Home Prices in L.A. Soar at Record Rate

Home values in Los Angeles County posted the biggest year-over-year increase in at least 15 years in March as frenetic buying activity pushed the median sale price up 29%, to a record $375,000, according to data released Monday.

Confounding predictions by the experts, sales were surprisingly strong, jumping 12% from a year ago to 10,875 new and resold houses and condos. Analysts and brokers said the heavy demand was driven by anxious consumers, many of whom are paying more than the asking price to get in the housing market before interest rates rise and supplies thin further.

The inventory of houses available for sale has been at historical lows, and the latest flurry of purchases suggests that the market will only heat up as the busy home-buying season nears.

“It’s going to be a total frenzy,” said G.U. Krueger, an economist at the Irvine real estate venture capital firm IHP Capital Partners.

John Karevoll, an analyst at DataQuick Information Systems, which compiled the housing statistics reported Monday, was as surprised as anyone.

“We’ve been expecting the rate of appreciation to ease back a bit,” he said. “This is just the opposite.”

The latest monthly price increase followed a 15.5% increase from March 2002 to March 2003. The new median price -- the point at which half the homes sold for more and half for less -- could buy a three-bedroom, two-bath house with about 1,300 square feet in communities such as Reseda, Santa Clarita or Bellflower.

The accelerating home prices are boosting consumer spending in the county and providing a lift to the economy. Like the Wall Street boom a few years ago, the region’s housing market is generating extraordinary wealth for many people.

But the rapid run-up also is making it tough for many families to become homeowners. About 50% of the households in the county are renters, according to the Census Bureau.

There is another downside: High prices increasingly are making it difficult for companies, already grappling with a tough business climate, to attract workers to Southern California. Countrywide Financial Corp., a big mortgage lender, recently said it had capped employment in the region partly because of high housing costs.

“It’s a big problem and it’s getting worse and worse,” said Jeanne MacDonald, managing director of the Western region for Futurestep, a Korn/Ferry International firm that helps companies recruit mid-level managers. Last month, she said, a candidate from Michigan was well down the path toward accepting a sales management job in Southern California -- until he came to Los Angeles and checked out the home prices.

“He was astounded by the difference,” MacDonald said.

No wonder: DataQuick said the median price of a house in Michigan was $133,500 in February, the latest figure available.

The median price in Los Angeles County has nearly doubled since March of 2000, when it was $192,000. The county’s rate of appreciation in recent months has outpaced other areas in the region, such as Orange and San Diego counties, as well as nearly everywhere else in the country.

In San Diego County, the median price rose 16.8% in March from a year earlier, to a record $424,000. (March figures for other Southland counties will be out later this week.) In Chicago, the median rose 7.3% to $213,500. Miami’s median climbed 11.1% to $200,000, and Seattle saw a 7.3% increase to $236,000. Among the country’s less expensive big cities is Phoenix, where the median price rose 8.6% to $158,000.

The spectacular gains in Southern California have fueled concerns of a possible housing “bubble.” But most analysts believe the real estate market is on much firmer footing compared with a decade ago, when sales and prices tumbled.

Sung Won Sohn, chief economist at Wells Fargo Bank, said the region’s economy is stronger and there isn’t the over-building of a decade ago. But for the long term, he said, if prices keep climbing as they have been, “it can basically stunt economic growth by discouraging people from moving in or expanding in Southern California.”

There also are risks to some buyers, who may be overextending themselves. DataQuick said 58% of the purchasers in L.A. County last month took out adjustable-rate mortgages, which initially offer lower interest rates than traditional fixed mortgages but could subject borrowers to higher payments if interest rates rise. A year ago, 29% of buyers used adjustable mortgages.

For now, however, Karevoll said the market was “rock solid.” He said there were few danger signs, such as rapid resales or purchases by people who don’t intend to live in the houses. Based on where tax bills were sent this year, he said, about 7.5% of the houses in the county may be owned by investors, up just a tad from a year ago.

“There is a bit of speculation and risk-taking, but not more than the market can easily handle,” he said.

Perhaps the single biggest factor behind the recent surge in prices is the unusually low inventory. Analysts said that at the current pace of purchases, there was enough supply of homes for sale in the county to last no more than a month or two in many areas. About six or eight months’ worth of inventory is considered healthy.

In Long Beach, for example, there was only a three-week supply of homes priced between $250,000 and $449,000 in early April, according to Pat Veling, president of Real Data Strategies, a real estate research and consulting firm in Brea. Knowing that, he said, buyers are competing fiercely and bidding up prices. “It’s overly motivated buyers who are struggling with these historically low inventory levels,” Veling said.

Making matters worse, many homeowners are holding off on selling because prices are rising fast and they don’t want to lose out on potential gains. Experts said that was one reason an expected increase in property listings in March didn’t materialize. If that trend persists, the busy summer buying season could be extraordinarily competitive.

Some homeowners, however, think this is the time to sell.

In the Linda Vista area of Pasadena, Jim Patrick is getting ready to put his four-bedroom, four-bathroom house overlooking the Rose Bowl on the market for $1.25 million. He doesn’t want to miss out on the booming sellers’ market.

“If I sit in my house and prices start to go down, I’ve lost some of my paper gains,” said Patrick, who is general manager of an aftermarket automotive and distribution company. “So I’m just cashing out.” The 41-year-old plans to lease his next residence and wait to see if interest rates go up and prices come down after the November election.

Economist Krueger agrees that eventually “something has got to give,” but he doesn’t see signs of a price bubble either. “We have very low interest rates and very little supply,” he said.

Not much new housing is on the horizon, said Ben Bartolotto of the Construction Industry Research Board. During the last real estate boom in 1989, there were 23,794 single-family homes finished in the county. Last year only 10,216 homes were built.

Demand for housing in the region also is being fueled by new arrivals. Last week the Census Bureau reported that Southern California picked up an estimated 1 million new residents over the last three years, a third of whom settled in Los Angeles County.

The shrinking supply of land for housing construction will keep the market tight and prices high, Bartolotto said.

That’s not comforting news to renters like Sandra Rodriguez, 26, who with her husband and their two small children hopes to move out of their one-bedroom unit in Montebello. She said she recently found on the Web a four-bedroom home nearby listed for $275,000. Rodriguez bid $300,000 on it because she knew it would be competitive.

“The prices in Montebello are ridiculous,” she said. “The price inflation is getting out of hand.”