Caught off balance

Home prices dropping here, rising there and sluggish appreciation. Squeamish owners fear a sudden tumble. Experts predict a long slowdown.
By: Diane Wedner: Los Angeles Times
WHETHER at the dinner table, Starbucks or just standing around the office water cooler, Question No. 1 for most property owners these days is this: Is my home's value tanking yet, and if not, when?

The short answer is that home-price appreciation has slowed to single-digit levels in most Los Angeles County neighborhoods, homes are worth less than they were last summer in a few communities and values are falling faster than most experts anticipated.

The decline is not as rapid as that of the 1990s, said Raphael Bostic, associate professor at USC's School of Policy, Planning and Development, who described what's happening as "a long, grinding slowdown, not a drop off a cliff." In the scenario of a decade and a half ago, prices sank 17% in six years.

Homes in a dozen ZIP Codes in L.A. County already are worth less now than they were a year ago, but there is no distinguishable pattern to the locations, said John Karevoll, chief analyst at La Jolla-based research firm DataQuick Information Systems, other than in some cases, prices skyrocketed too quickly.

"They overshot their mark," Karevoll said.

Those areas won't be alone for long, he predicts. Karevoll expects other communities to show a decline a month from now, and others after that. "Prices don't settle in perfect unison," he said.

The 12 areas where the median price per square foot showed the steepest decline this summer, compared with June, July and August a year ago, were led by Eagle Rock, which slipped 6.7% from $488.22 per square foot to $455.63, according to DataQuick figures for ZIP Codes with 50 or more home sales during the three-month period. Next was the 90808 Plaza section of Long Beach, which saw a 3.9% drop to $439, and Valencia's 91355 ZIP Code, which fell 3% to $336.

Prices per square foot in San Gabriel's 91775, La Crescenta and Cerritos dropped 2.5%, 2.1% and 1.8%, respectively. Declines in Pacific Palisades, Agoura Hills, Palos Verdes Peninsula's 90274, Westchester, Rowland Heights and Long Beach's 90815 Los Altos community ranged from 0.5% to 1.6%.

Not all doom and gloom

Industry watchers expect the rest of the region to follow suit, but timelines and the extent of the fall are uncertain, they say. San Diego — considered a bellwether for the rest of the region because it was one of the first U.S. real estate markets to see prices rise and subsequently fall — posted its first price decreases this summer after increasing at a single-digit rate for more than a year before that, according to DataQuick.

Not all is doom and gloom, however. While values were dropping in some areas of Los Angeles County, others continued to gain, year over year. The areas with the greatest price increases per square foot were mostly in the less-expensive neighborhoods of Los Angeles, as well as in Valley Village, considered relatively affordable for upscale homes, compared with nearby Sherman Oaks, Studio City and Toluca Lake. The median price per square foot for a home in Valley Village appreciated 20.9% from last summer to $522 this summer.

The tide is turning there too, however. Sellers have begun lowering prices, realizing that the market has shifted, said Ken Marker, a Coldwell Banker agent in Studio City. He reports that his buyers now have a multitude of houses from which to choose in their price range instead of the few available just months ago.

Jonathan Hopp bought a Valley Village home in 2004 for $610,000, hoping to reap a big return after remodeling it. The interior designer spent $590,000 expanding the home from 1,100 square feet to 2,800, adding two bedrooms and two bathrooms. The house features a high-end kitchen and other upscale amenities.

Hopp listed the home for sale in May at $1.6 million, high for the neighborhood, said Therese Hyde, his Coldwell Banker agent. The first offer was a disappointing $1.2 million. At Hyde's urging, Hopp lowered his asking price twice more and finally settled for $1.42 million in August.

"I set a wishful price, hoping someone would appreciate the quality of the home and pay more than what other houses in the neighborhood were going for," Hopp said. "But no one made those offers, because they were worried about the market and refused to go higher."

Unlike previous downturns, when the highest-priced homes were the first to flood the market, the greatest numbers of homes selling today are in the middle range, where more panic is setting in, according to DataQuick. Wealthier owners are choosing to stay put.

Expectations too dire

The fact that interest rates remain relatively low — they fell to a six-month low this week — and unemployment is stable could shorten the duration of this decline, said Michael Carney, an economist with the Real Estate Research Council at Cal Poly Pomona.

"Potential buyers simply are in a waiting mode," Carney said. Their expectations of a tanking market are worse than actual economic conditions.

In other words, the tail may be wagging the dog. Buyers hear prices are falling, so they expect them to. And they wait.

Keith Rascoe, an investment banker, and his wife, Tammy Johnson, sold their three-bedroom Lakewood home about three months ago, when price appreciation started slowing. They had paid $349,000 two years earlier, and they sold it for $554,000. Their hope was to make a lateral move, in terms of house size and amenities, but to a better neighborhood.

Prices started to drop suddenly, so the couple decided to rent — in the Los Altos area of Long Beach, which saw a dip this summer — until prices moved down even further.

"We figure we're winning right now, even if we sit on our hands," Rascoe said. "We've already made a profit, and now there's much more out there to look at."

Rascoe's right. A year ago, there were 393 homes listed for sale in Long Beach, compared with 1,216 as of mid-August, said Long Beach Re/Max agent Mark Armendariz.

"Sellers are looking at last year's prices, and buyers are looking toward 2007 prices, anticipating a fall," Armendariz said. Checkmate.

So how will it all end up? That's the $64,000 question. Most experts say that now is not the time to buy with the intent to flip the property and make a profit, because prices are expected to level off across the board year over year or decline by year's end.

But then again, most buyers and sellers — about 95% — are doing transactions for the same reasons they always have: a job change, someone has died, others have divorced or are having children. And that, they say, won't change any time soon.