Southland Home Buyers Hanging Back
This is the height of home-buying season, the best of times for sellers--or at least that’s what Sue Epps thought.
Epps put up her four-bedroom house in La Verne, with its new kitchen appliances and neatly tended petunias in the yard, expecting a stampede of buyers. But in two months, she’s had only two offers, both shockingly low. Even after she ratcheted down her price twice, to $375,000, nobody is calling.
Epps, 37, hasn’t given up on the market, but she is getting frustrated. Her family desperately wants to trade up for a house in south Orange County. “This is supposed to be the busiest time for real estate,” she said, only to ask: Where are all the buyers?
That question is increasingly gnawing at sellers and brokers alike as for-sale signs pop up on the summer lawns of Southern California. The answer, it is becoming clear, is that more and more buyers are hanging back, convinced that the heady market is softening from the combination of overheated prices, low inventory and sharply higher mortgage rates.
Although there are still bidding wars and some would deny that there is a real slowdown, evidence is building that the region’s housing market, after a couple of years of very strong growth, appears to be pausing.
Even as prices continued to rise, sales fell sharply in April in Los Angeles and Orange counties, and that downward trend has continued into May, according to preliminary data from DataQuick Information Systems, a La Jolla research firm.
Home sales are still high by historical standards. But new-home sales are slipping--where a slowdown often appears first. And amid higher interest rates and other early signs of economic weakening, the number of mortgages in the pipeline is thinning nationally.
“We’re going to have a tougher summer than we had compared to last year or the year before,” said Michael Dilsaver, a broker at Jim Dickson Realtors in Pasadena. “We’re not seeing as many multiple offers, and properties aren’t selling as quickly in the last 60 to 90 days. It’s indicative of a transitioning market.”
To be sure, the cooling may be temporary, and no one is predicting a housing slump. But the change is noticeable. Dan Hanson, who heads lending statewide for Wells Fargo Home Mortgage in Santa Ana, thinks sales this summer will be fall 5% to 10% from last summer’s brisk pace.
“We’ll see the appreciation in homes begin to slow down,” he said.
The latest sales decline coincides with a similar pattern found nationwide. The Commerce Department reported this week that the number of single-family homes sold in April dropped by nearly 6%. What’s more, the Mortgage Bankers Assn. of America now projects that through the first half of the year, the number of loans used to purchase homes will decline by 5% compared with the same period last year.
But perhaps the most striking examples of a decelerating market come from kitchen counters of open houses, where there are fewer business cards from agents, and the conversations among sellers and buyers, who are expressing more hesitation and doubt than the market has seen in some time.
Jeff Ballsun, a 39-year-old renter in Redondo Beach, started looking for a house in early spring. Several friends had purchased in the $185,000 range last year in the South of Conant area of Long Beach. Ballsun wanted to join them. But he couldn’t find anything cheaper than $220,000.
Like others, he doesn’t want to buy at the top of the market and be stuck with a home that might not gain its value back for several years, as many Southern California homeowners did during the early to mid-1990s. So Ballsun has dropped out.
Buyers like Ballsun are backing away largely because prices have outrun their ability to buy a house.
In April, an index measuring the percentage of households able to afford the median-priced California home slid to 30% from 38% a year ago, the lowest level since 1992, according to the California Assn. of Realtors.
In Southern California, San Diego County was the least affordable, at 25%, followed by Orange County at 26%, Ventura County at 29%, and Los Angeles County at 34%. Riverside and San Bernardino counties recorded the highest ranking at 48%.
Some real estate agents say they detect a shift in the mentality of buyers. They say there are fewer people, for example, who are willing to buy at any price.
Patrick Knapp, an agent at Remax Real Estate in Newport Beach, remembers how buyers just a few months ago were willing to pay significantly more for a given house--even for properties that lacked maintenance or backed onto busy streets.
“I don’t see as many people saying we’re willing to pay $500 more per month to live in a certain city or neighborhood,” Knapp said. “Whatever their budget gets them is what they’re buying.”
If the number of buyers continues to shrink, the inventory of available houses will likely expand, putting pressure on sellers to lower prices. So far, the buyer pullback hasn’t been long or big enough for many sellers to do that, and it may be months before they react to the realities of a slower market.
Brad Blackwell, who heads the home lending group at Washington Mutual, the state’s largest mortgage lender, said the direction of the market will become clearer after the summer.
“The question heading into the fall will be: Do the interest rate increases, combined with far higher prices in California, cause the market to go the other way, with too many sellers and not enough buyers?” he said. “It’s too soon to tell.”
With the market more muddled, more would-be buyers are backing away.
Jason Jendron was tempted to move up when he received two unsolicited offers on his Costa Mesa home, which he estimates would have netted him a six-figure profit if he had sold it at current market value of $460,000. But the 33-year-old financial services manager declined because he couldn’t find a similar home in Newport Beach that he could afford.
