Home Sellers Are Jolted as Feverish Market Cools
Like a burning fever that has finally subsided, the overheated housing market in Southern California has cooled in recent months, creating anxiety for brokers and sellers but some relief for buyers.
The frenetic seller’s market of 1988 has all but vanished, real estate brokers and agents say, replaced by more normal conditions in which buyers have considerably more leverage. A year ago, panic buying was normal as sellers were swamped with multiple offers that propelled housing prices higher and higher.
Today, homes are taking longer to sell, there are more of them on the market and prices are being slashed to complete deals, most real estate brokers and agents agree.
“It’s the absolute reverse of a year ago,” said Barbara Knox, a real estate agent for Merrill Lynch Realty in Palos Verdes.
With some exceptions, “the panic buying is gone,” said Mina Fox, a real estate broker in the Long Beach area.
The new realities have been a rude awakening for property owners, who grew accustomed to seeing quick sales and extraordinarily high prices. “I’m so tired of open houses I could just scream,” said a homeowner in Seal Beach who has been trying to sell her home for more than $400,000 for several months.
One real estate investor, who asked not to be identified, found herself in a bind when she bought a new home for $375,000 in southern Orange County that was to be resold immediately for a quick but sizable profit.
When the sale of her house fell through because the buyer lost his job, she got saddled with $4,000-a-month mortgage payments on a house that she now has to rent. “The market got softer all of a sudden--within the last 60 days,” she said. “We turned around, and the door closed.”
Real estate economists say the housing sales market activity peaked in late 1988 and early 1989 as buyers swarmed to get into the market before rising mortgage rates increased even further. As recently as three months ago, Californians bought existing single-family houses at the fastest rate of any time during the recent boom.
The first statistical signs of cooling followed in April, when sales turned down, a trend that is believed to have continued in May, said Joel Singer, chief economist of the California Assn. of Realtors, a trade group.
Sales Rate Down
The rate of sales on single-family houses statewide fell 14% in April compared with March. May sales figures will be released later this month. And while only 18% of California households currently make enough money to afford a median-priced house, home prices have fallen slightly in some areas, including the San Fernando Valley.
Most real estate industry insiders say the slowdown should not be overemphasized, saying that the housing market has gone from white-hot in 1988 to, at worst, lukewarm today. The longer-term outlook also looks favorable.
Although hurt in recent weeks by large layoffs in the aerospace industry, the Southern California economy remains strong, propped up by new jobs in manufacturing, exports and financial services, economists say.
Housing demand is also being fueled by investors from abroad. “Greater Los Angeles is no longer a local market,” real estate consultant Sanford Goodkin said. “People from all over the world buy homes here.”
Indeed, the present cooling may not last at all if interest rates on long-term fixed-payment home loans, which have been falling in recent weeks, continue their decline.
Fixed-rate mortgages have fallen well below 11% in recent weeks and some lenders are even advertising rates below 10%. “With rates going back down, the velocity will pick up again, but not at the same pace as last year,” Goodkin predicted.
Many real estate experts believe that the market needed a healthy pause, as the most recent round of real estate inflation has boosted price tags on middle-class homes in choice locations to $500,000 and beyond.
“The tremendous inflation in 1988 could not be sustained, nor should it be,” Goodkin said. “Rises like that would (eventually) price even the upper-middle-class out of the market. It had to adjust.”
The changes have given buyers new clout with sellers now that they do not have to make snap decisions for fear of losing out to a competing offer. That, in turn, has led to negotiations and price cuts.
From Los Angeles to San Diego, prices on luxury homes have been slashed up to $100,000 after buyers would not bite on million-dollar-plus price tags.
“The problem is the homes are being priced too high,” said Luis Crescitelli, a real estate agent in Huntington Harbour, a waterfront community in Orange County where homes that sold for less than $100,000 in the 1970s now list for more than $1 million.
Jack Sauers finally reached an agreement to sell his two-bedroom home near the ocean in San Pedro after six months of trying, but only after he agreed to cut the price $34,000 to $455,000.
“It sat and sat and sat as the market kept getting weaker and interest rates kept going up,” said Sauers, a shipping pilot in Los Angeles Harbor.
Like many homeowners with houses in choice areas, though, Sauers still stands to reap a windfall because he paid only $235,000 for the home four years ago. “I’m satisfied,” Sauers said, who also avoided a hefty brokerage fee by selling the home himself. “It almost doubled (in value.)”
Another property owner, Teresa Home, sold her house in the Hancock Park area a few months ago for $725,000, almost double what she paid five years ago. And high school teacher Duane Coleman is trying to sell his home in Oceanside for $205,000, or $75,000 more than he paid for it just two years ago.
