Southland Home Prices Rise Again

Home prices jumped from year-ago levels across much of the Southland again in July as low interest rates and a wobbly stock market helped sustain an upward trend that began early this year.

The median home price, the point at which half the homes sell for more and half for less, rose nearly 19% in Orange County to $360,000, according to a report released Thursday by DataQuick Information Systems Inc. Prices set a record there for the fourth month in a row.

In Los Angeles County, the nation’s largest for-sale housing market, a typical home rose to a near-record $266,000, or 15% more from a year earlier, the La Jolla-based firm said.

The July market was driven by an imbalance between supply and demand, lower mortgage rates and investors fleeing the stock market for the perceived stability of real estate.

Prices rose on just about everything, from starter condos to million-dollar homes.

“Everyone is floating on the same rising tide,” said John Karevoll, the analyst who prepared the report.

Almost everyone, that is. Real estate brokers said multiple offers are still common on homes priced under $1 million, but falling stock prices have slowed sales of homes offered for $2 million or more.

“The buyer at that level is taking a wait-and-see attitude,” said John Aaroe, a partner at Prudential California Realty in Los Angeles. He estimated that sales in that price range have slowed by 20% from a year ago.

“You are finding people with an ability to buy, but are saying, ‘I won’t trade up until I’m sure I won’t be affected by Wall Street,’ ” he said.

As prices continue to rise for most homes in Los Angeles and Orange counties, many consumers are concerned that the market may be growing overvalued. But Karevoll said monthly costs remain well below their peak of a decade ago.

Take Los Angeles County, where mortgage payments rose to their highest level in 1989. Then, a typical home cost $2,378 a month in today’s dollars--65% more than the current median of $1,441 a month.

Orange County has experienced a similar effect. Mortgages in Orange County peaked at $2,725 in 1989 when adjusted for inflation, but now run 28% less, or $1,950 a month.

That analysis suggests prices can rise as much as 30% to 40%, under current mortgage rates, before consumers would be driven off by rising costs. “We’re nowhere near that point right now in Southern California,” Karevoll said.

Other analysts, though agreeing in principle, said there is less room for price increases than Karevoll believes. Real estate economist Michael Sklarz of Fidelity National Information Solutions said homes in Los Angeles County were 19% overvalued in 1992 compared with 11% now, using a ratio of employment and incomes.

He predicts that home prices would not crash as they did when the market softened a decade ago.

Conditions today are different, Sklarz said. There is no glut of new housing that could cause builders to sharply lower prices, undercutting owners of existing homes who are trying to unload their properties.

Moreover, he expects the job market to grow steadily and not contract as it did in the 1990s. And mortgage rates are much lower than they were back then.

Those factors will prevent a decline in values, Sklarz said. But as fewer people can afford to make purchases, he said, “we should expect a flattening in prices.”

Falling mortgage rates will keep the market robust in the months ahead, some analysts predict. Secondary mortgage investor Freddie Mac said long-term rates slid Thursday to 6.22%, the lowest point since the weekly survey of lenders began in 1971.

Triggered by declines in mortgage rates this year, banks and other mortgage providers in Southern California have been besieged by consumers who want to redo their home loans at lower rates.

Analysts expect a record amount of refinancing in Southern California this year, which would prop up the economy by freeing income that could be spent on other goods.

Sales have been boosted by low mortgage rates.

A buyer with an income of $80,000 can qualify for a home loan that is $30,000 greater now than in late March, according to John Burns, an Irvine real estate consultant.

July sales in Orange County climbed nearly 9% from a year earlier, DataQuick said. They were flat in Los Angeles County, but at a historically high pace. In Los Angeles, nearly 10,900 homes changed hands, the fourth-highest count in July since the real estate research firm began tracking the market in 1988.

Sales could be delayed in coming months by the surge in loan refinancing that already has begun to strain the system.

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(Orange County Edition) Orange County Home Sales

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