When Susan and Michael Naylor decided to put their Laguna Niguel home on the market last March, they figured it would sell within weeks or maybe even days.
Then they would take part of their $80,000 or so in profits to use as a down payment on their new home in Arizona, where Michael--a Marine Corps captain--would begin his new assignment as a flight instructor at the Yuma air station.
More than 30 brokers and prospective buyers toured the home when the Naylors' agent held the first open house. Dozens more came in the following weeks, but nobody made an offer.
Hoping to make a quick sale, the couple cut their asking price by $20,000--to $329,900--in April. Still, no one seem interested.
By the time May rolled around, the Naylors started to get nervous: Escrow on their new home was set to close at the end of the month, and they still hadn't sold the old one.
The couple slashed their asking price by another $10,000, but still couldn't find a buyer. They borrowed money to complete the purchase of their Yuma home, but now were stuck making monthly mortgage payments on their old house and their new one.
"I lost my sense of humor around August, when we ran out of money and had to get a loan in order to make both mortgage payments," Susan Naylor said. "It was a real nightmare."
Down came the price again, this time to $314,900. Then $311,555.
Finally, after almost eight months on the market, a buyer offered $305,000--nearly $45,000 below the original asking price and less than similar houses had sold for a year earlier. The Naylors accepted the offer and escrow closed last month.
"There really wasn't much we could do," Susan Naylor said. "The market had gone soft, and it looks like it's just going to get softer."
Across the nation--and particularly in Southern California--the once-sizzling housing market has lost much of its steam. Builders and homeowners are finding that it is taking longer to sell their properties, while buyers are taking advantage of deep price discounts and capitalizing on single-digit mortgage rates to strike bargains unheard of just one year ago.
Signs of the slowdown abound. Although a report released earlier this month by the California Assn. of Realtors showed some improvement, home resales in the state are still running at a 558,096-unit annual rate, down 6% from a year ago and a whopping 13% below their peak of last March.
The median price of an existing home in California now stands at $195,400, down nearly 4% from its peak of $202,650 last July. Los Angeles' median price of $224,625 is off more than 2% from its summer high, while the Orange County median of $253,034 is down a bit more than 1%, and the San Diego median of $179,070 is off nearly 2%.
Meanwhile, builders--many of whom were literally raising prices overnight and still turning buyers away several months ago--are now slashing their prices by as much as $50,000 and offering everything from Mediterranean cruises to free appliances to move their new houses.
Economists, realtors, developers and others disagree about what has caused the slowdown and how long it will last.
Optimists say that the market is simply returning to normal after four straight years of double-digit gains in many Southland communities. They also point out that winter is traditionally the slowest time of the year, and predict that prices and sales will resume their upward march soon.
Others aren't so upbeat. They say prices have risen so fast over the past few years that too many people simply can't afford to buy homes, and that the dearth of buyers will drive prices and sales even lower.
And if some experts are correct, the slowdown won't end soon: Some housing analysts say prices could drop as much as 20% in many parts of California this year and continue declining in 1991 and beyond.
"People have convinced themselves over the past five years that home prices only went up," said Edward Abbott, president of the San Francisco-based real estate investment firm Western Pacific Capital.
"Now they're finding out that prices can go down, too. And they better get used to it, because prices in a lot of areas are going to keep dropping for another year or two."
Added Jim Wilson, a real estate and banking expert with the stock brokerage firm Montgomery Securities: "Prices are going to drop. Long-term, that's good for the market. But short-term, it's going to cause a lot of homeowners some pain."
The severity of the slowdown has caught many would-be sellers by surprise. "My wife and I have had our place on the market since September and nothing has happened," said J. R. Hipple, who cut the asking price for his ocean-view Huntington Beach condo by $10,500 in November and another $9,500 last month. "I knew the market had slowed down, but this is ridiculous."
In a way, Hipple and his wife, Caroline, are lucky. They recently relocated to Virginia and are renting an apartment, so they don't need to continue slashing their $359,900 asking price in order to raise cash quickly to make a down payment on a new home.
Others aren't so fortunate. Donna Wagner, a schoolteacher in Chatsworth, is now stuck paying two mortgages: one on the brand-new house she recently purchased in Palmdale, the other on a two-bedroom home in the San Fernando Valley she has been trying to sell since August.
"I don't like making payments on two loans, but there wasn't anything I could do," she said. "If I didn't close escrow on the new house in December, it would have been sold to somebody else.
