O.C. Home Market Among Hottest in U.S.

By DARYL STRICKLAND

Nov. 18, 1998 12 AM PT

TIMES STAFF WRITER

With Orange County home prices rising faster than at any time this decade, the county’s booming housing market has emerged as one of the hottest in the nation, according to two surveys released Tuesday.

The median price of existing homes in Orange County surged 17.4% to $273,300 in the third quarter, the second biggest gain in the country, a National Assn. of Realtors survey found. That means that in the three months ended Sept. 30, a typical home in the county was worth $40,600 more than in the same period last year.

Only home prices in Charleston, S.C., which are much lower, increased faster during the period.

A separate report, which tracks the prices of homes that have been sold more than twice since 1990, was even more bullish on the housing market.

It found that Orange County home prices surged 23% in the third quarter, the highest in the nation, topping 36 other metropolitan areas for the second quarter in a row.

Home values are now rising faster than at any time this decade, which means prices have rebounded completely from their slump in the early 1990s, said economist Nima Nattagh, who conducted the study for First American Real Estate Solutions.

“We’re at the point where no homeowner who has bought since 1990 is in negative equity,” he added.

The strong housing market is reflected in UC Irvine’s latest Annual Survey, released earlier this week, in which Orange County residents say they are more optimistic about owning a home here.

The poll found that people who describe an Orange County home as a favorable investment rose five points over a year ago, 15 points in two years and 25 points in three years, the highest since the survey began asking that question in 1993.

But with the surging market comes worries that homes may become too pricey and actually hurt the surging Orange County economy.

“The loss in affordability will price out workers from the local housing market,” Nattagh said. “That cannot be good for the long-term health of the economy.”

Currently, the typical home nationwide costs $132,700, less than half the price of a home in Orange County, the Realtors association survey found.

As a result, fewer people will be able to afford single-family homes in Orange County, where land costs and a shortage of developed lots have escalated prices, forcing them to live farther from such county job centers as Irvine and Anaheim.

Cheaper forms of housing, such as condominiums, also are in short supply. Builders have shied away from these projects, fearing construction defect lawsuits. And neighborhoods have opposed them out of fear they would lower property values and increase density.

A decade ago, a sharp run-up in housing costs contributed to an exodus of employers from California because they were unable to pay employees enough to buy a house.

But for now, the county is the star of a state housing market that is leading one of the strongest national housing markets on record, the Realtors survey found.

This year, national home sales are expected to top 4.75 million units, shattering the previous record of 4.21 million a year ago.

In the third quarter alone, the median home price nationally rose 5% to a record $132,700. Moreover, only eight metropolitan areas reported price declines.

In California, the price of a typical house climbed to a record $206,900, up 9% from $189,820 a year ago, the survey found. Indeed, three cities in the state--San Francisco, San Diego and Los Angeles--recorded some of the highest price gains in the nation.

Economists said housing values in Orange County and the state should continue to show healthy gains in the current quarter, thanks to a strong economy and historically low mortgage rates.

The housing market figures to benefit further from the Federal Reserve Board’s decision Tuesday to cut short-term interest rates, a move that could reduce mortgage rates even further, they said.

“Because the [state’s] economy may be the strongest in the nation, it will benefit more than anyone from falling mortgage rates,” said economist Jason Altman of the Realtors group.

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Going Up

The increase in median price for existing homes in Orange County was second highest in the nation. Largest increases for third quarter over the same period a year ago:

Metro area: % Increase

Charleston, S.C.: 18.1%

Orange County: 17.4%

Seattle: 14.4%

Montgomery, Ala.: 13.9%

Beaumont, Texas: 13.9%

Nationwide: 4.9%

Source: National Assn. of Realtors

Pricey Markets

Not only were Orange County existing home prices among the fastest increasing in the U.S., but the increase made the county the third priciest market in America. Third quarter 1998 median prices, in thousands:

San Francisco: $330.7

Honolulu: $296.5

Orange County: $273.3

Boston: $220.9

San Diego: $215.4

Bergen County, N.J.: $214.3

Newark, N.J.: $209.6

Seattle: $200.6

Los Angeles: $197.4

New York City: $194.4

California: $206.9

Nationwide: $132.7