Average Home Cost in O.C. Up 18% in ‘89, But Sales Fall

The average cost of homes sold in Orange County during 1989 rose 18% to $250,415, up from $211,986 in 1988, according to a report issued Tuesday.

At the same time, total home sales in the county plummeted 24% to 46,809 units from 61,422 in 1988.

The average home price, which hit a one-month record of $261,097 in September, fell through much of the fourth quarter to $249,999 in December.

The figures, compiled by TRW Information Services, reinforce earlier signs that the county’s superheated housing market is cooling down.

The report, which tracks all owner-occupied housing--new, resale, attached and single family--also supports Chapman College economist James Doti’s recent prediction that the county’s residential real estate market is facing a period of several tough years.

Doti tracked the relationships among home prices, birth and death rates, migration into the county and personal income growth and determined that the demand for homes here is falling as a direct result of soaring prices and slowing population growth.

He suggested that demand for new single-family homes and condominiums could fall to below 5,000 units a year--the lowest figure since the county’s first building boom in the 1950s--unless developers take steps to slash prices.

And even if price appreciation is virtually halted, Doti said, the population growth slowdown will keep housing demand well below recent levels.

But a drop in home sales--or even a flattening out of price appreciation--shouldn’t be taken as a sign that the county’s housing industry is in trouble, industry specialists say.

“This is not a recession. Interest rates are at single-digit levels and the economy is healthy. What we are seeing is a normalization of the market after a period of downright frenzy,” said Kelly McDermott, vice president of Market Profiles, a real estate consulting and marketing firm in Costa Mesa.

“It is like the law of physics,” she said. “For every action there is an opposite and equal reaction. After one extreme period--and we’ve had extreme price increases and sales activity for the past two years--there is always a period of conservatism.”

McDermott said she believes that home sales in the county will flatten or even decline a bit again this year and that prices will be relatively flat through 1993. “It will be a slower market, but not a horrible one.”

Both the slump in demand and a flattening of price appreciation began occurring about the middle of 1989.

The TRW figures show that only 7,876 of the homes and condos sold in the county last year were new units, representing just 16.8% of total sales. That compares with 11,153 new units sold in 1988, or 18.2% of all sales that year.

Housing sales for each month of 1989 were below the levels recorded in the same month in 1988, with demand peaking at just under 4,600 units in March.

Average home prices in the county hit a record $255,989 in May, then slipped 3% to $248,638 in June before climbing again to a new record of $261,097 in September.

Since then, the average has slipped 4.25% to December’s $249,999.

The December figure was only 6.1% higher than the $235,562 reported for December, 1988. When the area’s 4% inflation is included, the real December-to-December increase falls to just 2.1%.