Housing Boom Finally Ignites Condo Sales
Booming sales of inexpensive condominiums signal the recovery of the final segment of Southern California’s housing market, as sustained upbeat economic conditions give thousands of renters the courage to plunge into home ownership.
The rise in condo sales marks the birth of a new trend in the housing market’s recovery, which began three years ago among high-end homes, then shifted to the mid-range before heating up the entry level market late last year.
“Condos are part of the entry level market, and that’s the segment where we’ve been seeing significant sales increases in this year,” said John Karevoll, an analyst with the real estate information company Acxiom/DataQuick. “It was last in line to kick in, and it’s a sign that things are getting back to normal.”
In all, an estimated 12,679 condos changed owners in Southern California during the first quarter of this year, up 24.5% from the same period in 1998, according to Acxiom/DataQuick. Statewide, 18,389 condos were sold in the first quarter, an 18.5% increase.
The surge in condo sales, according to real estate observers, is being fueled in part by rising prices for single family homes, which as recently as a year ago were affordable to many first-time buyers.
“Some people are having a difficult time getting into a single family home, so now they are looking at condos as another option,” said Anthony Marguleas, owner of Pacific Palisades-based A.M. Realty.
Cynthia Guinn, manager of Century 21 Center Realty in Artesia, said condo demand has heated up to the point that some properties listed for a long time have finally sold. Increases in apartment rents in some areas may also be prompting buyers to seek out condos.
Arthur Karon, 76, said he recently began looking for a condo, in part because his landlord raised the rent on the Marina del Rey apartment he shares with his wife by $200 a month. As it turns out, finding a suitable condo in his neighborhood hasn’t been easy.
“They’re selling them for a minimum of $298,000, and while it’s not out of my price range, a lot of these places need upgrades,” said Karon, who has decided not to buy until the market cools down.
“What we’re seeing is the strength of the economy,” said Leslie Appleton-Young, chief economist with the California Assn. of Realtors. “Consumer confidence is up, and that’s causing the demand for housing to be bullish.”
The 62,359 new and existing homes and condos that sold across Southern California in the first quarter represent a 12.2% increase over the same period of 1998, according to Acxiom/DataQuick.
Sales were up 6% in Los Angeles County, 5.6% in Orange County, 17.9% in Riverside County, 22% in San Bernardino County, 18.9% in Ventura County and 21.2% in San Diego County.
One small cloud in an otherwise blue sky was a 19.1% dip in Orange County’s new home sales, which analysts are blaming on a lack of supply coupled with rising prices.
Southern California’s median home price rose 4% to $182,000--a figure kept low by the increase in condo sales. When statistical adjustments are made for the shift in market mix, home values are continuing to rise at an annual 8% to 9% rate.
“So far what’s emerged is that pockets of Southern California are doing extremely well, including Orange County, San Diego and West Los Angeles,” said Nima Nattagh, director of research for First American Real Estate Solutions. “That fits into the recovery of well-to-do, higher-income neighborhoods.”
Some experts are predicting record home sales and prices given that practically no matter how you slice it, 1999 is starting out as another strong year for the real estate industry.
“It’s as good as it gets,” said real estate broker Fred Sands. “Keep in mind that in Southern California people sacrificed for a number of years, and now they’re saying, ‘I feel good again, and I want to live well.’ ”
Indeed, the same rosy conditions that have tempted thousands of renters to step into modest condos have also lured a growing number of affluent buyers into luxury homes.
Cecelia Waeschle, a broker with Coldwell Banker-Jon Douglas Co., Beverly Hills, said she has counted as many as 21 sales of homes priced at $5 million or more during roughly the first quarter, compared to three in the same period last year.
“Even in 1989 and 1990, when we were at the top of our market, we didn’t have this number,” said Waeschle, who has tracked the sales of Westside homes selling for more than $2.5 million since 1987. Observers attribute the high-end activity partly to a new breed of buyer flush with cash from the booming high-tech industry.
