Through the roof in 2003

In what is being touted as the best year ever for housing, Southern California home price, sales and refinancing records were shattered in 2003, the result of low interest rates and the relentless demand for homes.

Additional factors, such as a lackluster stock market and a local economy that outperformed most economists’ predictions, propelled even the most reluctant buyers into homeownership. The result was a win-win situation for homeowners and the economy, which greatly benefited from the year’s record refinancings.

“2003 defied all expectations,” said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. “No one anticipated that rates would stay low for so long and continue in that vein.”

Rates that fell nationwide to 4.92% in early June -- for the first time in decades -- and averaged 5.44% for the year gave mortgage bankers a record $3.4 trillion in total loan volume, $2.3 trillion of which was refinancings, said Doug Duncan, chief economist for the Mortgage Bankers Assn. Homeowners, who saw record gains in their home equity last year, pulled billions out of that wealth and fed it back into the U.S. economy, helping it avoid a slip back into recession.

Contributing to last year’s record-setting market was pent-up demand for housing since the mid-’90s, which spurred buying in the Inland Empire and Los Angeles County, and demand for homes generated by those moving to the region and from job creation.

Those demands boosted the Southland’s median home price to a record $326,000, up 19.3% from 2002, according to DataQuick Information Systems, a La Jolla-based research firm.

Riverside County prices saw the steepest gain, 25.9%, to $238,000, followed by San Bernardino County, which rose 21.2%, to $183,000. Los Angeles County rose 20.9%, to $330,000; Ventura County, 18.9%, to $402,000; Orange County, 18.4%, to $450,000; and San Diego County, 18.3%, to $395,000.

Riverside leads trend

A record 359,851 homes and condos were sold in 2003 in the six counties. That marked the strongest sales count for the region since 339,962 were sold in 1989. A record 57,432 newly built homes were sold, the most since 64,446 were sold in 1988.

Riverside County posted the greatest increase in overall sales, at 8.6%, followed by San Diego County, at 6.7%. San Bernardino County saw a gain of 4%; Orange County, 3.3%; and Los Angeles County, 3.1%. Sales in Ventura County were down 0.5%, largely due to a shortage of homes on the market.

Homeowners who stayed put didn’t do badly: The average Southern California home increased in value by $54,174 in 2003, “earning” homeowners $4,514 each month.

First-time buyers, who made up about 30% of the market, took advantage of favorable mortgage interest rates and second loans to purchase homes, Appleton-Young said. “They’re doing whatever they can do to get in.”

Norwalk resident Alonzo Enriquez, 28, was among many first-time buyers who benefited from waiting -- in his case four years -- for mortgage interest rates to drop. Unable to afford a down payment and comfortable monthly payments until now, the Los Angeles County social services worker is in escrow on a 900-square-foot two-bedroom home in Norwalk.

Enriquez paid $255,000, which was $10,000 above the asking price, in a multi-offer bid for the house. He put 10% down and is getting a second mortgage.

“The rates had to be at 5% for me to get in,” Enriquez said. “Then I had to look at 10 homes before I found this one. It’s very competitive out there in this range.”

Norwalk had only 50 active listings two weeks ago, said Paul Britton, a Prudential California Realty agent. Britton said that the area, in more normal times, has an inventory of 300 homes available. Nearby Cerritos had only 18 listings that same week, with only one home listed for less than $400,000.

“Buyers want to get in now; they don’t want to wait for prices to fall,” Britton said. “Sellers don’t feel that prices are peaking yet, so many want to sit and watch. Besides, they often can’t move up, even if they want to. There aren’t many homes available.”

Condos and townhomes provided an entry point for many Orange County buyers last year, said Mike Cocos, manager of ERA North Orange County Real Estate in Yorba Linda. Condos started at $285,000, compared with about $350,000 for a single-family residence. By 2005, however, condos are expected to start at $400,000 in north Orange County.

“Entry-level buyers today know they have to be serious and make a full-price offer in areas like Yorba Linda, Placentia, Fullerton and Anaheim Hills,” Cocos said. “There are multiple offers on homes all over, except the very high end.”

