Area’s Property Values Rising Only Modestly
Despite rapidly rising housing prices, a new report indicates that equity gains for homeowners in Southern California are relatively modest compared with the rest of the nation.
The study found that home values rose 4% in Los Angeles County and 6.9% in Orange County in the first three months of 2000, compared with the same period last year, when the counties led the nation in housing value gains.
This year, though, they fell well below the double-digit hikes recorded in Northern California and other major cities such as Denver, Boston and Minneapolis, according to a report released Tuesday by research firm First American Real Estate Solutions in Anaheim.
In last year’s first quarter, Los Angeles County ranked first with a 14.9% rise in values and Orange County was close behind with a 14.5% increase.
In fact, the double-digit hikes in values over the past two years have made prospective home buyers in the two counties wary about possibly overpaying, said Nima Nattagh, a First American analyst who conducted the study.
But the robust sales over the last half of the decade are barely putting much of Southern California on a par with the 1990 market--before the deep decline in real estate helped to fuel a long and difficult recession.
The report showed that home values in Los Angeles still remain nearly 10% below levels in 1990, while Orange County housing values, which bounced back last year, has grown 7.2% over the decade.
Even so, home prices have outpaced household income gains by such a wide margin in recent years that fewer people can afford to buy homes. As a result, some potential buyers have been priced out of the market, causing less demand for homes, said Esmail Adibi, an economist at Chapman University in Orange.
“Home prices have reached a level that the buyers are not willing to bid the prices higher,” Adibi said. “And as a result, that’s leading to a more moderate amount of appreciation relative to before.”
The psychology of rising home prices, Nattagh said, has been a larger factor in buyers’ minds than interest rates, which have increased six times over the past year.
“Buyers are pulling back to create some balance and logic to the market,” he said.
The quarterly survey of 35 metropolitan areas calculates values using the repeat-sales model, which measures price changes on homes that have been sold at least twice since 1990. Because it is based on appreciation, not average or median prices, the model is considered a more accurate gauge for evaluating the wealth created by home ownership.
However, the model tends to favor more popular homes that are sold repeatedly and, therefore, represents a narrower segment of the market for existing-home sales.
Economist John Husing, for instance, questioned the study’s findings that the Riverside-San Bernardino area lost 1.3% of its housing value. He said the report may reflect more sales of older, marginal homes that had been foreclosed on during the decade. The report also fails to take into account new homes, he said, which have been going up in strong numbers in Corona, Fontana and other parts of the nearby area.
Nattagh said he expects to see a modest amount of appreciation in Southern California. He predicts that values in Los Angeles will increase this year by as much as 6%, and in Orange County by up to 8%.
For the first quarter, only San Diego among Southern California counties showed a major increase in home values, jumping 11.7%. The drop in value in the Riverside-San Bernardino area was the only decline recorded among the 35 counties.
While the economy is expected to remain strong, Nattagh said, Los Angeles buyers probably will remain cautious about plunging into a home purchase if interest rates continue to nudge higher. Orange County buyers, where more than 20% use stock proceeds to purchase a home, may find that a sluggish stock market may not provide a cushion of cash as it has in the past.
“All of that probably means values will not be increasing at the rate we’ve seen over the past couple of years,” Nattagh said.
The study was based on the patterns of 7.1 million homes nationwide, including 316,000 in Los Angeles County, 131,000 in Orange County, 108,000 in San Diego County and 172,000 in the Inland Empire.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Home Price Trends
Growth in property values is slowing in Los Angeles and Orange counties and falling in the Riverside-San Bernardino area. Here are percentage changes from the first quarter last year to the same period this year, along with changes from 1996 to this year:
*--*
1st qtr. Area ‘99-00 ‘96-’00 1. San Jose 16.2% 53.4% 2. Oakland 15.9 37.7 3. Denver 15.0 57.2 4. Boston 11.8 47.0 5. San Diego 11.7 38.0 6. Minneapolis-St. Paul 11.6 37.7 7. Stamford-Norwalk, CT 10.6 29.6 8. Seattle-Bellevue-Everett 10.1 40.2 9. San Francisco 9.5 50.0 10. Bergen-Passaic, NJ 9.1 23.9 11. Orange County 6.9 34.8 20. Los Angeles-Long Beach 4.0 15.0 26. Sacramento 3.4 10.3 35. Riverside-San Bernardino -1.3 -0.4 National 6.1% 20.4%
*--*
Source: First American Real Estate Solutions, Anaheim
