Jobs and wages are on the rise. Buyers are newly urgent, fearful an era of cheap money is ending. And to top it off, there simply aren’t enough homes listed for sale. As a result, bidding wars are common and prices are rising during the popular spring buying season. A report out Tuesday from CoreLogic shows the Southern California median home price jumped 7.1% in March from a year earlier, hitting $480,000 in the six-county area. And despite low inventory, sales rose 7.8%.
A pitched battle
When Elizabeth Rodriguez and her husband realized that the market was white-hot in the Northeast L.A. burbs where they wanted to raise their three children, they devised a strategy.
The couple, who moved from the Bay Area for Rodriguez’s husband’s director job, began writing a “love letter” to sellers describing how much they wanted the house. And then they bid over asking — way, way over asking.
In one case, they offered $102,000 above the $798,000 list price for a three-bedroom Spanish-style home in Mount Washington. The house sold to someone else for $985,000.
“After that I was like, this is insane,” said the 35-year-old mother of three.
The couple bid on 11 homes, she said, before they finally purchased a three-bedroom in the hills of Glassell Park listed at $799,900. To seal the deal, they again bid about $100,000 over asking, this time before an open house was held.
“It was a crazy process,” Rodriguez said. “I’m glad we are on the other side of it.”
For developers, crazy times are good — especially in areas where few new homes are being built.
Last weekend, builder Planet Home Living held a grand opening for a Silver Lake 10-home subdivision built on small lots. Before any prospective buyers showed up, six of the $1-million houses were already in escrow after the Newport Beach firm contacted people who signed a list of interested buyers.
“Four hundred people on an interest list, that’s a lot for 10 homes,” said the company’s chief executive, Michael Marini. “Anything in L.A. that we build, it sells out immediately.”
The buying frenzy isn’t limited to Los Angeles either.
Agents across the region reported heavy demand, even in the Inland Empire, which since the housing bust has recovered more slowly than areas near the coast.
Chino Hills agent Derek Oie said he and others are taking advantage by marketing open houses as a one-time-only event, in a bid to create even more of an auction atmosphere.
At one house in Eastvale he brought a client to earlier this year, 100 people showed up.
“We showed up and literally cars were parked up and down the whole cul-de-sac,” he said.
Why it’s like this
Demand is high
In March, jobs rose across the six-county Southern California region, from 1.5% in Orange County to as much as 3.8% in the Inland Empire compared to a year earlier. Wages across the state climbed 3.9% during the time period.
The average rate for a 30-year fixed mortgage was 3.97% last week — below the 5% to 6% range during the bubble, data from Freddie Mac shows.
Rates had been going up since the presidential election, peaking at 4.32%. They’ve eased back down, but are still higher than before the vote. Agents say the run-up, and fear of future gains, has people rushing to close a deal.
Consumer confidence in March was at its highest level since 2000.
Supply is low
California’s nonpartisan legislative analyst’s office estimates millions of additional homes needed to be built between 1980 and 2010 to have stopped the state’s home prices from growing far faster than the nation as a whole.
Though construction is on the rise, it still remains far below even the insufficient levels of the past few decades.
Some owners also can’t sell because they purchased or refinanced during the bubble and still owe more than their house is worth.
Others refinanced in recent years when rates were closer to 3% and don’t want to lose that rate.
Following the housing bust, investors purchased homes en masse and turned them into rentals, taking thousands of homes off the market.
With prospective buyers crowding into open houses, Southern California mortgage broker Jeff Lazerson worries about the market’s stability.
He says people are increasingly acting out of fear, worried that if they don’t buy soon, they’ll never afford a home in the area.
Even to do so now, they’re stretching.
Lazerson said he’s using “glue and paper clips” to get clients qualified, having them pay down bills, get a co-signer or secure money from parents for a down payment
“They are all pushing and then they push some more,” he said. “I don’t think it’s sustainable at all.”
Dean Baker, codirector of the Center for Economic and Policy Research, who had predicted last decade’s housing crash, said he’s “somewhat concerned” about rapid price increases at the lower-end of the market but said this time seems different.
Baker noted that during the bubble, home prices rose at a far faster pace than rents, indicating that reckless lending, not economic fundamentals, was sending prices through the roof. Today, prices and rents in Southern California are largely rising in tandem.
“It really is a shortage of housing,” he said.
Christopher Thornberg, founding partner with Beacon Economics, also doesn’t see a bubble.
So far, there’s not a “crazy expansion” of credit, he said, and prices have consistently risen in the mid-single digits each year, rather than the double-digit levels seen last decade.
“None of what of we are seeing in the market today has the hallmarks of what I would call a bubble,” he said.
As long as the economy keeps improving, Thornberg said prices should keep climbing around the current pace.
Others are less bullish, especially if interest rates shoot up.
“At some point, people simply can’t afford to buy these houses,” said Svenja Gudell, chief economist at real estate website Zillow. “What likely would happen is home-value appreciation would slow down a bit and in some areas it could be flat.”
Prices could even fall, but she predicted there wouldn’t be the “crazy declines” seen during the Great Recession.
Zachary Parrish is among those who believe the market is topping out. To “grab the equity” while he can, he is selling the Burbank house he purchased two years ago for $780,000.
Parrish, who works at Disney, is waiting on a buyer to close escrow on his two-bedroom for “well over” the $888,900 list price. Then he can close on a purchase of a nearby townhouse, in which he offered $635,000, though he is trying to negotiate down because of defects he said arose during the inspection.
If it all works out, he’ll make a nice profit. But Parrish wonders if he should be renting instead of buying again.
“I know I am overpaying just to own this place,” the 31-year-old said of the town home. “But how much am I overpaying? Is this like 2007, where I buy this for $635,000 and in a year it’s going to be worth $500,000? I hope not.”