in Southern California, is so diversified.
Robert Sheehan, economist for the National Apartment Assn. in Washington, said, “Yes, California, even L.A. alone, has a stronger relative economy than most other parts of the country, except the Northeast, and people don’t move to the Northeast for the weather.”
Many times the incentives to move to California outweigh such negatives as high home prices. So, Reyburn concludes in his article, “more people require additional housing.” It’s a question of supply and demand.
“The result is that there may be some adjustments in the marketplace,” he conceded by phone, “but there will not be a crash.”
As for the adjustments, a quick survey shows they are already occurring despite continuing brisk sales, which have not yet been tallied for September.
Gerald Beeny, executive vice president, western region, Ticor Title Insurance Co. in Los Angeles, said:
“New housing is very robust, even with the no-growth movement, and the resale market is absolutely on fire. Interest rates crept up a bit lately and prices are up, so we may be seeing a little cooling off overall, but it’s still hot.” Echoing Reyburn, he cited demand as the reason, adding, “Probably across the board, no other state is doing as well or has done as well as California over the past few years.”
The National Assn. of Realtors released this statement in late August: “The overall decrease in existing home sales was experienced in all of the regions but the West Coast.” Or, as Sheehan of the Apartment Assn. interprets the housing market: “There’s the rest of the nation, and then there’s California.”
San Diego consultant Sanford Goodkin agrees but observed that the sales market is slowing somewhat because there is so little inventory. It’s an old song, but the refrain, as voiced by Goodkin, has grown louder: “I don’t remember since I came into real estate in 1956 a product shortage like this, especially in the affordable--$150,000 or less--range.”
Goodkin’s builder clients are all raising prices on upcoming phases by $25,000 to $50,000 a unit.
‘Still Seller’s Market’
Broker David Bryant, of the Prudential Bryant Cos. in South Pasadena, has noticed that “bidding wars are not as significant, and houses are staying on the market a little longer, but it’s still a seller’s market.”
Larry Geller of Larry Alan Associates in Hollywood, said, “It was common to be involved in multiple-offer presentations with two to 14 possible buyers, but we haven’t seen any multiple offers for about a month now.” He still termed the Hollywood market “very hot.”
Michael Novotny, assistant manager of the Jon Douglas Co. Malibu offices, said, “The market isn’t as chaotic as before, but it’s still steady,” and he has noticed a shifting in inventory. “We’re seeing a couple of properties back on the market that were taken off before the frenzy.”
Marilyn Rousselot of Merrill Lynch Realty, Newport Beach, says her office is also getting listings from people who watched the frenzy and don’t want to miss out on cashing in on the hot market themselves.
Large Camp-Out
As a result perhaps, her office has experienced a jump in number of listings, she says, while at the same time, she senses a leveling of prices.
“The market here is not as active as it was before school started,” she conceded. “We still have a few rentals that have been for rent for several months now. But we’re still experiencing an active market.”
It’s active enough to inspire Taylor Woodrow Homes to plan a lottery in about six weeks at a project in Laguna Niguel, where 950 people participated in a lottery for 39 houses in late August. “That was an incredible response,” Carol Wilcox, of the Newport Beach-based company, remarked. Lotteries and camp-outs usually are not planned in the fall, either.
The houses at the Laguna Niguel project are in demand because of their prices, said Rousselot. “Anything under $200,000, people will run to get.” At the August lottery, prices ranged from $128,900 to $187,990.
Jim Link, executive vice president of the San Fernando Valley Board of Realtors, said, “The market is still real strong out here, but fast increases in prices seem to be tapering off.
“There are more houses on the market, but there is more activity in the low and middle ranges than in the high end.” Why? “The theory is that the buyers fear that the interest rates will go up, because buyers in these categories are more affected by a half a point increase than buyers in the high end.”
The average price of a single-family home sold during August in the San Fernando Valley was $257,100, down 3% from the record high of $265,300 set in July. Link expects the average sale price to continue to drop a bit along with the sales totals but believes the totals for September will be more than they were for the same period a year ago.
High End ‘Hot Market’ Bob Todd, owner/manager of Remax Beach Cities Realty in Manhattan Beach, says he hasn’t seen the market “dissipating at all,” and he is worried that “we are building toward a European-type home market,” where relatively few people can afford to buy single-family homes.
Todd is also seeing, however, “some high volume but low prices with new (sales agent) hires who are selling to low-income, new citizens.” These buyers are apparently finding single-family homes in the $75,000 to $85,000 range with low FHA financing in such areas as Carson and Wilmington.
“It’s there, and it’s available,” he said, almost disbelieving it himself. “And the sales people are making just as much as those selling in the ritzy areas by doing three to four times the volume.”
Talk high, high end, and you’re still talking “hot market,” from what Jeff Hyland of Alvarez, Hyland & Young in Beverly Hills says:
“The $500,000 homes sell before they are listed, and unless they are overpriced, those up to $1 million move fast. There is a slowness in the $1.5-million to $2-million range, and then it picks up again for homes listed at $3 million to $5 million. There are still some offers floating around at $15 million!”
Even in those stratospheres, mortgage interest rates are of some consideration, he agreed, but so far, they have had no noticeable effect. Goodkin doesn’t see a crash in the housing market unless the rates rise two or three points, or there is what he termed “a catastrophe” with the Japanese stock market, since Asians, especially the Japanese, have been heavy investors in Southern California real estate.
‘Modest Seasonal Slowdown’
Fred Sands, who has many offices in the Los Angeles area, said, “I ask my people in the field on a daily basis, ‘Is there a slowdown?’ And the answer is ‘no.’ If rates go up much, there will be, but I don’t think we’ll see another 1982 (when there was a marked housing recession) in the next 10 years.”
Joel Singer, chief economist of the California Assn. of Realtors, expects a “modest seasonal slowdown as we go into 1989,” but even that won’t be as much as a slowdown as the market normally experiences for that time of year, he said, adding, “The 20% appreciation level will sink to a rate still above the annual inflation rate.”
Currently, appreciation levels are in the double-digit range almost everywhere in the Greater Los Angeles Area, he said. “With few exceptions, the market is uniformly strong.”
He and others queried doubt that the election in November will have any effect for awhile on housing.
As for 1988, Singer figures it will be “the best year since 1979” for the resale market. That seems to be supported by Geraldine Cassidy, executive director of the California Escrow Assn., who said, “Our people have never been busier.”
‘Frenzy in the Market’
But is it, she wonders, “the last gasp before things really slow down?”
Kathleen Connell, director of UCLA’s Center for Finance and Real Estate, said, “We are at the tail end of the baby boom, so we’re seeing a frenzy in the market, with people worried about slow or no growth seeing less opportunity. They’re getting into the market before there is no opportunity and rising interest rates.”
She doesn’t see a crash as forecasted in Barron’s but paints a very different housing picture for the 1990s from the one now:
“Over the past decade, there have been more household formations because of the baby boom, but that is ending, so we’ll see a decline in demand for first-time home buying. The market will slow down as there will be a delay in the move-up market, and that will suppress prices at some point.
“The market will then shift, with more development of retirement housing and expensive homes.”
