Southland Home Prices Soar, Defying Sluggish Economy

By Jesus Sanchez

Dec. 19, 2002 12 AM PT

Times Staff Writer

An unexpected burst of sales boosted Southern California home prices by 21% in November, the biggest year-over-year increase since the peak of the last housing boom in 1989, according to new figures released Wednesday.

The jump in the overall median price of new and existing houses and condominiums sold, to a record $288,000, showed that Southern California’s housing market is still on a roll despite the gloomy economy and the possibility of a war. Home prices hit new highs in the region’s most-populous counties -- from San Diego to Ventura.

Total sales rose more than 12% to 25,601, according to DataQuick Information Systems, which compiles the sales information from property records.

Analysts and brokers said that although low mortgage rates continue to turn renters into owners, the market is getting a powerful boost from homeowners who are trading up and those taking money out of the sagging stock market and putting it into real estate.

Typical are people such as Nestor Lopez, 34, who recently paid $260,000 for a three-bedroom house in Reseda. Lopez, an accountant with the Braille Institute in Los Angeles, said he wanted a home with a yard for his 2-year-old son. Lopez sold some stock -- at a loss -- to get a down payment.

“I don’t see housing falling like stocks did,” he said.

Economists and housing experts increasingly have raised concerns about a so-called housing bubble in many places, including Southern California, where home prices generally have been rising rapidly for many months. And analysts this year have been expecting the Southland’s real estate market to at least taper off, given the anemic job market and weak growth in personal incomes.

But the last few months have made a lie of conventional economic thinking. John Husing, an economist in the Inland Empire, says it is all about a supply shortage. “We are just not building enough new housing,” he said.

In November, the median price of houses and condominiums sold in Los Angeles County rose 22% from a year earlier, to $281,000, according to DataQuick. The median price in Orange County surged by almost 19% to $383,000.

Even in Riverside County, long considered a haven for affordable housing, the median home price soared almost 19% to $228,000.

“It’s incredible,” said Scott Gibson, head of Coldwell Banker’s Los Angeles division. “We had a great November and we are trending ahead of last year” for December.

Most real estate experts agree that record low mortgage rates continue to allow buyers to remain in the market despite prices that are spiraling upward.

Based on the latest average 30-year fixed mortgage rate of about 6%, the typical home buyer in Los Angeles County last month who put 20% down was looking at a mortgage payment of $1,293. In May 1989 -- the last time home prices surged by about the same percentage -- the typical buyer was faced with a monthly payment of $1,453, DataQuick said.

Leslie Appleton-Young, an economist at the California Assn. of Realtors, said there are signs that the housing market is flagging in other parts of the country, including Northern California. But she said Southern California’s economy is still growing, in sharp contrast with the early 1990s when the region lost nearly 400,000 jobs, helping to trigger a housing bust.

“I don’t see the ‘bubble’ that people are talking about down here,” she said.

Appleton-Young’s association projects that the median price of single-family homes statewide will rise 10% in 2003, compared with 18% this year.

But among the economists who remain concerned about an overheated housing market is Esmael Adibi of Chapman University, who thinks home prices should be rising at only a fraction of the current pace, given the other economic fundamentals.

“You are going to have a problem sooner or later,” he said. “If income and job growth don’t catch up ... ultimately these home prices have to go through an adjustment.”

Even if home prices are rising at what many consider unrealistic rates, Lisa Grant and her husband, George Vail, were not deterred from selling their house in the Silver Lake area of Los Angeles and investing their sizable profit in a $340,000 duplex in nearby Echo Park.

Real estate “is your best bet as an investment,” said Grant, 29, an actress. “We feel pretty confident.”

Many people say they know real estate prices may be out of line, said Laura Tarbox, a financial planner in Newport Beach.

“They understand that the market may be high, but they say that they’re comfortable with it,” she added. “And it’s hard to argue with that because real estate has done so well here.”

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On a roll

Year-over-year percent increases in the Southland’s median home prices and the number of units sold, by county:

Nov. 2001-Nov. 2002

San Diego

Median price: 27.4%

Units sold: 15.6%

Los Angeles

Median price: 22.2%

Units sold: 11.1%

Orange

Median price: 18.9%