Going Unappreciated in O.C.
New tile gleams in Angelica and Carlos Martinez’s two tiny bathrooms. The kitchen cabinets, which he refinished himself, shine. They’ve added a smooth new concrete driveway, tight new windows, new pink stucco.
The 1,200-square-foot home cost $134,000 in 1987, and they now have it on the market for $165,000--counting improvements, about their total investment. If it sells for close to that, the Martinez family will trade up to a 2,200-square-foot home with elbow room for their three young children.
“Do you think it’s worth what we’re asking?” Angelica Martinez asks, showing off her three small bedrooms and the patio they enclosed as a family room.
In their working-class neighborhood near Santa Ana Memorial Park, it’s hard to answer that question these days.
The 1997 explosion in Orange County home prices has bestowed bundles of paper value on owners of fancy homes. But that gift of equity has eluded many in less-affluent areas.
As we begin 1998, with the local economy expected to provide new cause to celebrate, the question is not only when these laggard neighborhoods will start to catch up, but if they will at all.
The disparity is considerable, figures from real estate tracking services show.
Acxiom/DataQuick Information Services calculates the median sales price for a Laguna Beach home was $475,500 from September through November, up 23% from the same three months in 1996. In Corona del Mar, the median for those three months was up 30% at $600,000.
But where the Martinez family lives, the median was $143,454, up just 0.3% from a year earlier.
Since Orange County housing prices hit bottom in late 1996, the least expensive third of the county’s homes have risen in value less than 1%, compared with 5% for the middle third and 7.4% for the top third, according to Case Shiller Weiss, another data tracker.
It’s a similar story in Los Angeles County, where the fall and recent rise in expensive home prices has been even more pronounced than in Orange County. There, too, the rise so far in values of lower-priced homes has been negligible.
And anyone wanting a look ahead can consider New England, which experts frequently use for comparisons because its real estate ups and downs over the last decade have preceded Southern California’s by two or three years.
In the greater Boston area, the turnaround that took hold in 1993 has now taken high-priced homes as much as 25% above their 1980s peaks, said Karl E. Case, a Wellesley College real estate economist. He said lower-priced homes remain mired far below those peak levels.
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And what peaks they were back in the boom years of the middle and late 1980s.
In the Northeast and California, home values in all price ranges soared suddenly and, it now seems clear, irrationally. Eye-popping increases of up to 40% were recorded in Southern California in 1988, Case noted.
‘It was really psychological then, a conflagration,” he said. “And it spread through all segments of the market.”
So far in the latest housing upturn, he said, the increases have been rooted more in real supply and demand. The chief factor, Case said, is trade-ups by baby boomers, especially those who bought their homes before 1988 in California and thus have equity left.
“You’re older, the kids are in school, the economy’s booming, interest rates are low, you’ve had this long recession to postpone trade-up--and now you can afford a whole lot of house,” Case said.
But to trade up, those buyers must first sell their current homes, putting large numbers of lesser-priced houses on the market. And the first-time buyers of those homes “have to pay all cash for their down payments. They don’t have any equity,” Case said.
“So it’s supply and demand, with prices rising where there’s the highest demand--the trade-up market--and staying flat at the other end,” he said. “I don’t see anything out there to close the gap” any time soon.
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Nima Nattagh, an analyst with the data provider Experian in Anaheim, said the trend of escalating prices for expensive homes is repeated to various extents across the whole country.
He said stock market winnings are one major driver for demand at the high end. A related trend, Nattagh said, is that a wage gap between high- and low-income families appears to be widening nationally.
That gap is especially broad in California, according to the nonpartisan California Budget Project: Only the top fifth of the state’s families with children have higher incomes now than in the mid-1980s, after inflation is factored in.
The reason is that technology and entertainment, industries leading the latest boom, pay well to attract top talent.
“We have more high-wage jobs than other areas of the country,” said Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. “We also have the largest number of new entrants into the economy--immigrants, who tend to come in with relatively lower incomes and who on average are younger and less experienced workers.”
Some real estate experts contend that demand for housing by that vast and growing immigrant population will ultimately help entry-level housing prices close the gap.
Not only have immigrants proved to be good credit risks, but the fact that their households often have several wage-earners makes it easier for them to move up to better homes, said Joe Hanauer, former chairman of Harvard University’s Joint Center for Housing Studies Policy Advisory Board.
But Hanauer said that for now, the economic stresses on lower-income neighborhoods remain high.
“Even though employment is increasing, you still have many people with very high levels of debt, and foreclosures remain high,” he said.
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That is clearly true in the Martinezes’ neighborhood, where many of the homes for sale are still bank-owned. On a recent windy day, they sat with their empty rooms displayed through drawn shades, rain gutters and fences torn loose by the gusts with no one around to fix them.
Steve Coon, a real estate agent who grew up in the area of small, mainly two-bedroom homes built 40 to 50 years ago, said he believes prices are finally starting to rise.
During the long years in which they fell, Coon advised his clients to list their homes at the last sales price for comparable properties. That way, they sold quickly before home prices could fall even farther, he said.
Nowadays, Coon said, he’s advising patience--and slightly higher asking prices.
“We’ll mark the price up a little more than we would have before, and just wait to see if the buyers catch up.”
Still, it’s unclear how much prices can go up with the many foreclosures still on the market and other agents still advising sellers to low-ball prices, Coon said.
“And in that area,” he said, “you always have to sell a house two or three times anyway” because so many deals fall apart when the buyers are unable to qualify for loans.
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Angelica Martinez knows all about that problem. The owner of the bigger four-bedroom home she has her eye on, near South Coast Plaza, has agreed to sell it to the Martinezes if they can arrange financing to buy it.
She said they owe about $118,000 on their current home, and if they sell it for near their $165,000 asking price the bankers assure them they will be able to buy the larger house.
Several would-be buyers have said they’d like to make a deal for their current home, but have been approved only for a $120,000 or $130,000 purchase.
Built in 1954, her house is one of the newer ones in the neighborhood and, she said with pride, “We put a lot of money into it.”
So she continues her early-shift job at a surgical equipment company while her husband works five and sometimes six days a week at a body shop. They have spent 10 years in the little house. They can wait longer to sell it if need be, she said.
“We’ve got it fixed up the way we like it.”
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Location, Location, Location
A random sample of Orange County areas shows that homes in the lower price range appreciated little or not at all. Those in the higher ranges appreciated dramatically. Median home prices, measured September through November:
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Low range ZIP Code 1996 1997 % change Westminster 92683 $170,000 $170,000 0.0 Santa Ana 92701 147,000 136,000 -7.5 Anaheim 92801 145,500 149,500 2.7
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Middle range ZIP Code 1996 1997 % change Fountain Valley 92708 218,000 235,250 7.9 Foothill Ranch 92610 220,000 254,750 15.8 Irvine 92606 225,000 251,750 11.9
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High range ZIP Code 1996 1997 % change Corona del Mar 92625 460,000 600,000 30.4 Laguna Beach 92651 386,000 475,500 23.2 Santa Ana* 92705 260,000 310,000 19.2
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* Includes Lemon/Cowan Heights
Source: DataQuick; Researched by JANICE L. JONES / Los Angeles Times