“I thought it would take me five years to get that price,” Coleman said.
Asking Too Much
Some real estate experts say the market has slowed because sellers, not up with the latest trends, are asking far too much for their properties. “Now it’s more of a buyer’s market than a seller’s market, but some of the sellers have not caught on yet,” said Salvatore Sorrentino, a real estate broker in San Pedro.
“The list prices tend to reflect the activity over the previous three to six months,” said Singer, the California Assn. of Realtors economist. “Sellers’ expectations always lag the market,” added Frederick Cannon, an economist for the Bank of America.
Housing values in Southern California have far outstripped inflation, while they are either lagging inflation or keeping just ahead in most American metropolitan areas. Median resale prices in 1988 jumped 25% in Orange County, 22% in Los Angeles County and 28% in Ventura County.
The booming market was characterized by an excitement not seen in Southern California real estate since the late 1970s, as choice homes sold in hours at well above the asking price. Price rose so fast that the median resale price of a home in Los Angeles is now more than $200,000, compared to about $125,000 four years ago.
Withdrawal Pains
But most of the heady atmosphere is gone now, and some brokers and agents are suffering withdrawal from last year’s adrenaline when bidding wars drove up housing prices--and their commissions, which normally are 6% of a property’s sale price.
“It has taken the high drama out of it,” said Marlene Becker, an agent in the San Gabriel Valley who recalled a time last year when competing bids drove up the price of a vacant piece of land in San Dimas to $700,000. “Each bid topped the other one by $20,000,” she said.
Today, worries about underpricing, a prime concern in 1988, have given way to worries about overpricing. “Remember, we all got spoiled last year,” said Phyllis Maywhort, a broker in Sunset Beach in Orange County. “You sold a home for $450,000 and the next one that came up for sale you expect to get $475,000.”
“Last summer, I sold homes left and right,” said one real estate agent in Palos Verdes who received her sales license only two years ago. “I thought it was always going to be that way and I spent it all.”
Homes for sale in Palos Verdes now far exceed demand, and houses are staying on the market for an average of nearly 100 days, according to Knox, the Merrill Lynch agent. Multiple listing books--the computer listings of homes for sale that are shared by brokers--have swollen in size throughout the region.
“The multiple-listing books are looking like Sears catalogues,” said Joan Wilson, an agent for Grubb & Ellis in Mission Viejo. “It used to look like a skinny phone book.”
For all the changes, one constant remains: It is extremely difficult for middle-class wage earners to buy a first home in Southern California. High prices mean big mortgages, which most workers cannot afford.
CALIFORNIA REAL ESTATE ACTIVITY
Regional activity as of April, 1989. Sales data not seasonally adjusted *
Change in price Region Median Price from Mar. ’89 from Apr. ’88 California $200,784 2.5% 25.8% (single-family detached) California (condo) 136,575 2.8 18.9 Central Valley 91,815 2.3 9.8 High Desert** 88,912 1.4 13.5 Los Angeles 215,871 3.9 27.1 Monterey 239,534 13.6 35.7 Northern California 78,610 2.5 11.7 Northern California n/a n/a n/a Wine Country Orange County 243,485 2.0 24.7 Palm Springs/ 125,555 9.2 40.2 Lower Desert Riverside/San Bernardino 119,124 (0.6) 17.6 Sacramento 99,726 (1.7) 10.4 San Diego 176,057 5.4 28.0 San Francisco Bay 261,520 4.8 33.7 Santa Barbara 214,285 (14.6) 26.1 Ventura 249,847 3.2 32.5
Change in sales activity Region from Mar. ’89 from Apr. ’88 California (14.1%) 1.0% (single-family detached) California (condo) (10.8) 16.8 Central Valley (14.4) (1.0) High Desert** (1.8) (19.6) Los Angeles (2.6) 1.0% Monterey 0.7 10.5 Northern California 6.5 23.7 Northern California n/a n/a Wine Country Orange County (26.0) (22.7) Palm Springs/ (17.9) 14.5 Lower Desert Riverside/San Bernardino (11.1) 2.6 Sacramento (13.1) (11.5) San Diego (20.3) (4.0) San Francisco Bay (13.5) 2.5 Santa Barbara 7.8 (1.3) Ventura (9.1) (12.6)
* Based on closed escrow sales of single-family, detached homes only (no condos). Reported month-to-month changes in sales activity may overstate actual changes because of the small size of individual regional samples.
* * Because of the small size of the sample in these areas, price and activity changes may be overemphasized.
Source: California Assn. of Realtors