A boom at the top

There were no slumping sales of million-dollar-plus homes in Beverly Hills, where one office, Coldwell Banker, closed 424 $1-million-plus deals last year, up from 326 homes a year ago, said Betty Graham, the manager there. In 2003, Graham’s office sold 22 homes priced higher than $5 million, up from 13 homes in that range a year ago.

“I haven’t seen any slowdown here; it’s just wild,” Graham said. “We’re having multiple offers in the $14-million to $19-million range.”

As home prices appreciated across the region, the number of homes going into foreclosure fell to the lowest levels since DataQuick began tracking them in 1992. About 34,600 notices of default were recorded in 2003, down 21.2% from 43,921 recorded in 2002.

The reason for the sharp decline is that when home values go up, as they did dramatically in 2003, households in trouble can sell the property and walk away with a gain.

There was good news from the building industry too, as new-home construction, which has lagged demand for a decade, was up significantly last year. About 94,600 newly built homes and condos were sold in Southern California in 2003, up 12.6% from 83,971 in 2002, according to the Burbank-based Construction Industry Research Board.

The board projects a 4.2% increase in new-home construction statewide in 2004, with the strongest growth in multifamily housing, which is about 8% of the total.

Bruce Karatz, chairman of KB Home Corp., a Los Angeles-based builder, reported a record year for the company as a whole, due in part to consumer demand for larger and more expensive homes. The company, known for its affordable single-family line of homes, also has branched out with condominiums, which more first-time buyers are willing to purchase.

The “very serious imbalance between family units and demand” has created a scenario in which builders will “never find the opportunities to fully satisfy the housing demand,” Karatz said.

Builders try to keep pace

Nonetheless, the California Building Industry Assn. predicts that 200,000 new homes and apartments will be constructed in 2004, the largest amount of new housing since 1989. About 230,000 new housing units are needed to keep pace with California’s annual population growth, which averages about 600,000 people.

Economists predict some slowing of home appreciation in 2004, from its current 20% perch in Southern California, to about 13%, which could put more homes on the market.

The state Realtors’ group forecasts that the median price of a single-family home will reach $417,500 in California this year, but sales are estimated to be 584,000, down 2% from 2003.

“There is no indication that a [price] peak is near,” said Michael Carney, director of the Real Estate Research Council at Cal Poly Pomona. “There’s still a very strong demand for housing.”

Mortgage interest rates are expected to stay in the historically low range of 6% to 7% in 2004. Those rates are not high enough to dampen home buyers’ enthusiasm, experts say.

Employment growth, a key factor in home sale activity, was sluggish at best last year: Los Angeles County lost 28,500 nonfarm jobs, while Orange County lost 200.

Even as Los Angeles County lost jobs, Riverside and San Bernardino counties, where home sales were strongest in the region, picked up 15,200 jobs. Job growth will improve across the region in 2004, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., if the business environment improves in the state.

Affordability, however, will continue to be an issue in California. The state Realtor group’s housing affordability index dropped below 25% mid-year -- meaning only one-quarter of those seeking median-priced homes were able to afford them -- for the first time in more than 12 years.

This raises concerns about the ability of first-time buyers to get into the market in 2004. As prices go up this year, housing affordability could sink below 20%, historically the number at which first-timers feel squeezed out of the market.

“Housing affordability will be a bigger and bigger issue,” Appleton-Young said. “It will create a perception of ‘I’d better jump in now.’ ”

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Greatest appreciation gains

Top 10 ZIP Codes in L.A. and Orange counties where 50 or more homes were sold in 2003. Prices and sales volume are for single-family residences.

*--* Community ZIP Code Number of sales Price Price median increase ($1,000) from 2002 Newport Coast 92657 163 $1,440 51.6% West Hollywood 90069 167 $1,160 42.3% Pasadena 91103 267 $350 34.6% Artesia 90701 157 $305 33.8% Canoga Park 91303 196 $321 33.8% Los Angeles 90018 212 $245 31.4% Inglewood 90304 90 $245 30.7% Malibu 90265 229 $1,305 30.5% Irvine 92602 216 $625 30.5% Pacific Palisades 90272 310 $1,328 30.5%

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Source: DataQuick Information Systems