Housing Prices in L.A. Aren’t Letting Up
If this is a bubble, it’s sure taking a long time to pop.
For the first time, the median price of a Los Angeles County home topped the half-million-dollar mark last month, data released Wednesday showed.
Four years ago, the median was half that. By doubling in such a short period, it’s no wonder Los Angeles County appears on many lists of the nation’s most-overvalued home markets.
The increasing prices comfort recent home buyers such as Brian Kite. The West Los Angeles resident waited three years to buy a house because he thought prices were too high. He plunged in about a year ago, spending slightly more than the median price for a three-bedroom home not far from UCLA. The median is the level at which half the homes are sold for more and half for less.
“I felt at the time that I was buying at the top, but I knew I had to do it,” Kite says. “But in the back of my head I keep thinking: Are prices still going to go up? I wonder how they can.”
Yet they are. In March, the median hit $506,000, up 15% from a year earlier and 3% above the prior month, according to DataQuick Information Systems, a La Jolla-based research firm that analyzes property transactions.
Los Angeles County thus joined Orange, Ventura and San Diego counties in crossing the half-million-dollar mark, keeping Southern California’s place among the nation’s priciest housing markets. Orange and Ventura counties’ medians sailed through the $600,000 level in the middle of last year, and San Diego’s broke through the $500,000 point last fall.
To buy a house at the median price, a household would need an annual income of at least $120,000 to qualify for conventional financing with a 20% down payment. The county’s median household income: about $47,000.
And half a million doesn’t exactly get you a castle. Don’t even think about Beverly Hills. Try Norwalk, South Los Angeles or Panorama City, where the median price buys 1,500 square feet with three bedrooms and two baths.
Want something bigger? Head to Palmdale, where $500,000 gets you 2,200 square feet and two stories. Want ocean breezes? There’s a two-bedroom condo in Playa Del Rey, built in 1971.
Such stratospheric prices and low affordability have raised concerns about a repeat of the last time L.A.’s real estate market went from hot to cold. After a boom in the late 1980s, local home prices fell nearly 20% between 1991 and 1996 -- among only a handful of regional markets to see prices fall in the decade.
But a lot has changed since then, economists assert. The region is less dependent on any single industry, such as aerospace, where a sharp loss of jobs due to defense cutbacks sparked the early-1990s real estate collapse.
There also has been much less home building here than 15 years ago, so vast tracts of unsold homes are hard to find. Mortgage rates are much lower. And local homeowners may have learned a few things from the last go-around. Namely, that a slowing market is not cause for panic. When the market slows, many just won’t sell.
Still, naysayers contend, history is starting to repeat itself. Sales volumes are slowing while more homes are coming on the market. In March, 9,755 homes changed hands in L.A. County, a 10.3% decline from a year earlier, and the fifth straight month of falling sales.
Also, the rate of price appreciation throughout Southern California has slowed from its peak in mid-2004. Prices haven’t risen more than 4% from one month to the next since last summer. In some cases, sellers are dropping their asking prices.
Today’s combination of prices rising more slowly, fewer sales and growing supply are typical of the first phase of a slowdown, UCLA economist Christopher Thornberg says.
“Prices are still going up, because they always go up even when the market starts to cool,” he says. “It will take six to nine months for a cooling market to start to see lower prices. It happens time after time.”
But while more homes are on the market, it’s not necessarily a bad sign, other analysts say.
If anything, these analysts say, a large percentage of homeowners may be testing the waters to see what price they can fetch. If they like it, they will sell. If they don’t, they will pull the house off the market.
Such seller psychology is translating into more homes on the market for longer periods -- but not widespread price reductions.
“Inventory is definitely up, but it’s not swamping the market,” says Leslie Appleton-Young, chief economist for the California Assn. of Realtors.
Back at the start of the last real estate downturn, in February 1991, there were so many homes for sale in Los Angeles County it would have taken 28 months to sell them all, Appleton-Young recalls. Defense-industry layoffs forced many to sell. No job, no big mortgage.
“Homeowners had to get out at any price,” she says.
That’s in stark contrast to this past February, when there was a 7.2-month supply of homes for sale. “People are loath to sell if the market is softening,” Appleton-Young says. “And they don’t sell if they don’t have to.”
The region’s affordability issues work to the benefit of Mark Gilbert. The Lancaster-based real estate agent sees firsthand the vitality of the county’s housing market. In his area of the Antelope Valley, most homes are valued at or below the countywide median price.
“Every listing I’ve had this year has sold within two weeks -- and over the asking price,” he says. “If the house is priced right, it will be competitive.”
Gilbert expects prices in his area to rise about 10% this year, not as fast as their 25% peak rate of appreciation, but still moving up, not down.
Even UCLA economist Thornberg -- among the most pessimistic of analysts -- concedes that local home prices aren’t likely to fall this time around.
“We’re not due for that kind of collapse,” he says. Prices will probably flatten by year’s end, he predicts.
That’s a relief to West Los Angeles homeowner Kite.
“I’m always going to be a little nervous that prices could go down because I took a big step to get this house,” Kite says. “But I’m happy with my decision and the best part is I have a great place to live.”
