The long, hot market
Like a referee at a tennis match, the cat reclining on the living room sofa swiveled its head back and forth as it watched Coldwell Banker agent Elaine Grayling run between the front and the rear of the house, answering questions from a steady stream of potential buyers at a recent Sherman Oaks open house.
Yes, there probably are hardwood floors beneath the living room carpet. No, the converted garage is not city-approved as a guesthouse. Yes, that patch of weeds behind the guesthouse could be coaxed into a nice garden, the longtime agent repeated more than a dozen times during the three-hour span.
“This is a hard floor plan,” Grayling said, wiping a wisp of stray blond hair off her face. “All this running back and forth, and I’m worried about those cats getting out!”
Summer is near and the buying is frantic. Neither war nor a tepid economy has slowed Southern California’s red-hot real estate market, where buyers are lining up at open houses, ready to outbid the competition for houses that in more normal times would elicit little more than a yawn.
With interest rates just above 5% and a limited number of homes available at any price, buyers such as Michael Lever, who has looked at 50 to 60 houses, are flocking to open houses. Lever, a first-time buyer, said he might be willing to pay the $429,000 asking price for the Sherman Oaks home with the converted garage if it’s just “decent.”
If it is, he’d better move quickly.
“First-time buyers are realizing that they’ll lose a house if they wait,” said Barbara Kerr, a Realty Executives agent in Fullerton. “Those who wait a week come back and the house is gone.”
Or it has risen in price. First-time buyers Helen and Rhett Butler of La Habra started looking at condos last summer but couldn’t find one they liked in their price range. They took a breather before expanding their search and returned to a market in which prices in their Orange County neighborhood had gone up by $50,000. The couple eventually bought a 1,500-square-foot home they termed a “major fixer” for $279,000.
In today’s market, the Butlers probably got a bargain. The median price for homes in Orange County shot up 19.3% in April to $402,000, while in Los Angeles County, prices rose 19.3% to a record $303,000, according to DataQuick Information Systems. And condos, generally a less-expensive option for many first-time buyers, are going up in price faster than single-family dwellings, said John Karevoll, a DataQuick analyst.
The median price for a condominium in Los Angeles County in April was a record $236,000, up 20.9% from a year ago. Condo sales in the county were 2,513 for April -- up 4.4% from the same month last year -- the second-highest number sold in the last 10 years.
“We had thought the market would ease back a notch because the decline in interest rates has played itself out,” Karevoll said. “But the market’s much stronger than we expected.”
Late last year, economists predicted a slowdown in home appreciation in 2003, but the market has remained strong, said Nima Nattagh, research director at FNC Inc., a consulting firm to the mortgage industry.
April marked the 16th consecutive month that California home prices have seen double-digit percentage gains, according to DataQuick. Home sales in Los Angeles County rose 1.2% in April, while in Orange County, sales declined 6.5%. First-quarter sales of million-dollar homes in Southern California were up 39.3% compared with a year ago, the strongest quarter on record.
Riverside and San Bernardino counties continue to attract buyers, particularly those seeking affordable new homes, even as median prices rose 18.8% to $240,000 in Riverside County and 18.6% to $185,000 in San Bernardino County.
Buyers, competing for fewer and more expensive homes, are having to create strategies that give them an edge.
To win bidding wars, buyers must enter the fray pre-approved for a loan, be willing to check out a house at a moment’s notice -- a Friday night or Sunday morning in some cases -- and make “clean” offers that are not contingent upon the sale of their current home, experts say.
Savvy buyers’ agents check with colleagues representing sellers to find out which homes are about to hit the market and take clients there before those homes are publicized on the multiple listing services. Other agents present letters or booklets to a seller, enumerating the reasons why their client is best suited to buy that house.
To make themselves more attractive to potential sellers, move-up buyers Howard and Phyllis Lee, who earlier this year wanted to move from a Westlake Village condo to a single-family detached home, took out a home equity line of credit and cashed out some investments to have funds ready in case they had to pay for the new home before their condo sold.
With no contingency attached, the couple bought the new home -- a four-bedroom on a corner lot in the $600,000 range -- without using the equity loan. The Lees listed their condo immediately after their offer was accepted on the new house, and the condo sold in five days.
“Everything came together perfectly,” Howard Lee said. “We closed on the condo two days before the new home closed. The money was all there, and we shuffled through escrow.”
Steve and Jana Giboney also had a safety net in place when they jumped into the market. Fearing their Newbury Park townhome would not sell in time to fund their new house, the couple included an escrow option to pay the sellers $100 a day for each day the closing was delayed. They ended up exercising the option and paid about $5,000 extra for the house.
Some buyers are making concessions to sellers that typically would not be considered. Westlake Village agent Arlene Kovalivker said that buyers recently represented by her Young Realtors office not only paid more than the $529,000 asking price for a home that had multiple offers, they also agreed to release the owners from paying for termite repairs estimated at $4,000. They got the house.
“This is definitely a sellers’ market,” said Tina Cameron, an agent at Coldwell Banker Brentwood East. Although sellers usually refuse deals in which the purchase of their home is contingent on the buyers’ selling their own first, it’s becoming common for sellers to include contingency conditions of their own.
Cameron recently represented the buyer of a $650,000 Westside condo who entered into a contract with sellers who demanded a rent-back clause, allowing them to continue living in the home for 60 days after escrow closed. The deal also included an option for a 30-day extension if the sellers still hadn’t bought a new house.
Finding a house is the biggest challenge facing buyers, whether they’re in the entry-level market or the million-dollar range. By one measure of housing inventory, it would typically take 7 1/2 months for Los Angeles County’s housing supply to be exhausted if nothing new came on the market, according to the California Assn. of Realtors. In March, that supply dwindled to two months; in Orange County, one month.
The San Fernando and Santa Clarita valleys had only 2,868 single-family homes, condos and townhouses listed for sale at the end of last week, compared with 12,429 listings in May 1997 and 17,423 in May 1990, according to the Southland Regional Assn. of Realtors.
The lack of homes for sale and the high prices are forcing first-time buyers to lower their expectations, according to Jamie Duran, manager of Coldwell Banker’s Studio City office.
“When they first walk in here, they feel indestructible and they think they can get what they want,” Duran said. “But then they lose to multi-offers and get discouraged, and have to readjust the number of bedrooms they’ll take, the price, the size of the house.”
Once in new homes, however, buyers are staying there. Despite a recent spike in loan defaults nationwide, the number of homes going into foreclosure in California declined by 14.2% during the first three months of this year compared with the first quarter of last year, according to DataQuick. In Los Angeles County, notices of defaults on residential properties dropped 23.7% the first quarter of 2003, compared with a year ago, and in Orange County, they fell 17.4%.
While economists expect interest rates to remain low in the short run, a rise is anticipated by the end of the year. Lenders and agents say they recommend buyers start looking for homes now, while the rates are favorable.
“Lenders aren’t dropping rates right now, because they don’t need more business,” said Marc Shenkman, president of Priority Financial Network in Calabasas. “I say to my clients, ‘The rates won’t go to zero.’ ”
