We’re Hot, You’re Not (Not Yet)

Homes snapped up the day they go on the market. Multiple full-price offers. Bidding wars. Camp-outs in new developments.

To anyone who lived in Southern California in the late 1980s, it sounds familiar, and can mean only one thing:

The Southland housing market is back.

Or is it?

In some neighborhoods, homes are lingering on the market for months. Anxious sellers are cutting prices. Foreclosures are everywhere. An estimated 300,000 homeowners have no equity, stalling their moves to larger homes.

Welcome to the Checkerboard Recovery of 1997. Hot here, cold there. Strong by this indicator, fragile by that one.

To help us understand the split personality of Recovery ‘97, let’s first meet Karen and Joe Savoni of Culver City.

The Savonis were typical home sellers in one of the region’s hottest markets, Los Angeles’ Westside.

They listed their three-bedroom two-bath home for $299,000 in March and got five offers--three higher than the asking price--after their first open house. The Savonis countered to the three at $307,500, and two of the would-be buyers upped the ante even higher, with the winning bidder offering $315,500.

“It’s starting to feel like 1989, with brokers writing offers on the hoods of their cars,” said Rick Page, associate manager of Fred Sands Realtors in West Los Angeles.

Page knows of one buyer who, mindful of recent Westside bidding wars and intent on grabbing an hours-old listing in Westwood, told his agent to make a full-price offer before the buyer had even seen the house.

For another view of Recovery ‘97, let’s meet the Stella and Balderrama families of La Puente. And don’t try telling Ralph Stella it’s a seller’s market.

Stella’s four-bedroom 1 3/4-bath house in the San Gabriel Valley community has been on the market since October. He originally asked $142,000 and has reduced the price several times--it’s now at $119,000--to no avail.

His neighbors, Adrian and Bob Balderrama, have attracted only a handful of lookers to their home in the two months it’s been listed.

“In areas such as La Puente, Azusa and Baldwin Park, where the entire market exists between $100,000 and $150,000, there’s an oversupply,” explained Marty Rodriguez of Century 21 Marty Rodriguez Real Estate in Glendora, who represents both La Puente families.

Asked if she was aware that parts of the Southland housing market were heating up again, Adrian Balderrama replied: “I’ve been reading about it.”

How Strong Is It?

Although most experts agree that the recovery is more than just a rumor, they differ widely in their assessment of its strength.

Said Jeffrey Meyers, a consultant to new home builders: “Until recently, we’d say we were cautiously optimistic. Clearly, we don’t need to say ‘cautiously’ anymore.”

But Nima Nattagh, market analyst for Experian, a real estate information company that was formerly TRW REDI, isn’t so sure.

“If your definition is ‘significant price appreciation,’ we are not seeing a recovery,” he said. “The rate of decline in home values has slowed down in Southern California, [but] values continue to be soft.”

The messages are mixed, and not just geographically. Housing sales are rising, but not nearly to the extent that they went up after the economic recession of 1981-’82.

Home values appear to be inching forward: April marked the first time since 1991 that the Real Estate Research Council of Southern California, which uses repeat appraisals to track housing prices, documented an overall increase, though it was only 0.6%.

But Experian, which uses a repeat sales index, showed a decline in home values in all Southland counties from the first quarter of 1996 to the first quarter of 1997.

On the positive side, new home builders are taking out more building permits, interest rates are relatively low, affordability is relatively high and the economic outlook in Southern California appears bright.

But the rate of foreclosures remains at historic levels; nearly 10 times as many trustee’s deeds were recorded on Southland homes in 1996 as in 1989, according to Experian.

And as a result of the long decline in property values that began in 1991, many homeowners still owe more on their houses than they’re worth, holding back the move-up market.

If this recovery seems different, analysts say, it’s the legacy of an economic recession that went deeper and lasted longer than any in the recent past.

“We used to have recessions [in Southern California] where we’d lose 80,000 jobs the first year, then rebound the next year, and three years out we’d be creating 350,000 jobs a year,” said Albert Gobar, a Placentia-based consultant to new-home builders.

“This time we had a loss of 180,000 jobs the first year, 200,000 the next, 100,000 the next. And we’re coming out of it much more slowly.”

The recession was magnified by the loss of jobs in aerospace, a sector of the regional economy that had been resilient in past economic downturns. Moreover, the recession came on the heels of the overheated real estate market of the late ‘80s.

“Home values were out of line with personal income, making the period of adjustment sharper and more prolonged,” said Nattagh. As the slump dragged on longer than anyone expected--the market bottomed in 1993, turned up slightly in ‘94, then bottomed a second time in ‘95--confidence in real estate as an investment suffered.

“In 1982-’83 [after the last recession], everything was in place so that as soon as interest rates came down, the economy was ready to roll,” said Leslie Appleton-Young, chief economist for the California Assn. of Realtors.

“In California in 1994, it wasn’t an interest rate issue, but a question of, ‘Do I want to get into housing? Am I going to have a job in six months?’ ”

It’s taken some time, but experts agree that consumer confidence has returned, if not to 1989 levels, at least to the point that buyers have come off the fence. Pushing many of the them is the feeling that the housing market has bottomed in many communities.

“A lot of people now feel they’d better jump in before it’s too late,” Rodriguez said.

The seller’s market is being enjoyed by many new home builders, whose projects are selling out before the houses go up. Developers are finding that they no longer need to offer concessions, such as landscaping or upgraded carpeting, that went as high as 10% of the sales price in the depths of the recession.

In Orange County, where new-home sales are particularly strong, buyers began camping out for selected projects at the end of last year, Meyers said. Houses priced as high as $600,000 to $900,000 are selling the day they go on sale, with builders then raising the prices on subsequent phases.

