After enduring a painful real estate slump that has been far longer and deeper than anticipated, homeowners in Southern California may finally see an appreciable improvement in property values in 1997 for the first time since the early part of the decade.
The housing market should get a boost from a variety of factors, ranging from a stronger regional economy and job growth to stable interest rates. A rise in consumer confidence as well as stability in the area's so-called net migration--the difference between people leaving and moving into the region--should also help the recovery along.
"There is a growing number of consumers who believe correctly that home prices will rise, albeit modestly," said Bruce Karatz, who heads Los Angeles-based home building giant Kaufman & Broad Corp.
Karatz and other home industry observers emphasize the modest nature of the regional housing recovery. The average homeowner can expect to see a gain of less than 3% next year--a significant but still small increase after five years of falling prices.
However, the likely gains next year should build on 1996's surge in sales and stability in prices, the experts say.
In fact, the six-county Southern California area--Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura--could end 1996 with the first year-to-year increase in median sales price since 1991, according to DataQuick Information Systems, a La Jolla-based real estate research firm.
During the first 11 months of 1996, the median price for all homes sold in Southern California edged up 0.6% from the same period last year to $161,000, according to DataQuick. That minuscule price increase should hold up after December's sales results are tallied, according to DataQuick analyst John Karevoll.
Next year, the Orange County housing market will lead the region by posting a 2.2% increase in the median home price if interest rates remain relatively low and the economy continues to grow, according to a forecast by Esmail Adibi, director of the Center for Economic Research at Chapman University in Orange.
Los Angeles County will probably post the smallest gain in the region, said Adibi, who will release a more detailed forecast in January. "Los Angeles is the weakest," Adibi said. "Nonetheless, it could show positive appreciation."
Why Southern California home prices have not responded much more quickly and strongly to the region's economic turnaround continues to baffle many industry experts. "We've had that kind of forecast [of appreciating prices] for some time and it has not materialized," said Tom Lieser, director of the UCLA Business Forecasting Project.
Even the most optimistic of brokers concede it will be years before even the most choice pieces of Southern California real estate make up the value they have lost during the 1990s.
"By the end of the decade," said Beverly Hills real estate agent Joe Babajian, "we will be back to where we were in '89, which isn't really saying a whole lot."
Some of the major factors that will moderate increases in property values:
* Low or no equity. Southern California continues to be dogged by the erosion or complete evaporation of homeowners' equity, which hinders the ability of homeowners to sell and trade up to more expensive property.
A recent survey by Experian, an Anaheim-based real estate information firm, shows that nearly a quarter of the state's homeowners have a mortgage whose amount exceeds the current value of their property, a condition called negative equity. San Bernardino County is the negative equity capital of California, with 57% of all homes falling into the category.
The continued problems with negative equity and other concerns lead Experian market analyst Nima Nattagh to predict further declines in regional home values. "We are definitely not going to see a recovery for a long time to come," Nattagh said.
* Foreclosures. Bank-owned homes sold at bargain prices will also serve to limit or drag down home values in many neighborhoods. Century 21 real estate broker James Joseph of Whittier has seen home sales soar but prices continue to fall, and he puts much of the blame on foreclosure sales, known as REOs.
"I see more and more REOs coming on line," Joseph said. "All you need is one REO to knock a street off balance."
* Low inflation. With little or no inflation, a major element in helping boost home values is missing. "We are living in a noninflationary environment. It's great for interest rates and it's great for a new home buyer," said Karatz at Kaufman & Broad.
The region's long slump has also shown the importance of newcomers in helping boost the demand for new housing, said Lieser at UCLA. The housing market suffered as the number of Southern California residents fled the area, cutting demand for new homes and more expensive move-up housing.
However, it now appears that the state is losing fewer residents and attracting more newcomers, helping stabilize the population and support the housing market, Lieser said.
In the San Fernando Valley, the tepid nature of the real estate recovery is evident to Fred Sands agent Stephanie Vitacco. Although sales are brisk, Vitacco says buyers remain extremely cost-conscious and more sellers have given up hope that a quick turnaround is in the works.
"Some people are very accepting that . . . their house is worth $100,000 less than when they bought it and that they are going to take a huge hit," Vitacco said. "It's a definitely a new market. It's not what we have seen before."
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Southern California home values have stabilized after a steep drop during most of the 1990s. Median sales price, in thousands:
1996: $161 (through November)
Source: DataQuick Information Systems