Real Estate Awaits O.C. Revival : After 26% Home Sales Drop, Coldwell Chief Sees Good Signs

Home sales in Orange County plummeted 26.2% for the first three months of the year, a drop prompted by rising mortgage rates, record rains and the nation’s largest municipal bankruptcy.

Compared with Los Angeles County, where sales only dropped 6.7%, the decrease in number of home sales here brought them down almost to recession levels.

Now real estate watchers are wondering whether sales will improve this year, with most saying the health of the real estate market depends on whether the county can solve its own fiscal crisis, created after its investment pool lost $1.69 billion in value due to badly placed interest rate gambles.

Chandler B. Barton, president of Coldwell Banker Corp. of Mission Viejo, said during an interview last week that Orange County’s bankruptcy has had a “devastating impact” on the local real estate market.

Barton, 61, who heads a real estate brokerage firm with 2,400 offices and 54,000 agents in North America, said that Orange County is probably one of the worst areas in the country for home sales right now.

Still, Barton said local sales have picked up in the past two weeks, as buyers regain confidence that Orange County’s fiscal problems will be solved by business leaders and the county.

In fact, he said, 1995 could be a strong year, as interest rates begin receding from their November high of 9.2% and the weather improves. Barton said Coldwell is predicting sales of 3.8 million homes nationwide this year, but that number could slide to 3.5 million if mortgage rates climb even another half percentage point.

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Q: This is spring, peak home buying season. But here in Orange County home sales are down 26.2% for the first three months of this year, with sales down 25% for March alone. Why is that?

A: There is no doubt that this Orange County market is very soft. We’re in a very soft market. But not as soft as it may appear. Our agents in the field are seeing buyers come back into the market, and it happened about two weeks ago, for whatever reason.

Now March has always historically been one of the strongest, if not the strongest, month for sales during the year. So we were very concerned when March was slow--it indicated that we had lost the spring market, but with the pick-up we started seeing a few weeks ago, I believe we have a chance to substantially improve our position in the market from the 26% we’re off.

I believe by the end of May that number won’t be more than 10%.

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Q: Why do you think have sales picked up in the past two weeks?

A: I believe that buyers are beginning to be a little more comfortable with the condition of Orange County. They are seeing the business leaders and the county attempting to find a solution to this bankruptcy problem that Orange County is facing.

And Orange County still has so many good, positive things going for it. We have a tremendous workplace and you can’t beat the climate, we’re getting good transportation routes and I believe all those positives are beginning to outdo some of the negatives.

I really expect that 1995, though not as strong as 1994, will be a very good year for real estate.

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Q: So, to what degree is the bankruptcy the nation’s largest municipal bankruptcy ever--responsible for the 26.2% drop?

A: Well, I think it caused a lot of buyers to have concern about moving into the county. It had less concern for those who already lived in the community and were moving up to a larger home in another area. But you know, an outsider moving in is pretty scared of moving into a county that’s bankrupt; realizing that anything that could happen could reduce our number of safety forces or hurt schools, so you really couldn’t blame them for saying they want to wait a while.

But I think now we’re overcoming it if we point out the positives and the leadership. We’re seeing people gaining confidence and getting over the shock.

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Q: Could you compare Orange County’s real estate market with, let’s say Los Angeles County, where home sales were down only about 6%?

A: I believe that Orange County is the toughest county in the United States right now when it comes to real estate.

Now, that doesn’t mean that things won’t improve. But the first quarter indicated that Orange County was as hard hit as any county in the nation. When you look at a market as large as Orange County and see a 26% reduction, that’s a large drop. The uncertainty over the problems the county is facing really hurt this market. I don’t think there is any doubt that this bankruptcy had a devastating impact on this market. Then if you add the other things, the bad weather and rates, and couple that with the fact that we had a bankruptcy, well, I believe that’s the reason we’ve seen this dramatic drop.

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Q: How did Coldwell Banker cope with the situation and the uncertainty? What did you tell your brokers to say to potential buyers.

A: We tried to keep abreast of the problem, but frankly, everyone here was in a state of shock for awhile. In fact, not even believing that this could happen. But now that it has happened, I’m encouraged by the business community and the Chamber of Commerce working together with the county to solve the problem. The sooner we can get this resolved, the better off everyone is going to be. Including this sales tax, if that’s what it takes to get this resolved. Personally, I don’t think it would be that devastating, it would bring us equal to Los Angeles County’s sales tax and it would do a lot to solve our credit problems.

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Q: The home buying industry is especially vulnerable to interest rate swings. What will happen if interest rates go up again this year?

A: Sensitivity to rates has a great impact on our business, because as rates go up, the person borrowing the money typically will have to settle for a smaller amount of borrowing power. So hikes can not only serve to knock first-time home buyers out of the market completely, it also impacts the move up market.

Hopefully, with the economy and the steps we’ve already taken, we won’t require another interest rate hike. Even a half-percent increase would have a strong impact. I think it would really slow it down. If rates go up, it will reduce the number of homes expected to be sold in the nation from 3.8 million to about 3.5 or 3.4 million.

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Q: What advice would you give to a seller, trying to compete in today’s buyers’ market?

A: A good agent will tell you that eye appeal or curb appeal are very important. It’s like everything else that you purchase, whether its clothes or an automobile. You have to like the way it looks.

Today’s market, since it is a buyer’s market, requires that homes be in very good condition. It’s more critical in a buyer’s market that you price your home according to fair market value and do those things so the home is in top condition.