Home Sales Plummet in L.A., O.C.

Home sales in Los Angeles and Orange counties fell sharply in July from a year ago, but analysts said it was not because of slowing demand but rather the thinned supply of houses on the market.

Last month, the number of new and existing homes sold dropped by more than 17% in Los Angeles County, the steepest monthly slide since the early 1990s. In Orange County, sales plummeted 21%, the strongest decline in five years, according to a report released Monday by DataQuick Information Systems, a La Jolla research firm.

Despite the sales drop-off, prices last month for virtually every category of homes streaked higher in both counties. The median price of homes sold in July rose 3.7% in Los Angeles County from a year earlier to $198,000, and it jumped 11% in Orange County, to $264,000.

Analysts said demand for homes generally remains strong, thanks to robust job and population growth. But this summer, traditionally a peak selling time, sales have bounced up and down. In both counties, activity slumped in May and was back in the positive in June, only to fall sharply last month.

“Lower sales is a problem resulting from a lack of inventory rather than people running away from the market,” said Rajeev Dhawan, director of econometric forecasting at UCLA Anderson Forecast.

The July sales numbers--9,015 in Los Angeles County and 3,823 in Orange County--were compared against July 1999, which accounted for the third-highest total in both counties since DataQuick began keeping records in 1988.

“I think the market is taking a breather,” said John Karevoll, the DataQuick analyst who compiled the report. “These numbers are only low compared to the higher numbers of the last decade. I don’t see this as a turning point.”

Still, Karevoll said, some potential buyers have paused in making a purchase because of the skittish stock market, which a growing number of people tap as a source for down payments. What’s more, mortgage rates had been rising for most of the year, and coupled with record prices, have created higher monthly payments that fewer buyers can afford.

The July home sales numbers are actual closings, generally reflecting market activity and agreements struck over the previous 30 to 60 days. The average 30-year fixed-rate mortgages in May and June rose to 8.3% and 8.2%, and generally were at their highest level in four years.

Rates have since nudged downward, and Greg Sayegh, a senior vice president at Washington Mutual, the state’s largest home lender, said loan applications in several Western states have risen 5% to 10% through mid-August over the same period in July. Almost all of the increase has stemmed from California, he said.

But so far, lower rates have not translated into more for-sale signs. The number of homes on the market are relatively few and high-priced. In Los Angeles, for instance, there was less than a four-month supply of housing on the market, according to the California Assn. of Realtors. Any amount under five months generally indicates rising prices.

“Sellers are hesitating because there’s no inventory to move up,” observed Walt Tamulinas, an agent with ERA North Orange County Real Estate.

In the San Fernando Valley, Guy Violas, associate manager of the Studio City Re/Max office, said: “It’s also because some sellers were getting greedy and pricing their homes too high. We’re in an adjustment period right now. The less-expensive homes are going faster, because they’re priced right.”

In fact, because Los Angeles County has a bigger share of entry-level homes and more of those have been selling, the overall median price of homes has been driven down. Although home prices in Los Angeles County rose by 3.7% last month, Karevoll estimated that housing values actually grew by twice that percentage, on a square-foot basis.

As the market gains value, analysts said more people will have regained enough equity to purchase a new home. That, in turn, should help boost sales in August and September, Karevoll said.

“A lot of people are still emerging from the bad market of the mid-1990s,” Karevoll said, “and I think they want to walk away with enough money to make a down payment on a new home, and only recently have the numbers changed to where they can do that.”

Analysts also attribute some of the buying slowdown to the growing problem of affordability. Using the median price for all homes sold in July, the typical mortgage payment in Los Angeles County, assuming a 30-year-fixed loan with a 10% down payment, was $1,268--compared with $1,176 in the same month last year, DataQuick said.

Still, with the economy strong and jobs plentiful, most buyers do not appear to be stretching in order to make housing payments. Karevoll’s research shows that foreclosures remain near record lows, and that the number of buyers using adjustable-rate mortgages, which require lower credit standards than fixed-rate loans, declined to 34% of buyers from nearly 43% during the same period last year.

Overall in Los Angeles County, existing condos recorded the steepest sales decline, falling 21% to 1,936 compared with the same period last year, while existing houses slipped 17% to 6,668 and new homes fell by nearly 11% to 411.

“There’s nothing fundamentally wrong with demand for housing,” said G.U. Krueger, an analyst at Institutional Housing Partners, an Irvine real estate venture capital firm. “It’s just that the choices one has are more limited, and this could have lowered sales.”

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Sharp Drops

Total sales, including new homes and resale homes and condomiums:

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Los Angeles home sales

July 1999: 10,945

July 2000: 9,015

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Orange County home sales

July 1999: 4,828

July 2000: July 2000

Source: DataQuick