Continuing their relentless climb, housing prices throughout California jumped another 3% last month, boosting the median resale price of a single-family house in the state to more than $190,000, a real estate trade group said Tuesday.
The latest increase means that the median price of an existing house in California has risen 27% in the last 12 months, the largest year-to-year percentage rise in nine years, according to the California Assn. of Realtors. Real estate experts attributed the jump in February--the largest month-to-month rise since last June--to a rush by buyers to acquire houses before mortgage rates rise further.
Yet, like cooler weather pushing back hot Santa Ana winds, the temperature of the California housing market is thought to be gradually cooling down from the white-hot conditions that prevailed last spring and summer.
Real estate analysts and experts believe that the boost in February housing prices reflects a “last hurrah” of strong buying activity that will not last in the months ahead as mortgage rates continue their climb. Some fixed-rate home loans in California have already surpassed 12%, while introductory rates on variable rate loans are approaching 10%.
Sales Environment Stabilizing
“We expect that the eventual effect of higher interest rates and general economic uncertainty, combined with the state’s ongoing housing affordability problem, will begin to slow sales activity in the months ahead,” Leo Saunders, a real estate broker in Walnut Creek, said in a statement. Saunders is president of the California Assn. of Realtors.
The California home market has been in the grip of a buying frenzy that commenced in 1987 and reached a peak last summer. It has been a classic sellers’ market in which homeowners found themselves besieged by multiple offers that drove sale prices far in excess of asking prices.
Today, though, the sellers’ market is being replaced by a stabler sales environment in which multiple offers are not that common and it usually takes several weeks--not days--to sell a home, real estate brokers and agents say.
“The party is over,” said real estate agent Joan Wilson, who works for Grubb & Ellis in southern Orange County.
Though housing prices will certainly go up in 1989, the increases will not be nearly as large as they were in 1988, according to Joel Singer, chief economist for the realtors’ association. “Those kinds of increases are not sustainable,” Singer said.
Last year’s soaring prices made housing in parts of Southern California once again the most expensive in the nation. By the end of 1988, the median price of a single-family home in Orange Country reached $237,114, an astounding 32% jump in 12 months.
The increases have been windfalls for homeowners whose equity has doubled and tripled in value on the strength of the price surge.
The prices rises have also been a boon for brokers, whose commissions usually rise in proportion to sale prices. Brokers prefer commissions to be at least 6% of the sale price of a home.
Serious Land Shortage
A slowing in the housing-price spiral would be welcome news for first-time buyers, who are bedeviled by both rising prices and higher mortgage rates. Only about one in four householders could afford a median-priced home in California at the end of last year, according to the California Assn. of Realtors.
Even some brokers are welcoming the stabler environment and the elimination of the cutthroat competition among brokers for sales that existed last summer. “Thirty percent (appreciation) is too high,” Beverly Hills broker Jon Douglas said. “I think everyone believes that.”
Though the market is expected to cool shortly, demand in many areas remains high. Home prices in metropolitan Los Angeles are buoyed by a shortage of homes that springs from a scarcity of vacant land and tough local growth limits designed to head off further congestion.
“It’s the classic case of demand exceeding supply,” said Richard Merrill, who heads the Beverly Hills office of Merrill Lynch Realty.
While the population of metropolitan Los Angeles increased by more than 1 million between 1981 and 1988 and jobs grew by 447,000, only 331,000 new housing units were built during those years, according to Real Estate Perspectives, a newsletter in suburban Washington published by Arthur Andersen & Co and Michael Sumichrast.
“You should be building more homes out there (in Los Angeles),” said Sumichrast, an economist formerly with the National Assn. of Home Builders. “Not many cities can say that.”
But even in the less crowded counties east of Los Angeles, where building has boomed in recent years, supply is a problem. “Try to find 100 lots to build on in (Rancho) Cucamonga,” said Bruce Karatz, head of Los Angeles-based Kaufman & Broad Home Corp., the state’s largest builder of single-family homes. “You can’t do it.”
Recession a Concern
In Riverside County, the home market remains hot, still fueled by first-time buyers who had been renting apartments in adjacent Orange County for up to $1,500 a month. For the same monthly payments, renters can buy homes in Riverside County where homes generally range in price from $85,000 to $150,000.
“They don’t even question the prices,” said real estate broker Gail B. Berge, referring to the Orange County refugees.
The question of where mortgage rates are going is probably the greatest uncertainty now facing the state’s housing market.
The more home loan rates go up, the less affordable houses become, particularly for first-time buyers. The monthly mortgage payment on a 30-year, $100,000 loan at 10.5% is $915. Boost the mortgage rate to 12% and the payment jumps to $1,029 a month--a difference that exceeds $1,300 a year.
Real estate brokers see big trouble ahead if fixed-rate loans rise into the “teens.” “If rates continue rising and approach 13%, it’s going to hurt,” Berge said. “Then, there really will be a slowdown.”
The worst fear is that rising interest rates will spark a deep recession reminiscent of the dark days of 1981 and 1982 when double-digit mortgage rates put the California housing market into a deep freeze.
Meanwhile, the latest price rises have homeowners searching for ways to capitalize on their new-found wealth. Some property owners--weary of crime, smog and congestion--are selling or thinking of selling their homes at top dollar so they can move to less crowded, less expensive areas.