Tight Inventory May Send Region’s Home Prices Surging Again

When Lieselotte Stockmann put her Sherman Oaks house up for sale after New Year’s, she expected it would take a while to sell.

After all, January typically is one of the more sluggish months for residential real estate, in part because of the weather. Realtors say that enticing even neighborhood looky-loos into open houses before Super Bowl Sunday can be tricky.

So when three offers landed on Stockmann’s doorstep after 10 days -- all above her $645,000 asking price -- she was very pleasantly surprised.

“They were all more than I expected,” she said.

Is Southern California’s housing market headed for a repeat of last year?

After a bloated summer and fall, the inventory of homes for sale has slimmed down to the point that multiple offers are commonplace again, real estate experts say. And the low supply could trigger a spring season of stepped-up price increases after six months of relative flatness.

“As crazy as it sounds, I think the market will be up slightly due to the supply-and-demand imbalance,” said Michael Davin, executive vice president of Catalist Homes, a low-commission real estate brokerage that does business largely in the South Bay and Orange County.

Davin has been tracking inventory in the two-county area through local multiple-listing services and has found that the supply of resale housing in Los Angeles and Orange counties is down by at least a third from last summer’s level.

For instance, there were 323 active listings in Huntington Beach as of Feb. 15, compared with 481 in June and 117 in February 2004. In Redondo Beach, there were 118 listings in mid-February versus 171 in July and 48 last February.

Still, no one is anticipating a full-throttled return to spring 2004, when the supply of resale houses dipped to historic lows and intense bidding wars drove up the median price in Los Angeles and Orange counties about 20% in less than six months.

“Last spring was insane,” Davin said. “There were homes with 30 offers and selling for hundreds of thousands over the asking price.”

By late summer and fall of last year, many homeowners -- seeing the great gains in appreciation -- rushed to sell, swelling the supply of available homes. In turn, prospective buyers started to become more selective and drove harder bargains.

During the fourth quarter of 2004, sales started to slow and many homeowners “had given up,” Davin said, pulling their “for sale” signs from the ground.

Sellers have yet to return in force to the market. But, it seems, prospective buyers have. As long as demand remains hardy, prices could continue to rise -- albeit at a modest pace.

“We’re not at the spring-chicken state of the housing cycle anymore but at a normal peak,” said G.U. Krueger, an economist for real estate investment advisory firm IHP Capital Partners in Irvine.

Krueger believes Southern California could have many of what he calls “mini-cycles.” These are when listings are overwhelmed by demand, which spurs an uptick in prices, which in turn fall back when supply rises.

And at the moment, there are many indications throughout Los Angeles and Orange county neighborhoods of vigorous demand.

No one was more astounded than real estate agent Betsy Reddingius when the “very difficult fixer” she listed for a client last month generated 30 offers.

“It was almost a tear-down,” said Reddingius of the 1912 Pasadena bungalow with an asking price of $250,000. “I priced it at what would be the true value of the property.” The single-family home sold for $360,000 to a buyer who intends to remodel.

“If you have a desirable house at a desirable price you will get good offers,” she said.

This time around, market experts are using words like “rational” and “realistic” to describe the mind-set of sellers and prospective buyers. There appear to be fewer opportunistic sellers merely testing the waters.

“Once you got the unrealistic sellers off the market, you would get back to a more normal market,” said Patrick Veling, president of real estate consulting firm Real Data Strategies. “That means that people aren’t asking less for their homes but they’re not asking as much as many were last year.”

Veling’s definition of normal: Homes will continue to appreciate in the near term as long as interest rates remain low, but at a pace closer to 10% year over year.

For 19 consecutive months beginning in June 2003, the year-over-year median price in Los Angeles and Orange counties rose more than 20%.

Earlier this month, agent Jody Clegg with First Team Realty in Huntington Beach found herself mediating an unexpected bidding war that erupted over a $590,000, two-bedroom, one-bath “as is” property in Costa Mesa.

“It was the smallest of the homes in the area and it seemed to be priced fairly,” she said.

More and more sellers, Clegg said, are being careful “not to raise the ante” by listing their homes at prices that may turn people off. “If we had priced the house at $625,000, it may not have received any offers,” she said. The home ended up receiving 15 offers and is currently in escrow for “significantly above” the asking price -- and Clegg is still receiving calls every day on the house.

Writer Laura Cohen and her husband have been looking for a house on the Westside since September. The New York transplants have made at least two offers, and have been outbid each time. But because they feel they have a good sense of a property’s value, they insist they won’t get caught up in an escalating bidding war.

It’s frustrating to get outbid, Cohen said, “but it’s also frustrating that a lot of homes we’re seeing are overpriced, in our opinion.”

Indeed, many house hunters are preferring to walk away from a desirable property rather than up their price threshold.

“Many people are not raising their ‘don’t-show-me-a-house-higher-than’ point,” said Lee Ziff, a top-producing Coldwell Banker agent who closed 32 transactions last year. “But then you have more competition at that price point” -- and also more exasperated home seekers.

“It’s the most challenging market I’ve seen since I’ve been in the business,” said Ziff, a 22-year real estate veteran.

Sellers like Stockmann aren’t complaining. She and real estate agent Penny Warren decided that $645,000 was the fairest price for the 1,700-square-foot, cabin-style home that Stockmann paid $280,000 for in 1987 -- which at the time she thought was an excessive price. When escrow closed last week, the sale of the house was recorded at $665,000.

“Like all the rest of the neighborhood, I’d been watching the prices on our street,” Stockmann said, “and it seemed to be priced right.”