Orange County’s Average Home Price Declines 3.4%

The average price of a home in Orange County dropped 3.4% in October from September’s record high, and several industry analysts said the decline signals the start of a cooling-off period in California’s hottest housing market.

The average sales price of all types of residential housing in the county fell to $208,796 last month from $216,162 in September, TRW Real Estate Market Information in Colton reported Monday.

But housing industry observers said it is not yet clear whether home prices will continue to drop, or even whether they will stay relatively flat, before beginning to rise again.

Although the $7,366 decline was the fourth monthly drop recorded by TRW since the firm began tracking the Orange County market in the middle of 1987, it is the first registered since the hectic spring and summer buying frenzy.

TRW’s average price includes all housing sales recorded in the county, including new and resale, detached and attached.

The California Assn. of Realtors, which tracks the price of resale single-family homes only, reported a September median price of $234,934 in Orange County. The association has not reported figures for October.

According to a survey by the National Assn. of Realtors, Orange County ranked as America’s most expensive housing market in the second quarter.

In fact, prices have been rising so far and so fast--22.6% since June of 1987, according to TRW--that some experts recently began predicting a slowdown in sales and price hikes because of the large number of potential buyers being forced out of the market.

But housing specialists were divided on the reasons for October’s price dip, some claiming that prices have peaked and caused a buyer rebellion of sorts, others maintaining that the October drop is merely part of an expected seasonal adjustment.

The October decline, said real estate market analyst Ken Agid in Irvine, “is the start of something. We began seeing signs of a slowing of the frenzied pace of housing sales and price increases as far back as July.”

The TRW figures, Agid said, “show the edge of a plateau. Prices have gotten out of hand,” and now are flattening.

Analyst Steven Johnson, vice president of the Meyers Group in Corona, said he believes that the rollback signals “a flattening of prices and sales for the whole fourth quarter” and into early 1989.

But both Agid and Johnson said they believe that prices will begin to escalate again by the spring.

“The underlying problems in the Orange County market still haven’t been resolved,” Agid said. “Supply is still woefully short of demand.”

The current flattening of prices, Johnson said, is occurring “because of inventory depletions in the move-up and upper-end product lines. Those more expensive homes just aren’t available right now, either in new homes or in the resale market, because they were selling so rapidly in the summer.”

The lack of homes at the top end of the market cut into both sales and average prices during the month, Johnson said.

According to TRW, sales activity in October was down 8.3%, with 4,988 sales recorded, compared to 5,437 sales in September.

But John Karevoll, a TRW spokesman, said October’s figures show that the price drop apparently was real and not simply a statistical decline caused by a lack of $750,000 homes in the sales mix.

New homes accounted for the biggest slice of total sales--18.8%--since June, Karevoll said. In all, he said, 939 new home sales were recorded in October, up from 819 in September. “The higher level of new homes would tend to increase average selling prices if nothing else was going down.”

Belle Partch, a broker with Grubb & Ellis residential realty in Newport Beach, said she has seen a “definite lack of inventory in the kinds of homes I handle, the high-end properties. Also, compared to the last 6 months, there are fewer buyers. But that could be seasonal.”

Prices, however, “are holding at the high end,” Partch said. “They aren’t going up, but they are not declining.”

“This confirms what we’ve been hearing from real estate people around the area,” said Phillip E. Vincent, an economist with First Interstate Bank in Los Angeles. “We’ve been hearing that real estate people have begun hitting a sales wall and that sales have dropped.”

Vincent, however, disagreed with the argument that a shortage of high-priced homes is the principal reason for the price rollback. “I think that prices went up so much that buyers went through a panic-buying binge in the spring and summer and now are balking,” he said.

Although First Interstate does not publish housing market forecasts, Vincent said he was willing to go out on a limb.

“I can see a year-over-year drop in prices in 1989 from 1988 in Orange County,” he said.

Vincent said he believes that price hikes of 15% a year, after adjusting for inflation, “are just too much for the market to sustain. They are far too extreme because personal income is not rising that fast.”

Vincent cautioned, however, against reading too much into a 1-month drop. “Seasonality could be a factor, as well,” he said. “You usually get a slowdown of some sort in the last quarter.”

Bill Farris, vice president and sales manager for Chicago Title Co.’s regional office in Costa Mesa, said that a lack of inventory helped soften prices but suggested that soaring prices also played a role.

AVERAGE HOME PRICE IN ORANGE COUNTY--The average price of new and resale single-family houses and condominiums sold in the county was $208,796 in October, 3.4% lower than the September average of $216,162 and 18.9% higher than the October, 1987, figure of $175,596.

Source: TRW Real Estate Market Information’s survey of deeds filed at the Orange County Recorder’s Office.