A Cooling California Market Isn't Necessarily Bad

The Southern California real estate market is cooling, but industry analysts say signs that marked the recession of the early 1990s are nowhere in sight.
By: Diane Wedner: REALTOR® Magazine Online
The Southern California real estate market is cooling, but industry analysts say the tumbling prices, glut of houses, and 8 percent to 10 percent interest rates that marked the recession of the early 1990s are nowhere in sight.

Instead, business appears to be chugging alone, with prices up an average of 7.4 percent in the last year. The number of existing homes and condos sold has dropped as much as 13 percent in some areas, but new home sales, which make up 22 percent of the market, are showing strong gains, according to DataQuick Information Systems, a real estate research firm.

Most big builders, wanting to avoid a repeat of the '90s — when they were stuck with unsold homes after the recession hit — now build houses only after pre-selling them.

John Karevoll, chief analyst for DataQuick, says the psychological barrier to home buying — when interest rates reach a number that discourages buyers and pushes home prices down — is 7.8 percent, but economists don’t expect rates to reach that level.

So existing home sales have returned to what has been historically normal. Because some homes are on the market longer, David Toyama, a Coldwell Banker associate, has seen a subtle shift in favor of buyers, who for several years struggled to purchase properties — especially at the entry level — and finally are getting some breaks from sellers willing to accept contingencies.

"I love this market right now,” says Toyama. "Sellers are more reasonable, buyers are getting in the market, and the flip artists are gone. We all win."