Home Sales in State Climb 10.5% in ’94 to 6-Year High : Economy: Resales climb 8.5% in O.C.; the L.A. area sees a 19.5% rise. The decline in housing prices continues.
In the latest sign of the state’s economic comeback, sales of existing homes in California jumped a surprising 10.5% last year to their highest level since 1989, although housing prices continued their long decline, the California Assn. of Realtors reported Wednesday.
Even a steady rise in mortgage interest rates during 1994, fueled by a string of interest-rate increases by the Federal Reserve Board, could not derail the sales recovery in the housing industry, a critical component of California’s financial health that pumps more than $30 billion into the state’s economy each year.
In Orange County, home resales for 1994 were up 8.5%, largely on the strength of activity during the first half of the year, said John Shumway, president of Market Profiles in Costa Mesa.
New-home sales followed a similar pattern, selling more slowly as interest rates rose in the second half, said Shumway, whose company does research for the real estate industry.
Kenneth Agid, a real estate consultant in Irvine, said the county’s December bankruptcy filing may have a dampening effect on the housing market this year.
“You still have the Bob Citron factor,” he said, referring to the county’s former treasurer-tax collector, whose investment strategy led to a $1.69-billion loss.
“Orange County certainly had its tree shaken, and the ultimate outcome is still up in the air,” Agid said.
The Los Angeles area was one of the regions where housing resales climbed most sharply, rising 19.5%. They soared 21% in the Riverside-San Bernardino area and 30.3% in Palm Springs.
“The results of ’94 were surprisingly pleasant,” said Lannie Mott, president of the Los Angeles chapter of the real estate trade group. “It was a year we felt the turnaround.”
Real estate experts say the outlook for the coming year is less bright. The Fed’s repeated rate increases in recent months have begun to slow California’s housing market once again. Indeed, resales in the final three months of 1994 were actually lower than in the final quarter of 1993, when mortgage rates bottomed out.
“I did two-thirds of my business in the first six months of the year,” when mortgage rates were lower, said realty agent Ken Lowman of ERA Dahler Realty in Rancho Cucamonga. “The last six months were not very good because of the rising rates.”
The realty association said sales of existing single-family houses should keep rising this year--but at a more subdued pace of 4.5%, largely because lending costs have gone up.
“The fundamental strength of the California (economic) recovery is still good,” said Leslie Appleton-Young, vice president of research and economics at the California Assn. of Realtors. “Retail sales are there and you’re getting job growth. These are things that really support a long-term, healthy housing market.”
But she added: “The higher rates are certainly starting to have an impact.”
Housing prices in California slipped for the third consecutive year, but they appeared to be bottoming out. The median resale price in Orange County was down slightly, to $213,970 from $217,210 for 1993. In Los Angeles, the median price fell 4% to $187,720. The statewide median price fell 1.7%, to $185,050.
But the real estate trade group predicted that prices would rebound in 1995, increasing by a modest 1.5% to nearly $188,000.
Last year’s sales gain--to 482,790 detached, single-family units, the most since 539,290 changed hands five years ago--was much stronger than the realty group had expected. It had looked for an advance of 6% to 6.5% for the year, following a tepid 2.2% increase in 1993.
For the first time since 1988, California’s sales outpaced the nation’s, which rose 4.3%, the group said.
Much of the gain in 1994 came in the first six months of the year. After the Fed began lifting rates last February, many prospective buyers “sitting on the dime suddenly said, ‘Interest rates are starting to pick up, so I better jump in now,’ ” said Barbara Amstadter, an agent with Prudential California Realty in Newport Beach.
Case in point: Johni Tanaka, 49, and her fiance, Terence Komisak, 40. They took the plunge into home ownership last June, paying $165,000 for a two-bedroom, one-bath house in the Los Altos section of Long Beach.
“Interest rates were going up, and prices seemed to be fairly reasonable,” Tanaka said. “If you wait around to where you feel (completely) secure, you may never end up doing it.”
California’s deep recession and an usually large number of unsold housing units had pushed prices well below their levels of 1989-1991, when prices peaked after sales enjoyed sizzling growth in the 1980s. The median price peaked at $200,660 in 1991.
But last year’s decline dropped the median price to its lowest level since 1988, when it stood at $168,200, according to the realty group. The median means that half the houses sold went for more than that sum, and half sold for less.
Mott said the lower prices showed that many sellers finally gave up the notion that their houses were worth the same as a few years ago, and that “the reality of the true marketplace took over. We had realistic sellers.”
Despite the price decreases, Californians are still having trouble buying homes. About 38% of California households could buy the median-priced house at the end of 1994, down from 42% a year earlier, because rising mortgage rates more than offset the benefits of lower housing prices, according to the real estate trade group.
For a house costing about $180,000, and assuming a 20% down payment, the household would need an annual income of at least $50,200 to qualify for the needed mortgage, the association said.
All of which illustrates how California remains a costly place to live in comparison with the rest of the country. Nationwide, the minimum household income needed for a median-priced house was only $30,170, the group said.
Some economic analysts are concerned that if the Fed continues raising interest rates this year, the state’s slowing housing recovery also could endanger California’s overall economic rebound.
Economists at the Federal Reserve Bank of San Francisco said in a new report that the state economy already could be restrained in 1995 by the fall of the Mexican peso, January’s floods and the Orange County bankruptcy.
The momentum of the state’s recent economic growth “should keep the recovery on track,” the study said. But the peso’s devaluation and related instability in world currency markets “presents some risk” of undermining California’s recovery, it said.
Times staff writers Patrick Lee and Ross Kerber contributed to this story.
