More Signs of Housing Cool-Down
An almost-forgotten condition has returned to Southern California’s housing market: single-digit price appreciation.
The region’s median home price rose 9% last month, the first time in 4 1/2 years that the year-over-year increase was under 10%, data released Tuesday showed. Sales took their biggest percentage drop in 11 years.
The figures were the strongest signs yet that the Southland’s housing market is ending its 5-year-old boom.
The experts call it a market in transition. It’s not the same red-hot sellers’ market of the last three years, but it’s also not a buffet of bargains for buyers either. Regardless, neither side seems imbued with a sense of urgency.
“Sellers are trying to get top dollar and are not realizing the market has changed,” said Patrick Lashinsky, senior vice president of ZipRealty Inc., an Emeryville, Calif.-based brokerage with offices in Southern California. “Buyers are finding it harder to find homes that they think are a good deal.”
Laurie McCray is one home seller mindful of the market’s new dynamic. But that didn’t stop her from pricing her Chino home sitting on half an acre admittedly on the high side at $810,000. She says she and her husband, Ken, are in no hurry to sell despite making a deposit on a house under construction in nearby Chino Hills.
“We’ll see how it goes,” said McCray, who listed her home for sale May 6 and has received one low-ball offer. “If it doesn’t work out, we may lower the price but there’s no need to lower it now.”
Clark Huang recently relocated from Florida and is looking to buy. But he’s not in any rush either, especially because he and his wife and baby daughter are living with his parents in Corona.
“Prices may not drop necessarily, but they may not go up much more,” said Huang, who last month made a deposit on a $400,000 condo under construction in San Pedro but then canceled after feeling he made too hasty a decision. “We have choices. We’re not looking to rush into anything.”
The collective inertia of prospective buyers like Huang has translated into sluggish demand, plateauing prices and homes taking longer to sell.
In April, the median price for the six-county Southern California region was $485,000, a 9% gain over April 2005 but virtually flat from March’s record of $486,000, according to DataQuick Information Systems, a La Jolla-based research firm. Southland prices have increased by just 2.5% in the last six months.
By contrast, prices were up 26% on a year-over-year basis during the boom’s peak in spring 2004.
Sales in April declined 21.3% from a year earlier and were down 16% from the previous month, DataQuick said. It was the fifth straight month of declines and the slowest April in five years. But at 24,748 transactions closed, the number was still above the two-decade average.
The housing market “is moving in the direction we thought it would,” said John Karevoll, DataQuick’s chief analyst. “It’s all part of a normal endgame of the cycle.”
Predicting the housing market’s next phase is more tricky. Does single-digit price growth augur actual declines to come? Or does it represent a new norm?
The current rate of appreciation is still higher than the average 7.2% annual price gain of the last 18 years, according to DataQuick. During the last downturn in the mid-1990s, Southern California home prices fell by at least 3% annually for four straight years, then turned flat before rebounding in 1997.
That slump was largely caused by huge job losses in the Southland’s aerospace industry, the result of defense spending cuts after the end of the Cold War. People losing their jobs were forced to sell their homes, causing a snowball effect that pushed prices lower.
Lacking a similar economic shock, today’s housing market could level off without any significant price declines, economists say. This is what’s referred to as a “soft landing.”
“We’re going into a phase where price increases and pricing expectations are a little bit more normal,” said G.U. Krueger, an economist with Irvine-based investment advisory firm IHP Capital Partners. “As this change is occurring, things could get bumpy. But we have a lot of stabilizers in Southern California. One of them is a relatively strong economy.”
Nonetheless, Krueger said, “the slowdown in sales is real. Interest rates have gone up, speculators are gone and some of the more exotic financing has become less attractive.”
About a third of homes on the market have had their asking prices reduced at least once, listing data provided by ZipRealty showed. And after four years of watching mortgage rates dip lower, borrowers are now seeing rate increases.
Sales on a year-over-year basis declined last month in every county in the region. Los Angeles County sales dropped 18.8%, Orange County fell 28%, San Diego declined 30.7%, Riverside and San Bernardino both edged down 12.5% and Ventura plunged 41%, DataQuick said.
However, median prices in Los Angeles County were up 13.6% over the year-earlier month to $508,000. In Orange County, they rose 9% to $628,000. Both were records. (The median is the price at which half of all homes sell for more, half for less.)
Even San Diego, which was one of the first Southland housing markets to slow and has been labeled a “dead zone” by some national pundits, continued to show signs of life. The median price rose 4.3% in April to $505,000, DataQuick said. It was the 12th consecutive month that San Diego exhibited single-digit appreciation.
Still, on a month-to-month basis, prices in L.A., Orange and San Diego counties rose less than 1%.
Prices in the Inland Empire and Ventura County, however, declined from the previous month. Riverside County’s median rose 9.4% from a year earlier to $409,000, but was down 1% from March. In San Bernardino County, the median increased 18.4% from a year earlier to $360,000, but was off 2% from the month before. Ventura County prices grew 10.4% to $584,000, but were 4.3% below March’s median.
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April cools
Median price and number of new and previously owned homes sold in April, by county and overall in Southern California
*--* % change Median % change Number of from price from Area homes sold year ago (thousands) year ago San Bernardino 3,506 -12.5% $360 +18.4% Los Angeles 8,364 -18.8 508 +13.6 Ventura 891 -41.2 584 +10.4 Riverside 5,006 -12.5 409 +9.4 Orange 3,276 -28.0 628 +9.0 San Diego 3,705 -30.7 505 +4.3 Southern California 24,748 -21.3 485 +9.0
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Source: DataQuick Information Systems Los Angeles Times
