A Bit of Caution Amid the Frenzy
When Bill and Barbara Harsted put their three-bedroom Norwalk house on the market last month, they expected it would go in a snap. After all, the house was well-kept and affordably priced, in a Southern California market where bidding wars on homes are not uncommon.
Then came the reality check. The couple, already in escrow on a new home in nearby La Mirada, sweated it out for a couple of weeks while their 1,150-square-foot house created barely a ripple on the market. It finally sold for close to the asking price of $179,000, three weeks after they listed it, and after the Harsted’s compromised with the buyers.
“We lost a lot of sleep over selling this house,” Bill Harsted said. “I thought, ‘What happened? Did we make someone mad?’ ”
Real estate experts say that home buyers aren’t mad; they’re just more cautious right now, when interest rates have settled into the 8% range and many reasonably priced homes have been sold. There is, they say, some cooling even in a still-hot market.
“The frenzy has quieted down,” said Doug Perry, first vice president of the consumer markets division at Countrywide, one of the nation’s largest lenders. “Buyers are more conservative. The buying process is taking longer.”
It took the Harsteds about four months to find their new home, not so much because they were cautious but because several of the houses they wanted to buy were sold before they had the chance to bid on them.
“It’s a dog-eat-dog market out there,” said Bill Harsted. “We found it quite frustrating.”
The Harsteds’ experience typifies the state of real estate in Southern California as the summer selling season heads into fall. Realtors from Ventura to Riverside report that although sales of houses and condos are still brisk--multiple offers are not uncommon in some areas--buyers also are showing some reluctance to jump into the market when prices are so high and the inventory is so low.
“A lot of buyers think we’re at the peak right now and are afraid they’ll lose money in the long run,” said Yvonne Chien of Re/Max Premiere Properties in San Marino. “They think, ‘If I buy now, will I hate myself two years from now?’ ”
In Los Angeles County, the median price of existing homes rose 8.2% to $212,000 in June, up from $195,000 a year ago, according to figures supplied by DataQuick Information Systems of La Jolla. In Orange County, the median price surged 11.3% to a record-high $295,000.
“We have the lowest inventory I’ve ever seen,” said Michael Dreyfus, a Prudential California Realty agent in Corona del Mar. “With so few houses on the market, I’ve been expecting people to be frenzied about buying a home. But they’re not.”
A Desire to Sell, Limitations to Buy
Contributing to the low-inventory problem is the reluctance of lower-end homeowners to sell their houses, out of fear they won’t find anything affordable in the move-up market.
“I have clients who really, really want to sell, but they can’t buy,” said Sonny Fox, an agent with Coldwell Banker-Jon Douglas in Encino. “They keep thinking it’ll get better, but it’s not, really.”
Don’t even mention “affordable” and “Westside” in the same breath, warned Brentwood Coldwell Banker agent Suzanne Peterson. Although the sales pace has slowed somewhat in Santa Monica, Pacific Palisades and Brentwood, Peterson said, multiple offers on well-priced homes are still commonplace, and tear-downs in the area north of Montana Avenue in Santa Monica are going for $800,000.
First-time Southland buyers have been hit the hardest, though, Realtors say.
In Los Angeles County, the affordability index, which measures the percentage of households able to afford the median home price, fell to 39% in June, an 11.4% drop over the same period a year ago. Ventura County posted the greatest drop in affordability to 25%, a decline of 43% since last June.
Longtime apartment dwellers Steve Kesel, a 33-year-old teacher, and Phil Weir, 33, a speech therapist, despaired of finding an affordable home in Los Angeles after they learned that their budget of $190,000 would get them only an 800-square-foot cottage in the Silver Lake district, an area they desired and believed was still within reach.
Clients Encouraged to Expand Horizons
Donna Schwalm, their Encino Fred Sands real estate agent, encouraged them to expand their horizons. She introduced the reluctant duo to the mid-Wilshire district of Los Angeles, bordering Koreatown, where beautiful homes from old Hollywood are tucked amid quaint courtyards and sculpted gardens.
Weir and Kesel knew the moment they stepped into a mint-condition 1,300-square-foot condominium that they’d found their home. Purchased for $173,000, the condo is one of six units in a perfectly maintained, Normandy-style 1936 building. There were three offers on the unit the day it was listed.
“I still can’t believe it,” Kesel said of his two-bedroom home that boasts hardwood floors, ornate crown moldings and wall friezes. “It’s in the middle of a metropolitan area, but it’s on a quiet, safe street.”
For homeowners seeking a more suburban atmosphere, the Santa Clarita Valley still is within reach, according to Realtors in the north Los Angeles County region.
The median price for existing homes in Saugus was $243,000 in June, up 5.7% over the same period last year. In Newhall, the median price in June was $220,000, according to DataQuick Information Systems.
Realty Executives President Jim Tanner said that sales in his Santa Clarita office are down from last summer, which he attributes to higher interest rates and the fluctuating stock market. But the longtime agent welcomes a return to a calmer market.
“A less-frenzied market is better for everyone,” Tanner said. “I predict our market will remain strong through next year, if interest rates stay where they are.”
John Burns, a housing market analyst with the Irvine-based Meyers Group, said the Antelope Valley is the most affordable area in Southern California. Although only 700 new homes were built there a year ago, compared to about 4,000 a decade ago, the area is experiencing a budding recovery, he said.
Fluctuation Even in Inland Empire
Sales have been brisk in Riverside County, where the median home price in June was $139,000. But despite the area’s claim to some of the most affordable housing in Southern California, Inland Empire Realtors report that sales this summer, usually a consistently busy time of year, have fluctuated wildly.
“One week I’m so busy I can’t see straight; the next week it’s dead,” said Sandy Barber, of Ward & Ward Realtors in Upland.
Barber recently listed a home she thought would sell overnight, but to her surprise, she’s received only two offers in four months. Six months ago, the sale would have closed much more quickly, she said.
New-home building is still brisk in San Bernardino and Riverside counties, according to Rancho Cucamonga builder Jim Previti Jr., of Forecast Homes. He credits the influx of large companies to the area with the boom in new homes.
About 9,300 building permits have been issued for single-family homes in San Bernardino and Riverside counties so far this year, down only 2% from last year, according to Construction Industry Research Board statistics.
“We can never keep up with the current demand from the surge of people flowing into this area,” Barber said. “The people moving here are working here now; they’re not commuting as much anymore.”
The graphic shows a random selection of homes listed within $10,000 of the median price for that community.
Mortgage calculations are based on the following assumptions:
* Property tax yearly rate at 1.25%.
* Hazard insurance yearly rate at 0.35%.
* PMI yearly rate at 0.65% for ARMs.
* Thirty-year fixed-rate borrowers qualify at an average mortgage rate of 7.64% for conforming and 7.99% for jumbo--each with two points--in Southern California on Aug. 3.
* Thirty-year ARM borrowers qualify at fully indexed rate (margin plus index); currently at 8.81%; based on 2.75 (assumed margin) plus 6.06 index (weekly average one-year T-bill Constant Maturity). Estimated ARM monthly payment is based on average start rate for mortgages pegged to weekly one-year T-bill in Southern California on Aug. 3.
* Both fixed rates and ARMs qualify at 33% debt ratio--assuming additional indebtedness does not exceed 5%.
* Some numbers were rounded. Figures shown are estimates.
* Other factors such as credit score play an important role in obtaining a mortgage.
Sources: Earl Peattie, Mortgage News Co.; mortgage estimates by Detrick Mortgage Group, Los Alamitos.
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