Optimism Builds Amid O.C.’s Housing Boom
Homeowners who suffered through the nightmare of falling prices and negative equity earlier this decade now believe those dark days are over, and a third expect to make a large profit on their houses, a Times Orange County Poll has found.
With sales and prices up sharply over last year, and with interest rates low, most are confident they can afford the homes they want--and even more believe that prices will continue to rise.
Older, affluent households express the most optimism. Half of those over 55 think they could make a big profit on their homes, though few want to move. By contrast, nearly half of those 34 and younger want to move, while few see big profits in their current homes.
Those results reflect the way the recent boom has developed, with the hottest sales and price increases in high-end housing, and less expensive markets only recently heating up.
For a study in the contrasts, consider Linda Lynch and Sue MacAfee, who regard the real estate renaissance from markedly different vantage points.
“It’s going crazy,” said MacAfee, of Coto de Caza, her town behind gates in the south, where large homes seem to sell as fast as they hit the market. “Everybody’s doing this shift from the smaller house to bigger, bigger, bigger.”
But 30 miles northwest in Stanton, Lynch’s two-bedroom condo--purchased in 1988 for $96,000--has seen little benefit from the boom reported elsewhere. She owns four apartments and a kennel as well, also acquired in the 1980s, and none of them would yield her a profit if she sold them today.
“I think residential is coming back some, but not as fast as the news media says. Maybe in Beverly Hills, but I don’t see it in your everyday market,” Lynch said.
Bullish Outlook
Overall, most of the 600 homeowners surveyed in the recent poll sounded more like MacAfee, saying prices are heading higher. Two in three think they would turn a profit if they sold their homes now. And 35%--up 9 percentage points from last year--said the profit would be major.
People are acting on those beliefs too. Four in 10 homeowners who are now shopping for a home had put off trying to sell their current home because prices were depressed.
“There is a huge pent-up demand,” said Cheryl Katz, director of the Times Orange County Poll, which questioned county homeowners about their attitudes toward housing.
That demand has prompted floods of letters and phone calls from would-be buyers and agents urging Dorothy Duthie to sell the Huntington Harbour home from which she has watched California’s roller-coaster housing market for 23 years.
Duthie and her husband bought the waterfront home almost on a whim in 1975; he disliked keeping his boat in Long Beach, and it had a dock. They both had to work to pay the mortgage, but the $150,000 price proved a windfall. A year later, a real estate agent told them a buyer would pay more than twice as much.
“We said, ‘No, thank you,’ and we’ve been saying that ever since,” Duthie said. “This waterfront property is too hard to get hold of. Members of my family will eventually want to buy it.”
After a big price run-up in the late 1970s, Duthie witnessed the sluggish markets of the early ‘80s, another price explosion later that decade, the long recent slump and now, another boom. Like half of the Orange County homeowners over 55, she believes she would make a major profit if she sold.
The home next door--really just a remodeled tract home, a big box, Duthie said--just sold for nearly $1 million. “It kind of fits in with what people were paying five years ago, when they were selling them for a million dollars and just tearing them down” to build new homes, she said.
The Southland’s housing boom hasn’t been as big or as long as those in some parts of the country, like the high-tech havens in Northern California.
Indeed, at Western Digital Corp. in Irvine, part of the pitch to promising engineers is that Orange County is much less expensive than Silicon Valley.
Bill Needles, a vice president for quality at the computer disk drive maker, bears witness to the disparity. Working for National Semiconductor Corp. in 1991, he moved from Texas to the Silicon Valley, where 2,000-square-foot homes cost $600,000. That was too much for Needles--luckily, as it turned out.
“We rented a home in Saratoga up there. And we watched houses drop in asking price more than our entire house was worth in Texas,” he recalls.
Two years later, when a search firm came calling with an offer from Western Digital, “I didn’t know anything about Southern California except Disneyland. I said I’m not interested in living in L.A.,” Needles said.
But he agreed to look, and he found south Orange County “idyllic” because of its weather, easy drive to work and the beach, and location between San Diego and Los Angeles. And the home prices were cheap compared with the Bay Area.
Needles, his wife and three children wound up in a 3,500-square-foot Laguna Hills home, in a glistening new neighborhood with lots big enough for pools. They purchased it in late 1993 for a little over $400,000. “We couldn’t ever find something like that in the Bay Area,” he said.
South County Prices Go Through the Roof
So far, most homeowners don’t feel overextended, despite rising prices. Well over half said they can afford the kind of housing they would like, and only one in six regard themselves as “house poor,” with little money left after the mortgage, property taxes and insurance have been paid.
Satisfaction with the housing market is more like amazement in south Orange County, where consultants at E&Y; Kenneth Leventhal Real Estate Group report new home prices up 25% in some areas.
MacAfee, who with her husband, Darrell, moved to Coto de Caza 11 years ago, has watched the area change from a rural retreat to today’s boomtown.
They spent about $445,000 in 1986 in land and building costs for their 4,500-square-foot home and large garage, which sit on an acre. A year and a half ago, the property was appraised at $955,000, Darrell MacAfee said, meaning it now is worth well over $1 million.
“I have a friend who put his house up for sale, and he thought the price was too high, but he figured he’d try it. It took three days and he sold it--for the price he listed it at, $469,000,” Sue MacAfee said.