"Now I'm just praying that somebody buys my old home and gets me out of this jam."
Some market segments are faring better than others.
Houses priced at $150,000 or less are generally selling well, most realtors say, because there's still strong demand from first-time buyers and interest rates are near their lowest level in 10 years. That has also helped boost sales and prices of condominiums and townhouses, which usually sell for much less than single-family homes of comparable size.
And homes that sell for more than $600,000 are also faring well, in part because buyers for expensive houses have lots of cash and often don't care as much about appreciation potential.
"Most of the slowdown seems concentrated in the 'trade-up' market, with homes in the $150,000 or $200,000 bracket up to the $600,000-range," said Joel Singer, a veteran economist and executive vice president of the California Assn. of Realtors.
"People in that price range usually have to sell their current home to move into a more expensive house. If they can't sell, they can't buy. And right now, some people are having trouble selling."
Singer said most of the price weakness is in highly urbanized areas--the same parts of the Southland that have enjoyed 10% to 30% annual appreciation rates over each of the past few years.
"You look at Santa Barbara, Ventura, Orange County and the coastal area of Los Angeles, and the problem is clear: Prices are simply beyond the reach of many buyers. So, you have to expect a pause in prices," he said.
The realtors' own statistics are sobering. Only 14% of the families in Los Angeles and Orange County can now afford to purchase the area's median-priced home, assuming they're required to make a 20% down payment and are seeking a typical fixed-rate loan. Two years ago, twice as many people could afford to buy a house.
While many of the Southland's biggest housing markets are fizzling, others are sizzling. Singer says values of homes in Riverside, San Bernardino and other inland areas where buyers can still find homes for under $150,000 are rising steadily.
Nearly 30% of the families in the Inland Empire can afford to buy the region's median-priced home, Singer said, and the market is getting an extra boost from all those who have been priced out of communities farther west.
One sure sign of the slowdown in urban markets is the number of homes for sale. A record 11,000 homes are on the market in the San Fernando Valley, up a staggering 55% from a year ago.
The Los Angeles Board of Realtors, which represents many parts of the expensive Westside as well as areas closer to downtown, says more than 5,000 homes within its jurisdiction are now for sale. That's a 50% increase from a year ago.
Double-digit increases in the number of homes on the market are also being reported by nearly every other board of realtors, from Santa Barbara in the north to San Diego in the south.
Homes are also taking longer to sell. It takes nearly two months to sell a house in today's market, according to the California Assn. of Realtors, compared to six weeks one year ago. And even that figure is misleading, some experts say, because fast-moving markets like San Bernardino and Riverside drag down the average.
Even many of the properties that are selling aren't moving easily. Bill Meekers, an agent with Coldwell Banker, recently sold a three-bedroom home in the Mission Hills area of the San Fernando Valley--but only after slashing the price three times and spending several months holding open houses, distributing photo brochures and paying for extra advertising.
"A year ago, you could put anything on the market for any price and get at least one offer," Meekers said. "If the house was priced anywhere close to what it was really worth, you'd get multiple offers.
"Now, it's taking a lot more work and a lot more time to sell. Realtors have to pull out all their marketing stops."
Many brokers trying to sell slow-moving properties are offering a variety of bonuses and gifts to lure potential buyers and, more important, other real estate agents.
Several agents in the San Fernando Valley and Orange County now routinely give out lottery tickets to anybody who'll stop by their open houses. Others offer cold cuts, chili, even champagne and caviar to attract attention.
Richard Jenkins, like some other agents, offered a free vacation to the broker who found a buyer for the Naylors' slow-moving Laguna Niguel house. "I offered two (airline) tickets to Fiji," he said. "I was doing everything I could to generate more interest in the property."
Airline tickets to exotic locales pale in comparison to some of the bonuses being offered by other realtors.
In the east San Gabriel Valley, Cliffside Realty recently advertised a new Mercedes 420 SEL--valued at more than $60,000--to anyone who'd buy a north Claremont estate property it had listed for nearly $1.7 million. Despite the generous offer, there were still no buyers.
"We lowered the price and forgot about the car," said William Fraher, the broker who took the listing. "The house still hasn't sold."
Then there's the old industry standby: cash. Many sellers' agents are giving a larger share of their commissions to realtors who produce a buyer for slow-moving homes. Others are offering flat cash bonuses on top of the commissions they pay to the buyers' agent.
