Home Prices Soar on Buying ‘Frenzy’
Los Angeles County home prices set another record in May as anxious buyers competed for a smaller supply of properties.
The median price for a home in the county hit $394,000, up 25.9% from a year ago, DataQuick Information Systems, a La Jolla real estate data provider, reported Friday.
The run-up marked the 11th consecutive month that the median price -- the point at which half the homes sold for more, half for less -- rose at least 20% year over year.
The nearly yearlong surge in prices is “just incredible,” said G.U. Krueger, an economist at IHP Capital Partners, an Irvine real estate investment firm.
He expressed concern that prices might be approaching a point where they won’t make economic sense, reflecting the fact that incomes in Los Angeles County may not grow much this year and the number of jobs may actually shrink.
Another six to 12 months of increases at the current rate could make the market unsound and create the potential for a sharp downturn, Krueger said.
“I’m not predicting a price drop at this moment,” Krueger said. “But tell the natives that this can’t last forever. Things have to slow down eventually.”
However, one of the key signs of an overheated market -- speculation, when buyers quickly resell properties for a nice profit -- is not yet in evidence, said DataQuick analyst John Karevoll. “The vast majority of buyers last month just wanted to put a roof over their heads,” he said.
The number of sales fell in May, typically one of the busiest months of the year, dropping 3.1% from a year ago, to 10,530.
Buyers didn’t have much to pick from. A shortage of land suitable for construction has limited supplies of new houses and condos, and some homeowners have been waiting for the market to peak before they try to sell their properties.
Meanwhile, a recent uptick in mortgage rates to more than 6% provoked buyers to jump into the market to beat further possible rate increases.
The result has been “an absolute frenzy,” said Beverly Hills real estate agent Victoria Silver of Coldwell Banker. “Every property under $1.5 million has multiple offers.”
That has produced at least one new wrinkle in the market: A growing number of sellers are demanding to stay in their houses for a month or two after the sale, sometimes free of charge, so they can hunt for a new place to live.
“I never saw that before,” Silver said.
Developer Avi Brosh of Santa Monica-based Palisades Development Group, which specializes in urban residential projects, wishes he had more units to sell.
His company completed 20 loft-style condominiums this week on a West Hollywood site where four houses burned down. Eighteen of the condos have sold at prices that reached almost $900,000.
“All new product is really getting a lot of attention because there is no supply,” Brosh said.
Finding land and getting approval for new projects are a test of patience and skill, he said.
“Every city has checks and balances related to development,” Brosh said. “It’s a long, cumbersome process so it’s hard to bring projects to market.”
Karevoll said that more homes are likely to go on the market later this summer, as sellers conclude that prices are peaking in this real estate cycle.
“People will figure they may be leaving a little money on the table,” Karevoll said, “but the numbers are good enough -- and safe enough -- now.”
