Housing Sales Rise, but Prices Keep Dropping
From the bustling back lots of Hollywood to the crowded docks of San Pedro, key industries in Southern California are on the rebound and helping revive a region of more than 15 million people that has been in an economic slumber throughout most of the 1990s.
But the regional recovery comes with one major player noticeably absent: residential real estate. More than five years after home prices began their infamous plunge, Southern California’s housing industry remains in a fragile state.
Prices throughout the five-county Los Angeles area have continued to sink in 1996--pushed down by bargain-basement foreclosure sales, a paucity of move-up buyers and other fundamental market changes.
Nearly every sign of promise, such as pockets of strong sales in particular neighborhoods or towns, has been balanced out by troubling omens, including the recent run-up in mortgage rates and a sharp increase in home loan delinquencies.
The result has been a jumbled mix of higher sales and lower prices that has only increased uncertainty among buyers and sellers.
Consider:
* In Granada Hills, Anne-Marie Sullivan drove by a house for sale, arranged a tour and made an offer within 24 hours. “If I had waited another day, the house might have been sold,” said Sullivan, who bested two rival bidders with an offer in the low $200,000 range.
* About 15 miles away, in the hills of Silver Lake, Doug Brown’s Southwestern-style home sits unsold despite half a year on the market and a recent $16,000 price cut. “The buyers are taking their time looking exactly for what they want,” the 38-year-old attorney said.
* Down the coast in Laguna Beach, real estate agent David Garris is seeing bidding battles erupt over some homes while others remain virtually ignored. The market, he says, is “somewhat schizophrenic.”
Most industry experts don’t expect full confidence to return to the market until there is a sustained rise in home values--and that is not likely to happen any time soon.
During the first three months of 1996, housing prices extended a slide that began in 1991 when the price of a typical home in the five-county region peaked at $185,000. “We expect to see a leveling out of housing prices in Southern California in 1996, but we have not seen it yet,” said Bank of America economist Howard Roth.
A few die-hard optimists have boldly declared that Southern California’s housing slump is over, citing this year’s strong sales and the throngs of eager buyers who have descended upon some Sunday open houses like shoppers at a department store close-out sale.
Housing resales in Los Angeles County jumped nearly 20% in March from the same month last year. The recovery “is real,” said Fred Sands, the oft-quoted real estate agent on the Westside of Los Angeles. “It’s strong.”
But these kinds of declarations often ring hollow in the trenches, where most real estate agents remain guarded about a market that has been blowing lukewarm and cool for years. It’s hard to be confident, they say, when foreclosure sales drag down prices in many areas and rising interest rates kick prospective buyers.
“I remember hearing this two years ago,” said Los Angeles real estate agent Hattie Ramirez, as she toured new property listings during a weekly caravan of agents. “While the last two months have been fantastic, does that mean we have a turnaround? Who knows?”
Though values in some neighborhoods are rising and home resale prices rose in March, the price for all homes--new and resale--have yet to hit bottom. During the first three months of 1996, the median sales price of a Southern California home fell to $157,000 from $159,000 a year ago and from $165,000 in 1994.
The most recent decline puts Southern California prices more than 15% below the 1991 median, according to figures from DataQuick Information System in La Jolla. In Los Angeles County, the median price has dropped more than 17% since 1991 to $160,000 and about 14% in Orange County to $187,000.
The plunge in housing values has had a deep psychological impact on a region where the middle-class once viewed residential real estate as a smooth road to affluence. The superheated market of the 1970s and 1980s, when speculation was rampant and sellers were king, has been replaced by sobriety and low expectations.
The duration and the depth of the housing slump has defied many predictions of a turnaround. In 1991, the president of the California Assn. of Realtors declared: “The March sales statistics verify that the California housing market is bouncing back.”
Hopes were raised again in early 1993 after four months of rising home sales stirred talk of a rebound. “We’re either at the very tail end of the slump or at the very start of a housing recovery,” a Bank of America economist said at the time.
Both predictions--along with many others--proved premature. But many brokers and real estate experts cite several signs that indicate that 1996 maybe different.
Most important, they say, Southern California and the rest of the state’s economy have been creating jobs at an impressive pace that is expected to continue at least through the end of next year. According to a recent UCLA forecast, California should create nearly 1 million jobs through 1998.
The California Assn. of Realtors, the agents’ trade group, issued a recent report predicting that home resales statewide should rise 8.6% this year. It is even predicting a small rise in the statewide median price.
Sizzling sales in many neighborhoods, however, have been overshadowed by the stubborn drop in prices.
Despite selling 25 homes in March, Northridge real estate agent Stephanie Vitacco said the San Fernando Valley market has not recovered. There is still a glut of homes on the market and prices continue to fall, she said.
Though the market “is very much heating up,” she said, “it has not rebounded. We’ve got another couple years” before prices rise.
Economists say real estate values remain depressed in part because many homeowners lack the equity to trade up to larger, more expensive homes. A recent study indicated that 300,000 homeowners in California have had their equity wiped out by the plunge in prices.
The uncertainty about the market was evident at a recent weekly agent meeting in the Los Feliz office of Prudential Jon Douglas where Ramirez works. Sales at the 34-agent office have been running 20% above last year’s levels and buyers are snapping up properties in choice neighborhoods, said manager Varo Gabriel.
But agent Lori Ramirez (no relation to Hattie) described what happened to promising buyers after mortgage rates went up: “Guess what? Now they don’t qualify.”
Added Gabriel: “I don’t think we can honestly say where the market is going. It’s just changing.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Falling Prices
Median prices of new and used homes in Southern California are continuing a slide that began five years ago.
Median Sales Price by Year (in thousands of dollars)
*--*
1st Qtr. COUNTY 1990 1991 1992 1993 1994 1995 1996 Los Angeles $190 $193 $186 $177 $170 $162 $160 Orange $214 $218 $212 $202 $202 $193 $187 Riverside $140 $139 $135 $131 $129 $126 $126 San Bernardino $130 $139 $132 $128 $126 $121 $117 Ventura $219 $213 $205 $197 $191 $188 $188 5-county median $180 $185 $178 $172 $167 $159 $157
*--*
Source: DataQuick Information Systems
