Finally, Encouraging News in Real Estate Hits Home : Economy: Many market indicators show that house prices in the state and Southland may have bottomed out.
When Kathleen Young decided earlier this summer to sell her Woodland Hills home, she figured she’d be lucky to get the asking price.
She hadn’t counted on getting more.
“I had been told that a good asking price was $259,000" for the four-bedroom, two-bath home, said Young, a property manager. Another agent suggested $279,000. Young chose to list the house at the higher price.
Within days, she had three firm offers, and accepted one for $283,000. “We were pleasantly surprised,” she said.
As Young found out, there are signs that the long-awaited turnaround in California home prices may have finally arrived. While not all market watchers agree that the worst is over, and sharply higher interest rates or an economic slowdown could make things worse, the evidence is compelling that prices at least have bottomed out.
The median price for an existing single-family house in California remains above its low in February of $180,978, according to the California Assn. of Realtors. The median price fell 1% in July to $185,040, down from June’s $186,830, according to figures released Thursday by the association. But it had increased in three of four months before July.
Meanwhile, foreclosure activity is declining, indicating that financially troubled homeowners are getting better prices for their houses and thus are less likely to default on their loans.
And homes that are priced reasonably can draw multiple offers within days, including some above the asking price, real estate agents said.
Even in hard-hit Southern California, where falling real estate prices have been tied to the hemorrhaging of jobs in aerospace and other industries, prices seem to have stopped their steep descent.
“We thought prices were bottoming in most of the state, and by the end of the summer, believe that generally prices will have leveled out,” said David Hensley, a real estate economist with Salomon Bros. in New York.
Real estate agents and economists cite a variety of reasons for the firming of housing prices: pent-up demand from first-time home buyers, a rush to buy before interest rates shoot back up, relatively good affordability and growing confidence that the local economy is on the mend. July’s dip in prices statewide was attributed to higher mortgage interest rates.
“People want to get in before they perceive the prices starting to turn around . . . and there’s a fear that maybe this is the time to jump in before prices do start turning around,” said Ava Better, a real estate agent in Woodland Hills.
Any turnaround would be the best sign yet that the California economy’s fledgling recovery is continuing. “It means if you buy a house now, you’re not going to instantly lose money by seeing it lose value,” said John Karevoll, financial editor at Dataquick Information Systems in La Jolla.
A rebound also would be a big relief for thousands of homeowners who bought their dwellings in the past four years--only to see their values drop as much as a third below what they paid.
The end of the decline does not mean the beginning of a new boom, however. Most economists doubt that prices will grow much faster than the rate of inflation, in part because the state’s economic growth is still lagging that of the nation as a whole.
Among further evidence of a turnaround:
* In Los Angeles County, the median price of an existing house was unchanged in July at $189,400 and still above the low of $184,250 in February, the California Assn. of Realtors reported Thursday. In Orange County, the median price rose in July to $217,750, comfortably above the trough of $204,740 in February, the association reported. In Ventura County, the July median price was down 5.7% to $203,820, but still above the low of $199,150 in March.
* The median price per square foot paid for existing homes in Los Angeles County has been hovering around July’s $127.42 for about three months, and remains above March’s low of $124.48, according to Dataquick. (The square-foot measure is considered a better barometer of prices than the median price of homes sold, which can be affected by the mix of homes in a given month).
* Foreclosure activity is declining. The number of properties in the state that went into foreclosure in July was 8,802, the fewest since November, 1992, and down 14.5% from June, Dataquick reported Thursday. Foreclosures peaked at 12,054 in June of last year.
* Despite higher interest rates, sales compare favorably to last year’s levels. The California Assn. of Realtors reported Thursday that 453,400 existing single-family detached homes closed escrow in the state during July, on a seasonally adjusted, annualized basis, down 8.3% from 494,220 homes in June. But the July sales pace was 4.6% above the rate in July, 1993, when 433,580 homes were sold.
Not everyone agrees that the worst is over. Michael Carney, executive director of the independent Real Estate Research Council of Southern California, believes home prices will continue to fall at least until the spring of next year.
“Prices are probably pretty close to the bottom of the cycle, but picking the actual bottom is tough,” he said. Still, he said, “it’s my guess that prices have at most another 5% to fall.”
Nor is a recovery likely to cover all areas and all kinds of homes. And any disruption in the state’s nascent recovery--severe job cuts, a sharp jump in mortgage interest rates--could send housing prices back down in a hurry.
“It’s been a stealth recovery,” Karevoll said. “It’s very hard to track the positive indicators. There seems to be kind of a deep sigh going through the market, and people are wiping their brows and hoping for the best.”
Homes purchased by first-time buyers are holding their prices better than move-ups or mansions, real estate agents and economists say. Houses in older, middle-class neighborhoods are doing better than those in upscale areas.
All told, Hensley estimates that prices in Los Angeles County have fallen as much as 35% from 1990 highs, after adjusting for inflation. That brings them back to their 1986 levels--about the place they started when California’s runaway real estate inflation began.
The Real Estate Research Council’s index of market prices of existing single-family homes shows that prices in Southern California have fallen 15.3% overall from their peak in April, 1990. But the differences between regions are stark.
Prices in Southeast Los Angeles County have fallen only 5.8%. But prices in the San Fernando Valley have dropped 24.6%, and on the Westside and Santa Monica, they are off by 33.6%.
Surprisingly, condominiums seem to be holding their value, in part because they did not benefit as much as houses from the rapid increase in prices in the late 1980s.
Home buying activity has been encouraging, agents say.
“I think prices have probably bottomed out, or come close,” said Ricki Weinberger, a real estate agent with Podley Caughey & Doan in Pasadena. “But it depends now on the individual property. Houses in really good neighborhoods with good amenities do well. Houses in poorer or marginal areas are still maybe going down.”
But a real estate agent in the Hollywood Hills, who handles homes in the $425,000 to $450,000 range, said things continue to look bad for him. “The sales have gone up, but the prices haven’t,” said the agent, who asked not to be named. “I don’t think we’ve hit bottom yet.”