Sitting on the Market : After the Crash, Owners Adjust to the Region’s Housing Slump
Part-time investor Jim Evans is already dismantling the small real estate portfolio he started only five years ago.
In the last 18 months, Evans said, he has sold all but one of the four rental houses he bought in the late 1980s, when Southern California’s property market was white-hot. He even sold his own home in West Los Angeles a few months ago before falling property values could eat up more of his profit.
“The market stinks, and I don’t think it’s going to get better soon,” said Evans, 41, a computer programmer who is now renting an apartment for the first time since college. “I’ve still got some of the money I made in the ‘80s, and I want to keep it.”
Across California, property owners such as Evans are carrying out dramatic survival strategies to cope with the state’s loudest real estate crash since the 1920s. And while the worst of the three-year-long slump appears to be over, even the most optimistic experts do not expect a solid rebound before the spring of 1994.
The median price of a house in California now stands at $190,500, off 10% from its peak of $211,000 in 1991, according to the California Assn. of Realtors. Sales are 31% off their highs of 1989.
The only comparable downturn in state history began in the 1920s, when home prices started a 10-year decline that cut real estate values in half, according to the UCLA Business Forecasting Project.
Like today, the severe slump was preceded by years of double-digit inflation in real estate.
Homeowners in Southern California have clearly fared worse than those in the northern half of the state--or in any other part of the country.
The $185,000 median price in August for Los Angeles County is down 14% from its peak in 1991, while the $213,000 median price in Orange County is off 9.7% from its high in 1990, according to La Jolla-based Dataquick Information Services.
Prices in Los Angeles and Orange counties in the last year have fallen more than in any other region of the nation, according to a recent study by the National Assn. of Realtors.
While values in some low-cost neighborhoods have remained stable, they have virtually collapsed in most high-priced communities. Prices are down 30% in Rancho Santa Fe and 50% in Beverly Hills.
The continuing downturn has dramatically altered the face of the real estate business in California in a way not seen since the severe recession of the early 1980s.
Countless small and medium-sized real estate offices have merged with bigger competitors or shut down completely. The annual number of people taking the state exam to obtain a real estate sales license has plunged to 40,000 from 84,000 in 1989.
The decline has forced the state Department of Real Estate to trim its staff by 25%, because the agency is funded primarily by the licensing and exam fees it collects.
“Fraud and other problems tend to pick up when times get desperate, yet we’re trying to investigate all these complaints with a staff that keeps shrinking,” said Dan Garrett, a spokesman for the department.
While owning a home in California’s coastal urban areas was an easy ticket to riches only a few years ago, it is often an albatross today.
Most homeowners have familiar tales of woe about falling values in their neighborhoods, even though their prices remain far higher than those in other parts of the country.
Video wholesaler Jerry Rosenberg recently bought a new home in Orange County without first selling his old house in Woodland Hills. Now he’s stuck with double mortgage payments, even though he will guarantee generous financing terms on his now-vacant former home.
Worse, the $329,950 asking price on the Woodland Hills house is about 25% less than he could have easily sold it for a few years ago, Rosenberg said. “I try not to think about it,” he said. “Why drive myself crazy?”
A huge number of foreclosed properties are currently for sale as well, helping depress property values virtually everywhere, experts say.
More than 26,000 homes in the six-county Southland area went into foreclosure in the first seven months of 1993, 76% more than in the comparable period last year, according to TRW REDI Property Data in Riverside.
“Homeowners are seeing their asking prices dragged down because they are competing against all the bank-owned properties that are on the market,” said Nima Nattagh, a TRW analyst. In turn, the drop in home values has been partially blamed for a sharp decline in consumer spending that has compounded the state’s economic woes.
Californians lost $150 billion in home equity between the start of 1991 and the first half of 1993, according to Regional Financial Associates, a research firm in Pennsylvania. That has made the state’s consumers far more cautious and caused their spending to plunge by nearly $5 billion, RFA estimated.
“If that money could have been spent, it would have provided a nice boost to the state’s economy,” said RFA economist Mark M. Zandi. “Instead, it just evaporated.”
Municipal governments, which count on property tax revenue to help fund everything from police protection to park maintenance, have been stung by falling values as thousands of homeowners have appealed the estimated value of their property and reduced the size of their tax bills.
Owners of office towers are notching even bigger savings. The owners of the 40-story Union Bank Building in downtown Los Angeles last month had more than $600,000 slashed from their annual tax bill when an appeals board agreed that the tower’s value had dropped to $121 million from an earlier estimate of $186 million.
“We have three times as many clients today than we did a year ago,” said Sally Easterley of Woodland Hills-based Jay & Easterly, a firm that represents property owners who want to fight their tax bills.
Realtors, meanwhile, are trying to find more effective ways to market their properties. Many brokerages have slashed their newspaper advertising budgets, choosing instead to use direct mail in targeted neighborhoods.
Others are giving new twists to old marketing gimmicks.
About 100 hopeful sellers have already signed up for an “auction caravan” that Prudential California Realty will sponsor in October. Each auction will be held right in the seller’s living room or yard, and losing bidders can simply drive to the next auction at another home on the list.
“Auctions create excitement, and excitement sells homes,” said Sid Kibrick, a Prudential vice president who is organizing the event.
Most experts agree that the worst of the long slump is over, noting that sales have been on a modest upward trend over the last several months and that prices in many areas have stabilized.
But exactly how long the housing market will remain bumping along the bottom remains anyone’s guess.
While optimists foresee a solid rebound by next spring, other analysts say a recovery may be at least two years away.
The Declining Market Median home prices in all six Southland counties have fallen from their peaks.
1987 1993 Los Angeles County $185,000 $155,000 Orange County $213,000 $155,000 San Diego County $175,000 Riverside County $128,500 $95,500 San Bernardino County $126,000 $95,500 Ventura County $215,000 $158,000
Sources: Dataquick Information Systems
