O.C. Home Prices Going Up, Up, Up
Whether in the market for a castle or a cottage, Orange County home buyers can pretty much count on one thing: paying more.
After three consecutive record-setting months in what is considered the housing market’s off-season, Orange County home prices are poised to soar to all-time highs this summer.
“From all indications, 1999 will be the strongest year ever for home sales, and certainly for prices,” said John Karevoll, an analyst with Acxiom/Dataquick Information Systems Inc. of La Jolla, who prepares a monthly housing report.
Indeed, home sellers already seem to be in midyear form, even though the prime selling season hasn’t even begun. As more families are putting their homes on the market in the coming weeks, many buyers are sweating over offers more typical of the hottest months of the year.
Some potential buyers already are showing signs of desperation. Instead of trying to bargain, more buyers simply are asking, “Tell me what I have to offer to get this property,” said Dale Cheema, a broker at ReMax Premier in Irvine.
The supply of homes for sale looks to be improved heading into the peak selling season.
More than 2,400 units are opening in three master-planned communities this summer in South County.
And there has been a 25% increase in the number of resale homes on the market since last October, said Patrick Veling of Dynamic Marketing Resources Inc. of Fullerton.
However, the increased supply is still not enough to keep up with demand. That means don’t expect relief on the price front.
New homes, for example, command tens to hundreds of thousands more than comparably sized resale homes. And despite the rise in inventories, there’s only a three-month supply of homes, less than half the seven-month supply that is typical for Orange County.
The big new projects coming on line this year are Ladera Ranch, just east of Mission Viejo, where almost 1,000 new homes will be offered for sale from around $200,000 to $500,000. In Northpark, the Irvine Co.’s newest village, about 800 homes starting from about $200,000 to more than $800,000 will be for sale. And in Talega, in San Clemente, another 644 homes from about $200,000 to more than $600,000 will be put on the market.
The outlook for sharply higher prices this summer comes after a winter of rising prices and low number of homes on the market:
Consider:
* In January, the median priced home cost $231,000, gaining $22,000 in value over the same month in 1998. That amount was 102% higher than the national median, according to the National Assn. of Realtors, whose own report showed that Orange County’s homes posted the second-highest gain last year in the nation.
* In February in Santa Ana’s Floral Park neighborhood, eight out of roughly 2,000 homes were for sale in February, an unseasonably low number, said Phil Schaefer, a Seven Gables Real Estate agent who specializes in that area.
* In March in Newport Coast, more than a dozen people lined up for six days hoping to buy million-dollar tract homes. For popular new-home projects, builders have hundreds of interested buyers waiting in line for days--like teenagers seeking concert tickets--for only dozens of homes.
Moreover, prices last month rose 5%, marking the 22nd consecutive monthly increase. The percentage gain would have been twice that if fewer entry-level homes had sold. But the fact that prices rose against very strong year-ago numbers makes the increase even more significant.
Consumer confidence is at the root of the home-price boom. Unemployment has dropped to record lows, while the stock market has scaled new heights. Interest rates are at historically low single-digit rates.
“People are realizing that the economy is good, their confidence is up and it’s a good time to buy,” said Don Moe, a senior vice president at the Irvine Co., which reported its best quarter ever, surpassing its previous peak--in number of homes sold--by 50%.
The giant land developer wasn’t the only one cashing in this winter. In a 10-day period in March, Tim Kelley, an Irvine agent for First Team Realty, sold six homes priced between $320,000 and $380,000. He’s sold about a dozen homes so far this year, and already is closing on his personal record of 25 sales in a year.
His office has three agents answering telephones during the week, instead of two; and four on weekends, instead of three, to handle the load.
“Inventory is low, and it’s definitely a sellers’ market,” Kelley said. “It’s going to be better overall this year than last year.”
In February, traditionally one of the slowest months, Kelley spotted a Lake Forest home that had just hit the market. The seller had two offers within days, and Kelley’s client countered at full price, plus $100. The 3,200-square-foot, four-bedroom, three-bath home sold for $365,000.
And that proved to be a bargain, Kelley said. A few weeks later, a comparable home came on the market at $415,000.
The housing market’s surge last year caught many economists by surprise. They were expecting single-digit growth in home prices. At least two national surveys ranked Orange County’s home values tops nationwide, more than doubling the U.S. average of 8%.
Twice in 1998 the median monthly price--meaning that half the homes sold for more, half for less--jumped to a record $236,000. And twice, home prices increased by $10,000 a month.
Fears that economic crises in Asia, Russia and South America rattled potential home buyers for a few weeks last fall. But those fears were quickly quelled and the year ended with a flourish, as the typical home price rose to $226,000, an all-time annual high, according to Acxiom/Dataquick. New home prices soared even higher, peaking at about $350,000, the highest ever.
Many analysts cited an imbalance between job creation and housing starts as a prime reason. Economists say that for every six jobs that are created, four housing units are needed. Last year’s rate was 6 to 1.
Rising prices have meant more equity for homeowners, but escalating prices have made cracking the market increasingly difficult for first-time buyers. Only about one-third of Orange County home buyers last year were first-time buyers, the lowest rate in the nation, according to Chicago Title Co.
The number of lower-priced units such as condominiums has shriveled dramatically as fewer units are built. A chief culprit has been construction-defect lawsuits filed against builders.
Without historically low interest rates, even fewer first-timers would qualify for homes, analysts said.
The cost of borrowing has fallen sharply from 10 years ago.
Today, a $232,000 home--the median price in March--financed with a 30-year fixed-rate mortgage at 6.6% and a 20% down payment carries a $1,187 monthly payment.
In the late 1980s, mortgage rates were at 11%. In March 1989, the median-priced home of $202,000 came with a monthly payment of $1,555.
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Real Estate Ups and Downs
The median price of resale homes has surpassed the high of a decade ago. In 1998, the median was a record $236,000. Analysts expect the climb to continue in 1999. Median prices for resale homes:
1980: $120,000
1990: $234,000
1998: $236,000
