California Sustains Spiral in Home Costs : Rising Mortgage Rates Slow Pace in Northeast Cities

Rising mortgage rates hit home sales and prices hard in expensive Northeast cities in the first three months of 1989, but booming West Coast markets weathered the storm, a real estate trade group said today.

Elsewhere, industrial cities in the Midwest with low-cost housing showed healthy appreciation and depressed housing prices in Texas’ two largest cities began to recover, according to the National Assn. of Realtors.

The median price of an existing home in the San Francisco area soared to $243,900 in the first quarter, meaning half sold for more and half sold for less. That represented a 31.8% increase from a year ago and was the steepest appreciation rate among 83 metropolitan areas surveyed by the trade group.

California accounted for the top five appreciation rates in the nation. Home prices in Orange County shot up 30.2% to a median of $237,900. In Los Angeles, prices rose 26.3% to $201,000; San Diego, 21.9% to $163,900, and Riverside-San Bernardino, 21.6% to $116,000.

That compares with the 3.4% increase to $91,600 for the median-priced existing home for the entire United States.

“The hot spots definitely are on the West Coast,” said Ira Gribin, president of the realtors’ group.

The Commerce Department, in a report issued today, said housing construction fell 2.7% in April to the lowest level in more than six years.

Northeastern cities continued to be some of the most expensive places to live, but home prices in New York City and its suburbs; Boston and Worcester, Mass., and Hartford and New Haven, Conn., either fell or rose only modestly.

New York area prices--the fifth highest in the nation after San Francisco, Orange County, Honolulu and Los Angeles--sank 2.8% to $181,700. Boston, New Haven and Hartford--the sixth, seventh and eighth most pricey cities--posted appreciation rates of 0.9%, minus 1.3% and minus 0.5%, respectively.

“The affordability gap already caused prices to slow down in the high-cost areas. They were really hit hard when (mortgage) rates started jumping,” said the trade group’s chief economist, John A. Tuccillo.

Fixed-rate mortgages started out the quarter averaging 10.77% and jumped nearly half a percentage point to 11.19% by the end of the period. One-year adjustable-rate mortgages went from 8.49% to 9.31%. During the first quarter a year ago, mortgage rates were falling.

The Federal Reserve Board has been pushing up interest rates since March, 1988, in an effort to slow the economy enough to curb inflation. The housing and construction sectors are the most sensitive to the increase.