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California Market Defines, Defies Stratosphere

Written by on Tuesday, 30 April 2002 7:00 pm
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All during the recession California proved itself a Golden State breaking home price record after record. Even as the recession wanes, waxing fears of higher interest rates and inflation, the records just keep falling.

Like the Energizer rabbit that keeps going and going, the nation's most populous state enjoyed closed sales in March that boosted the median single-family detached home price to a yet loftier record -- $305,940, according to the California Association of Realtors.

"The residential real estate market is the 'sweet spot' in California's economy, and is a manifestation of consumers' confidence," said CAR president Robert Bailey.

The new price represented an 18.8 percent gain in altitude, catapaulted by a 13.1 percent thrust in sales, compared to the same period a year ago, CAR reported. And with a median price that's only $56,000 cheaper, condo prices skyrocketed 21.5 percent, fueled by sales 38.5 percent greater than last year -- all that in a massive geographic area. California is nation's third largest state.

"If you take a look at California from North to South there were median increases in almost every region in the state. Housing is truely helping the overall economy," said Bailey, also broker-owner of the three-office Bailey Properties in Santa Cruz.

Only the two most expensive regions in the state saw year-to-year price declines. In Santa Barbara's South Coast region, the $577,430 median was a 14.3 percent decline. The $535,000 single-family median price in Santa Clara County (Silicon Valley) represented a 5.3 percent price decline. Caught in the fallout was Santa Clara's next door neighbor Santa Cruz County where the $496,000 median represented a 0.6 percent decline.

Year-to-year single-family home prices rose by as much as 25.8 percent in North Santa Barbara County, 18.5 percent in San Diego and 16.2 percent in the Central Valley as those regions picked up the slack from the spotty North. The Central Valley managed the price increase with sales that slipped 6.7 percent, the largest regional sales drop in the state. The Sacramento area suffered a 4.3 percent decline in sales, the Riverside/San Bernadino region's sales slipped 2.5 percent.

The big winners in sales were the Northern Wine Country with a spirited 56.5 percent increase in sales. Ventura enjoyed a 53 percent increase, sales were up 50.9 percent in the High Desert region, 45.6 percent in North Santa Barabar County, 42.4 percent in the Northern California hinterlands, 41.3 in all of Santa Barbara County and 40 percent in the Palm Springs/Lower Desert area.

Affordability fades further

What's a joy for sellers and owners, however, is the bane of buyers' existence and that could spell trouble for the the Land of Milk and Honey.

"If California does not meet entry level demand for housing it won't be sustainable because housing affordability numbers will continue to drop so severely and we'll see some of what we saw back in the late 1980s," said Bailey.

Only one in three California households, 32 percent, can afford the median price homes. The number is less than two in 10 in Santa Barbara County, 14 percent, the lowest affordability level in the state. More the half the nation's households, 57 percent, can afford the median price nationwide, according to CAR.

"While low mortgage interest rates helped compensate for continued gains in the median price of a home in California most of last year, they weren't enough to offset price increases," said Bailey.

A prolonged housing shortfall of about 200,000 units each year and a resilient, diverse economy generating buyer demand keeps prices high and that could prolong the state's economic slowdown, according to a recent report from the Palo Alto-based Center for Continuing Study of the California Economy.

Take away the high octane fuel of the real estate sector and the economy could sputter.

"Housing prices are setting records in the middle of a recession, which should raise a red flag about how serious California's housing shortage will be once job growth resumes," Stephen Levy, the center's director, told the San Jose Business Journal.

Energized market

Low mortgage rates help bouy the Wild West's market. Rates fell for the third consecutive week to below 7 percent, according to BankRate.com, but some experts expect them to creep up as the year wanes but that might not necessarily be a bad turn of events.

"When rates are high, sale prices come down. Somebody, somewhere should study the trade-offs in house prices versus mortgage interest rates," said Karen Westmont, a housing policy specialist for California's Department of Housing & Community Development.

She says what keeps the state ticking is pent-up demand for both first homes and move-ups, the return of buyers who have recovered from financial devastation caused by the last market downturn in the early 1990s and the prospect of future appreciation.

"Academic literature has identified that expecations of future appreciation in house prices encourages people to buy now as a hedge against future increases," Westmont said.

That jibes with what mortgage lenders are experiencing.

"I am seeing is unbounded consumer confidence driving this. Virtually every one I have received in the last week was for 100 percent financing. I see the non-homowners seeing homes appreciate faster than they can save down payment dollars, which implies move now, even if you don't have the money," said Randy Johnson, of the Independence Mortgage Company in Newport Beach, CA.

"Of course, the mortgage industry has never been so cooperative as we are now, with lots of low and no down payment programs. Add to that the fact that some programs will routinely approve loans with more than 50 percent ratios," said Johnson, also author of "How To Save Thousands of Dollars On Your Home Mortgage" (John Wiley & Sons, $14.95).

And then there's that California 'tude -- "Damn the earthquakes, full sunshine ahead."

"The Southern Coast, from Santa Barbara south, will continue to attract people who value climate for location as long as workforce support pricing does not get too high cost. Owners of smaller businesses that can operate from any location are in the coastal area because they owners prefer to live in the area," said Karen Jackle, an appraiser with Paul Jackle & Assoc. Inc. of Huntington Beach.

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  About the author, Broderick Perkins

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.
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