Those bonuses can be large, especially when an unusually expensive home is involved. Sheri Wegand, a broker at Montelone & Associates in Sherman Oaks, is offering a $10,000 bonus to any agent who produces a buyer for a $1.3-million home she has listed in Encino.
In Beverly Hills, one agent says he toured a $2-million home last month that carried a $25,000 bounty for the broker who brought in a buyer. "That's on top of the $60,000 commission he and his office would get," said the agent, who asked not to be identified.
The slowdown has even put some real estate firms up for grabs. Although their revenues are sharply lower, high overhead costs--for office space, advertising and a variety of other items--remain the same.
"When the market cools off, a lot of firms--especially smaller ones--start feeling the pinch," said Lou Piatt, executive vice president of Beverly Hills-based Jon Douglas Co. "It's a good time for big firms like ours to expand because the smaller offices have suddenly become much more receptive to merger offers."
Exactly how long the slowdown will last is anyone's guess. But even the normally upbeat California Assn. of Realtors predicts that resales this year will drop to 477,750, down 7% from last year--and their lowest level since 1985.
The realtors also predict that the price of the typical California home will increase a modest 9% in 1990. Prices rose about 17% last year and more than 18% in 1988.
The current slowdown reminds some experts of the early 1980s, when sales plunged and values flattened after seven years of double-digit price hikes.
But Singer, the realtor economist, said California's housing market isn't destined to repeat its nose dive of a decade ago.
"You have to remember that we had a recession back then and interest rates were near 20%," said Singer. "And even though we've seen some big price increases over the past few years, it was nothing like the prolonged run-up we had in the 1970s.
"What's different this time is that interest rates are in the single-digits and there's no recession. Sales will be slower over the next 12 to 24 months and prices won't go up as fast as they have over the past few years, but we aren't going to replay what happened 10 years ago."
Housing optimists are also touting the "new era" theory, which holds that California has entered a new period of economic diversification and growth.
The state's economy is so broad-based that it can't be hurt by a sharp downturn in any industry, they argue, and projections of a net 7-million increase in the state's population by the turn of the century can only fuel both sales and prices of homes.
The growing number of Asian companies that are setting up shop in California will boost the economy further, these optimists argue, and the throngs of well-heeled foreign investors looking for places to buy will help keep the housing market humming along.
Other experts aren't so sure.
Abbott, the longtime investor from Western Pacific Capital, says prices in many highly urbanized areas--including much of Los Angeles and Orange counties--could drop 10% to 20% this year.
"There's too much supply and not enough demand, the economy is slowing down and the quality of life is going down the drain," he said. "And wait till all the speculators who bought houses over the past couple of years start dumping them back on the market. That's going to hurt everybody's values too."
Wilson, the analyst at Montgomery Securities, predicts a more modest 5% to 10% decline in statewide prices this year.
"Part of the drop will occur just because lower-priced homes are going to take a bigger share of the sales market, which brings down the statewide average. But if you look at the homes priced at $400,000 and above, prices are flat or trending downward. Those are the people who are probably going to see real decreases in the value of their homes."
Timothy Hurckes, managing director of the New York-based investment-advisory firm John W. Bristol & Co., concurs with Wilson's forecast of a 5% to 10% decline in prices this year. But, he adds, that might only be the beginning.
"You'll probably see weakness all the way into 1992," said Hurckes. "Prices have risen so much faster than the typical worker's income that too many people are priced out of the market. Prices have to come back down before they can go back up."
Closer to home, James Doti, founder of the Center for Economic Research at Chapman College, says prices in Orange and Los Angeles counties will rise a mere 2% or so this year--just one-tenth the appreciation rate in each of the two previous years.
"There are just too many homes on the market and not enough buyers," Doti said. "Plus, we're going to see cutbacks in defense, construction and other parts of the goods-producing sector. That won't help the market, either."
Doti is more upbeat than some of his fellow economists: Although he thinks prices this year will essentially remain flat, he believes Orange County home values will rise an average 7% annually from 1991 to 1994. Similar increases are expected in Los Angeles.
Regardless of when the state's housing market turns upward again, it won't be soon enough for Donna Wagner, the Chatsworth schoolteacher who's stuck making payments on the house she recently bought and the home that she can't sell.
"I'm just hoping and praying that someone will buy the old place soon," she moaned. "This lousy real estate market is killing me."