Housing Gains Slow in Region
Southern California home prices rose last month at their lowest rate in nearly four years while the pace of appreciation for all of 2005 slowed for the first time since 1999, providing the latest evidence that the region’s once-sizzling real estate market is cooling off.
The statistics, released Wednesday by DataQuick Information Systems, a La Jolla-based real estate research firm, suggest that Southland homeowners might have to settle for more moderate price increases after a six-year run of extraordinary gains, analysts said.
That boom bolstered the local economy by generating thousands of jobs and adding billions of dollars in equity for homeowners. But it also made homes too pricey for many residents.
Now there are signs that the market might favor buyers over sellers. Many homes are taking longer to sell, with the average duration on the market about three months compared with one month a year ago, real estate agents say.
A more drawn-out sales process is often leading sellers to reduce their asking prices or accept offers below the listed price. By contrast, buyers early last year sometimes resorted to bidding wars for homes in many neighborhoods, forcing prices above the asking prices.
Also, the inventory of homes on the market has grown. It would take 19 weeks for the current inventory of homes to be sold, versus 14 weeks a year ago, said Patrick Veling, a Brea-based industry consultant and president of RealData Strategies.
Southern California’s median home price in December was 13% higher than in December 2004, the smallest such year-to-year gain since a 12.7% increase in March 2002, according to DataQuick figures released Wednesday. On a month-to-month basis, Southern California’s median price of $479,000 has barely budged, up less than 1% since August.
Current market conditions are causing jitters among recent buyers such as Kim Nielsen.
She and her husband, Brad, made a killing on their starter home in Monrovia, which they sold last spring for nearly double the $320,000 they had paid two years before.
But because they still needed a place to live, the Nielsens turned around and staked most of their gain on a down payment for their next house.
“We figured we would buy on the high side and sell on the high side,” said Nielsen, who manages a restaurant in Pasadena.
The couple have become aware that their new home, which they bought for about $750,000, is unlikely to increase in value at the same rate as their first house.
“We don’t feel totally anxious but there’s always a little bit of that ... especially if something happens like losing a job,” Nielsen said. “But we’re trying not to lose sleep over it.”
The question now, analysts say, is whether the slowdown will result in a “soft landing” of slowly growing prices, or actual declines like those from 1992 to 1995.
“I’m not sure if this is the beginning of a longer downtrend but I know we won’t see the same frenzied activity of a year or two ago,” said John Karevoll, DataQuick’s chief analyst.
The downshifting was also noted Wednesday by the Federal Reserve, which said in its latest report on regional business conditions that many highflying housing markets including Southern California’s, although still strong, were losing momentum.
For all of last year, the median home price was up 16.5% from 2004, a slower rate of increase than the 23% gain between 2003 and 2004 and the first such decline in the rate of appreciation since 1999, when growth slowed to 4.3% from 8.9% in 1998, DataQuick said.
What’s more, the number of homes that were sold last month in the region that includes Los Angeles, Orange, Ventura, San Diego, Riverside and San Bernardino counties was the lowest for any December since 2001, according to DataQuick.
The number of homes sold in December was 28,952, down 4.5% from a year earlier. For all of 2005, 355,700 homes were sold, slightly down from 2004’s record volume of 357,000 homes.
Veling and many other analysts said market conditions today were more likely to foster smaller price increases rather than outright declines. There still is a lot of pent-up demand from buyers, including new residents and immigrants, they said. Regulations and lack of land have limited the supply of new housing. And mortgage rates are still low by historical standards.
When prices fell in the early 1990s, it was after a sharp recession triggered by job losses in the region’s aerospace industry. And many builders had overestimated demand for new homes, leaving hundreds of properties unsold when the economy soured.
DataQuick’s Karevoll, who has been poring over real estate statistics for two decades, said he expected the region’s year-over-year rate of appreciation to slow to 7% or 8% and possibly as low as 5% by midyear.
“The market can sustain a lower rate of appreciation,” said Karevoll, who noted that the average annual growth rate over the last 17 years has been 7.1%.
Some analysts, however, see a decline in home values coming. Economist Esmael Adibi of Chapman University said that by this summer prices in Los Angeles County could drop 5.1% from the year-earlier level, while prices in Orange County could fall 3.3%. His forecast is based on expectations that higher mortgage rates and slower job growth will dampen demand.
“The economic fundamentals suggest a different direction for prices than what happened last year,” Adibi said.
Because much of the local economy has been driven by the booming real estate market, any slowing will mean fewer new jobs, Adibi said. That will put more downward pressure on prices and create a real estate version of a vicious circle.
“The two engines of job creation have been construction and financial activity,” Adibi said. Those sectors, he predicted, “won’t be adding as many jobs this year, and there will even be layoffs.”
Indeed, housing-related job losses appear to be increasing. On Wednesday, mortgage lender Washington Mutual Inc. said it was transferring 1,000 jobs from its Chatsworth facility, mostly to Texas. That followed layoff announcements within the last month from Irvine-based mortgage companies Ameriquest, which said it was trimming 1,500 local jobs, and ECC Capital Corp., which said it was eliminating 440 positions.
On a county-by-county basis, San Bernardino led the region last month with a 28.5% year-over-year jump in its median home price, to $361,000 in December. Ventura County followed with a 20.7% gain, to $630,000.
Los Angeles County posted an increase of 17.2%, to $490,000. Orange County, the region’s priciest market, saw its median price grow 12.7%, to $621,000. The median rose 10.8%, to $411,000, in Riverside County. San Diego County, where price gains started shrinking before the rest of the region, registered a 5.1% increase, to $516,000.
The number of homes sold fell in all counties except Riverside, up 16.5%, and San Bernardino, up 5.7%.