She said she has noticed the trend that experts said touched off the hot market--heavy demand among baby boomers trading up to the biggest homes of their lives, with mortgage rates at a historically low 7% and a job-creating economy pushing them along.
Yet an affordability crunch also is clear. The “house poor” perception is twice as high among those making less than $50,000 a year. Four in 10 of that group said they would leave the county to get a better house--a percentage also true of homeowners younger than 34.
And yet “those are the people most interested in buying. So they’re in a bind,” pollster Katz said. “Orange County’s housing market is tough for them. And it’s going to get tougher.”
Renters Face Housing Crunch
It’s tougher still for renters, who were not part of the poll. Unable to buy, watching home prices rise farther out of reach, many are being socked with rental increases that rival the rate of home appreciation these days.
Real estate agent Joe Berkson, an Orange County apartment specialist at Marcus & Millichap, said the rental market also is “extremely hot,” with vacancies plummeting.
“I just sold a smaller apartment building a couple months ago,” he said. “The guy pushed rents up well over 10% in just a couple of months.”
Lynch, the condo and kennel owner, is among those who would move out if she had her way. She injured her back and neck three years ago and said the pain makes working tough.
“It’s a nice enough area that I’m in, but if I could, I would go more south--to the San Diego area,” she said.
But that’s not to be, at least for now. When she refinanced her condo a few years back, she took extra money out, and there would be nothing left if she sold.
“I have no equity, and that’s a little hard to take,” she said.
Ken Agid, an Irvine-based consultant to home builders, said that even in South County, where new jobs are multiplying along with the tracts of upscale new housing, the demand for ever-bigger homes is finite.
Agid said he talked with planners at Ladera Ranch, an upcoming project of 8,100 homes near San Juan Capistrano, at a time when they were discussing having nothing but detached homes--not a single condo or townhome.
“I said you can’t do that,” Agid recalled. “The explosion of trade-up buyers that has been driving this market is finite.
“Right now, there’s all this pent-up demand, four or five years of emotion. But that won’t last forever.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Home Price Recovery
Orange County’s home price recovery is strongest in the coastal communities, particularly in South County where the median home price jumped 15.2% in March. Median home prices, countywide and by region:
Countywide Median Price
March 1997 $193,000
March 1998 $221,000
% Increase: 14.5%
North Inland March 1997: March 1998: % Increase
$175,000: $194,000: 10.8% North Coastal
March 1997: March 1998: % Increase
$305,000: $340,000: 11.5%
Central
March 1997: March 1998: % Increase
$170,000: $185,000: 8.8%
South Inland
March 1997: March 1998: % Increase
$233,000: $257,250: 10.4%
South Coastal
March 1997: March 1998: % Increase
$312,000: $359,500: 15.2%
Source: Acxiom/DataQuick, Researched by JANICE JONES DODDS / Los Angeles Times
Expectation of Profits
Orange County’s booming real estate market has lifted expectations among homeowners. About a third now say they would make a major profit if they sold their home. Just last year that proportion was one-quarter. Many of those now in the market had delayed selling while prices were down.
* If you sold your home today, do you think you would have a:
*--*
1997 1998 In market Major profit 26% 35% 23% Some profit 33 28 30 Break even 22 22 27 Some loss 12 8 11 Major loss 6 4 5 Don’t know 1 3 4
*--*
* Would you say you put off trying to sell your home over the past several years because housing prices were depressed?
*--*
Total In market Yes 24% 41% No 76 59
*--*
Bright Outlook
Most county homeowners think real estate here is priced at about the right level with the outlook for prices overwhelmingly bullish. However, a substantial number of homeowners interested in moving say they are not able to afford the housing they would like. One homeowner in three would consider leaving the county to buy a better place.
* Would you describe real estate in Orange County today as a bargain, priced about right, or too expensive?
Bargain: 9%
Priced about right: 45
Too expensive: 39
Don’t know: 7
* In the next few years, do you expect Orange County real estate prices to:
Increase a lot: 18%
Increase somewhat: 57
Stay the same: 17
Drop somewhat: 3
Drop a lot: 1
Don’t know: 4
* Would you say you are able or not able to afford the type of housing you would like in Orange County? (of those in the market)
Able: 58%
Not able: 42
* Would you consider moving out of Orange County if it meant you could buy a better home?
Yes: 33%
No: 67
Source: Times Orange County Poll
Looking to Buy
About three in 10 homeowners say they are interested in buying a different home in Orange County, but for most that step is more than a year away. More space is the top factor.
* How soon do you plan to buy a different home in Orange County? (of those in the market)
Less than 6 months: 10%
6 months-1 year: 17
More than 1 year: 64
Don’t know: 9
* Which of the following features is most important to you in buying your next home (of those in the market)
More spacious home: 47%
Better neighborhood: 27
House in better physical condition: 13
Other, don’t know: 13
Source: Times Orange County Poll
Housing Needs
While three-fourths of homeowners say their current home fits their needs very well, those in the market are less positive. And one owner in six is self-described “house poor”--the same fraction as among those in the market.
* Overall, how well would you say your current housing meets your needs?
Very Well:
Total: 76%
In market: 53%
Somewhat well:
Total: 21%
In market: 40%
Badly:
Total: 3%
In market: 7%
* Would you describe yourself as “house poor”--that is, having little money to live on each month after paying the mortgage?
Yes: 17%
No: 83%
Source: Times Orange County Poll
