House Prices Rise as Volume Slows

The median price of a home in Los Angeles County rose for the fourth straight month in April, countering perceptions of a cooling market, according to data provided to the Business Journal.
By: DAVID GEFFNER: Los Angeles Business Journal
Home prices in Los Angeles County rose for the fourth straight month in April, countering perceptions – at least some perceptions – of a cooling market.

The median price of existing homes sold in April was $545,000, up nearly 15 percent from the same period last year. It was also up $9,000 from the previous month, according to numbers provided by HomeData Corp., a New York state firm that tracks residential sales nationwide.

However, volume – the number of homes sold – was down more than 16 percent from the same month last year.

On a month-to-month basis, volume looks a bit better. After dropping to a three-year low of 5,309 homes sold in February, down even by traditionally slow post-holiday standards, volume bounced back to 7,159 in April. While that was well off the blistering pace of last August, when more than 12,000 homes traded hands, it still represented an increase of 295 homes over March.

Data from Hanley Wood Market Intelligence, a Costa Mesa-based housing data and consulting firm, indicated strong job growth was helping prop up the region’s housing market.

“We’re not dependent on one or two industries, i.e. aerospace and entertainment, as we were in the ’90s,” said Patrick Duffy, managing director of consulting for Hanley Wood “And we haven’t had to deal with things like riots and earthquakes that hurt the economy back then. Most all of our sectors are strong.”

Some 35,300 jobs were added in L.A. and Ventura counties last year, with an expected 30 percent increase in 2006, or an additional 44,200 jobs.

In addition, interest rates remain at reasonable levels. Financial Forecast Center LLC, a Houston, Texas, firm that tracks economic trends, said the 30-year fixed mortgage rate in April was 6.43 percent and would not reach 6.5 percent before September.

However, the uptick in price did not sway some economists from their belief that a general cooling is ahead.

Christopher Thornberg, a senior economist at the UCLA Anderson Forecast and a prominent bear about the local housing market, noted the big drop in the number of home sales from last April to this one.

“Every slow-down in the real estate industry has been led with (less) activity followed by a drop in price growth,” said Thornberg. “People are making this (price upturn) into a big deal, but prices always lag activity.”

Thornberg said he expected price growth to disappear by the third quarter of the year.

“At some point, people had to realize that paying $700,000 for a 600-square-foot converted apartment in Santa Monica, with a view of someone’s rainspout, was completely insane,” he said.

Strength, weakness
The best buys in the region were in the Antelope Valley, where brokers said a strong job base has driven sales. A three-bedroom home in Palmdale’s 93550 ZIP code cost 50 percent less than nearby Valencia, where the average price jumped to $647,000 in April.

High-desert bargains sparked sales: three Lancaster ZIP codes – 93534 through 93536 – accounted for 5 percent of all L.A. County volume in April, topping the region on a percentage-basis.

Steve Burton, with Keller Williams Realty in the Antelope Valley, said Ana Verde, a new 5,200-home planned community in West Palmdale, has been the area’s hottest neighborhood.

“We’re projecting a 16 percent rise in property values this year,” said Burton. “As long as home prices are double in Santa Clarita, the Antelope Valley will stay hot.”

Given soaring construction costs for concrete and steel, wood-frame residential development still penciled best for area builders. New single-family detached units in Los Angeles County were up 116 percent, compared to March 2005.

According to Hanley Wood, which tracks new homes and condos, there was a 212 percent rise in new condominium closings through April 2006, compared to the same period 2005.

Sales of existing condos, according to HomeData, were strong as well, rising to 1,961 units, versus 1,779 in March.

“Traffic and the cost of gas have become issues in home-buying,” Duffy said. “Urban neighborhoods along transit lines, or close to employment centers, offer a trade-off to a single family home with a back yard. People are less willing to spend their lives on the freeway.”

Condos weren’t the only urban sales. Neighborhoods along the Harbor (110) Freeway, south and west of downtown’s core infill boom, also experienced a rise in activity this past month.

Exposition Park’s 90037 ZIP code had a 22 percent rise in volume compared to April of 2005, and a median home price of $490,000. That’s more than a 28 percent jump from a year ago.

Sales even crested at the very highest end of the market. Santa Monica’s 90402 was the most expensive ZIP code in Los Angeles with a median price of $2,175,000. The Westside neighborhood – south of San Vincente Boulevard and north of Montana Avenue – saw a 25 percent jump versus April 2005.

“Land values in 90402 have remained strong,” said Kate Bransfield, estates director with Prudential-California in Santa Monica. “I have a listing for $1,890,000 that’s an original 1951 structure that the buyer will most likely tear down.”

Westside brokers said the bubble may have “gently popped”, but prices remain high. They noted appreciation rates that have tumbled from 30 percent, typical with 2005 closings, to 10 percent, have made the market more “sustainable” over the long haul.

“Inventory is averaging about 55 days, as opposed to the 55 minutes it took a year ago,” Bransfield said. “But that’s mostly because sellers are still pricing their homes for last year’s appreciation, which doesn’t work anymore.”
Steve White, president of the Southland Regional Association of Realtors, noted in a February press release that slower price appreciation would keep the door open to first-time buyers while preserving investment advantages for sellers.

“The bubble is a myth, because there’s nothing to portend any kind of economic disaster within the Southern Californian region. Bubbles bursting happen with something catastrophic. All the economic indicators in Southern California are sound. It’s more like welcome to a balanced market, where any sort of spike or slow-down looks out-of-place, relative to the insanity we’ve had,” White said.

“In February there was 5.3 months of inventory. To have a neutral market, not weighted toward buyer or seller, you need six months of inventory. We’ve clearly left the seller’s market we were in, but we have a long way to go to reach a buyer’s market.”

Not all areas partook in this most recent spring bump. Sales in Malibu, where the median home price has risen nearly 300 percent in the last year, dropped 78 percent. That slow-down was second only to the 91502 ZIP code in Burbank, where prices have ditched down nearly $400,000 in the last year to $720,000.

But even in areas of the San Fernando Valley where sales slowed in April, prices still tracked upward, giving weight to the notion that the alleged bubble just hasn’t popped.

Activity this past month was down in all four Van Nuys ZIP codes by nearly 40 percent compared to 2005, even as median home prices surpassed $700,000.

Ditto for West Hills, with data including parts of Bell Canyon and Canoga Park. The 91307 ZIP code saw a 31 percent drop in sales in April, compared to the same period last year, while average home prices climbed 22 percent to $650,000.