New buyers include GeoCities founder and Chairman David Bohnett, who purchased the late actor Gary Cooper’s Holmby Hills home for close to its $5.95-million asking price, and EarthLink co-founder Kevin O’Donnell, who paid near the $6.7-million asking price for Bruce Willis’ Malibu home.
The sales represent part of a larger shift in the luxury housing market from Hollywood bigwigs to high-tech moguls, said Waeschle.
“In the old days the $5-million-and-up purchases were made by the movie studio types,” Waeschle said. “But now the Internet companies are merging, and that’s giving founders hundreds of millions of dollars. . . . To them $5 million is a drop in the bucket.”
That’s not to say celebrities haven’t had a piece of the action.
Singer-actress Janet Jackson snapped up a Westside home for about $6.5 million, and Dodger pitcher Kevin Brown plunked down an estimated $5.3 million for a Beverly Hills home and an adjoining lot.
The rise in sales of pricey homes in Southern California also is receiving a boost from the baby boomers, according to Beverly Hills real estate agent Joyce Rey.
“It’s not just the stock market and the economy, but also the number of people in the key age group that make major purchases,” said Rey, executive director of Previews, Coldwell Banker-Jon Douglas Co.’s estates division.
Most of the big sales this year have been in the “Platinum Triangle,” the term real estate agents use to refer to Beverly Hills, Bel-Air and Holmby Hills, said Joe Babajian, chairman of Fred Sands Estates.
“The first quarter of this year has been disproportionately strong,” Babajian said. “It’s usually slow.”
Residential building permits in Southern California are also up 38.8% in the first quarter, thanks to a 69.5% jump in permits in San Diego County, according to data released by Ben Bartolotto, research director at the Construction Industry Research Board in Burbank.
A soft spot has materialized with Orange County’s 19.1% first-quarter drop in new home sales. Analysts attribute it to a lack of supply--perhaps born of pessimism by home builders over this year’s prospects.
Rising prices are also playing a factor, with the price per square foot for a new home in Orange County escalating from $128 in the first quarter of 1998 to $149 by the third quarter.
No Real Danger Signs on Horizon
Orange County’s decline aside, Karevoll said there appear to be no real danger signs on the horizon, positioning the housing market for a record year.
“We’re always looking for flashing red lights, but we can’t pick up anything from these numbers,” Karevoll said. “People appear to be buying within their finances.”
Doug Perry, vice president of production for Calabasas-based Countrywide Home Loans, said his company has been seeing more move-up buyers with “pretty good” credit, which he says goes hand in hand with people saving and having investments.
Estimates released last month by the California Finance Department showed that based on payroll withholding taxes, workers bolstered their income by an additional $2 billion in the first quarter, mainly through stock options. And billions more are being realized by people in individual sales of stock.
Although the availability of 401(k) plans and the ease of buying mutual funds have enabled more people to enter the stock market, experts say some have certainly done better than others.
“The theory is that increasingly the U.S. economic recovery over the past five or six years has seen a widening income distribution gap,” Nattagh said. “It’s benefiting high-income groups more than the rest of the population, so it follows that the recovery of the housing market has been concentrated at the top.”
Lieser added that the real estate market has been acting as an outlet for people who want to diversify their assets by buying investment properties or expensive homes.
One region of the state where the relationship between the stock market and real estate has been particularly pronounced is the San Francisco Bay Area, where hundreds of billions of dollars have been created in the high-tech industry.
“There’s been an explosion of wealth there that has flowed into real estate,” Lieser said.
In the Bay Area, 14.6% more condos sold in the first quarter than in the same period last year, with the median price rising 7.5% to $201,000. The hottest segment of the nine-county Bay Area this year for condos has been Alameda County. There, 1,045 sold in the first quarter, a 16.4% increase. The median price rose 11% to $182,000.
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Condo Comeback
Sales of Southern California condominiums, which have lagged other types of housing thoughout the recovery, leaped 24.5% in the first quarter of 1999 compared with the same period last year.
Single-family home resales: 10.0%
Condo resales: 24.5%
New home and condo sales: 6.1%
Source: Acxiom/DataQuick