Lance and Karen Leader, who live in the Northern California community of Danville, were planning a move to Orange County when they read about Huntington Seacliff, a new 430-acre master-planned Huntington Beach development with a phase opening adjacent to the SeaCliff Country Club.

On a Monday--five days before the lots were to go on sale--Lance Leader made the seven-hour drive to the sales office and camped out, becoming first in line. Before the day was over, he had company.

He had his eye on one particular lot, the largest in the phase, with a view of Long Beach and Catalina Island. Another camper who wanted the same property offered him $20,000 in cash for his place in line, but Leader refused.

He bought the property for $775,000. When the next phase was released two months later, Karen Leader saw that prices had gone up about $80,000. “We already have equity,” she said with a laugh.

Outlaying Areas

However, the good times of builders in Orange County aren’t universally shared. “[The recovery] hasn’t reached the High Desert areas of the Antelope Valley or Victor Valley,” said Meyers. “It hasn’t reached outlying areas such as Moreno Valley.”

Meyers noted that even in these areas, prospects are beginning to improve as builders find they need to venture to the inland markets for affordable building lots.

Still, he said, “The long commuter market hasn’t recovered, and the High Desert areas may not have reached bottom yet.”

In most of Southern California’s coastal regions, though, the story is the same: It’s no longer a buyer’s market.

On the Westside, Page observed, the period of equilibrium, when buyer and seller were on equal footing, was fleeting, roughly from late 1995 to mid-’96. Now, he said, “the tide has completely turned.”

Sensing that Westside property values are on the upswing, Page added, some homeowners are deciding to hold on in an attempt to regain lost equity. Meanwhile, buyers who sat it out until they were sure prices had bottomed are now wondering if they waited too long as they find fierce competition for the few quality houses on the market.

One Westside buyer, who asked that his name not be used, grew so frustrated after losing three bidding wars on houses ranging from $450,000 to $500,000 in Pacific Palisades and Marina del Rey that he’s decided to remain a renter until the smoke clears.

He might want to consider the San Fernando Valley, where the market appears to be more in line with the overall Southern California numbers: fairly strong sales activity, property values creeping up and a foreclosure rate that continues to cause concern.

Dennis and Janice Clemons spent several months looking at houses all over the Valley before deciding on a four-bedroom, 2 1/2-bath, 2,400-square-foot home in Northridge. The asking price was $269,000. They offered $235,000, eventually compromised at $250,000 and are in escrow.

“The house I’m getting would have been $400,000 in 1990,” said Dennis Clemons, an L.A. City Fire Department inspector with two children. “There are great deals out there right now.”

Since the Clemonses bought their present three-bedroom home in nearby North Hills for $210,000 in 1992, it has depreciated; the house next door recently foreclosed and sold for $ 160,000.

“We’re going to hold on to it and just hope real estate gets better,” Dennis Clemons said.

Mel Wilson, president of the San Fernando Valley Assn. of Realtors, is confident it will, though prices continue to be held down by the high foreclosure activity, which represents as many as one in five Valley sales.

“Buyers who used to look at 20 to 30 properties and then come back a week later are now finding that some of those properties aren’t available,” Wilson said.

In parts of the San Gabriel Valley and such outlying areas as Lancaster, Palmdale and Riverside and San Bernardino counties, homeowners are wondering when it will be their turn to join the party.

“We tend to be thinking about all of the good things happening, but there are still a lot of areas where home prices are extremely weak and a lot of neighborhoods where there are five or six empty foreclosed houses,” said Michael Carney, executive director of the Real Estate Research Council of Southern California.

“The real strength is in the coastal areas and closest to the employment centers,” agreed Michael Meyer, managing partner of the Orange County office of E&Y; Kenneth Leventhal Real Estate Group, a certified public accounting firm. “But as we see price increases in these areas, people will start moving inland.”

It’s not unusual, experts say, for real estate recessions and recoveries to start in the highest-priced markets, then work their way down the economic scale.

In this case, though, additional factors seem to be widening the divide between those who are feeling the recovery and those who remain untouched.

For luxury and move-up home buyers, this recovery is concurrent with an extremely strong stock market. It’s also a time when many in the baby boomer generation have reached their peak income levels.

“These people have held back buying a home for the last five years, and now that it’s a reasonable investment again, they’re really jumping in, and you have tremendous pent-up demand,” said Jeffrey Meyers.

Most experts predict the ranks of the recovery’s beneficiaries will continue to grow.

Steady Growth in Store

The consensuses among those interviewed for this article are that a slow, steady growth is in store for the near future and that such a deliberate pace is desirable.

“The tendency has been to compare prices and sales levels with the surge we had in 1988-’90,” said John Karevoll, financial editor for Acxiom/DataQuick.

“That period was an unhealthy aberration. On the other hand, the mix we have today is probably as healthy and broad-based as we’ve had in 10 years. An entry-level buyer can afford to purchase a home, own it for a few years and then buy up.”

Added Appleton-Young: “In the late ‘80s, people were deciding between buying stocks, a T-bill or a house they’d sell in six months. Housing is looked at much more realistically today. This kind of growth is more sustainable.”

Does that mean the warp-speed late ‘80s-style housing market will never return?

“It’s not going to be that way for a long time,” said Rodriguez. “This generation will remember [the recession] and will no longer believe devoutly that the way to get rich is to buy a house.”

Others aren’t so sure. Current enthusiasm for housing in markets like the Westside and Orange County doesn’t seem to be tempered much by the recent past. New-home builders have once again begun to bid up the price of land.

Asked if home prices will soar again, Gobar, who has studied housing markets for 30 years, said he has no doubt they will.

He paraphrased college football’s all-time winningest coach: “Bear Bryant said Alabama never lost a football game; they occasionally ran out of time. I don’t think we’re going to run out of time.”