After losing value for most of the 1990s, the San Fernando Valley's housing market last year did the nearly unthinkable: Average sale prices of single-family homes rose 4%, marking 1997 as the year of the real estate turnaround, with more houses and condominiums changing hands than in any year since the late 1980s boom.
There remains a long road to full recovery of the market, though, because home prices are still about 30% below the 1989 peak. But last year's turnaround--along with current low interest rates--is triggering great hope among Realtors and sellers for the new year.
"Nineteen ninety-seven was definitely where we saw the change. It went from a market where no change was in sight, to ending the year on a real upbeat note. And '98 is starting with every condition looking fantastic" for rising prices and heavier sales volume, said Realtor Ron Prechtl, a 20-year veteran who runs Century 21 Prechtl & Associates in Granada Hills.
Data released Monday by the Southland Regional Assn. of Realtors clearly mark 1997 as the year of recovery for the local residential real estate market.
* Last year, 11,545 single-family homes were sold in the Valley, up 10% from 1996, pushing the sales tally to its highest level since 1989.
* The average Valley home sale price climbed to $225,867 last year, up from $217,325 in 1996--making this the first full-year price increase since 1990.
* Meanwhile, the median Valley home resale price rose 3% to $165,833. (The median price means that half the Valley homes sold for more than $165,833 and half sold for less.)
* The condo market also rebounded. Median sale prices rose 3% last year to $91,367; average condo sale prices dipped 1% to $102,158. Overall, Valley condo sales rose 11% last year to 3,261, the highest total since 1990.
These price hikes, though modest, are the first since the hemorrhaging of the local aerospace industry in the early 1990s, which, along with the recession and the 1994 Northridge quake, triggered a collapse in the residential market. Property values fell as much as 11% a year, forcing banks to foreclose on properties that would take them years to sell off.
As the housing market flopped, Prechtl said he would often visit clients in homes mostly bought or refinanced in the late 1980s and early 1990s, whose properties were worth far less than what they owed on their mortgage.
Owners wanted to sell, but the market value for their property put them, in real estate lingo, "underwater," with negative equity and only two choices: sit and wait, or walk out the door into foreclosure.
Seeing where the market was headed, Prechtl became very active handling bank-owned properties. In some years foreclosures accounted for half his sales. But last year, he said, foreclosures accounted for only 30% of his business. Now he's gratified that many clients, who have waited years to sell, are close to getting enough for their homes to finally move.
"People are so close to that break-even position, that with modest price appreciation, they are suddenly out of a negative position and can put their homes on the market," he said.
Given that fixed-rate mortgage interest rates have dipped to 7%, and with local price increases still modest, he said, there's plenty of potential for a spurt in demand.
"A lot of tenants don't realize they could probably purchase a home today for much less than they are paying in rent, after figuring in the tax benefits," Prechtl said. "For buyers, these conditions are the best I've seen in my career. And for sellers, it has the 'trickle-up' effect. There is a pent-up demand to sell and move up."
Indeed, the local realty group notes a shrinking sales inventory. In December, 4,768 houses and condos were listed for sale, down 16% from a year ago.
Norman McGinnis, who says he's owned nearly a dozen homes in the Valley in the past 40 years, senses the uptick, and last week put his three-bedroom Winnetka home on the market. He is handling the sale himself, and his asking price of $160,000 would clear a modest profit from the $150,000 he paid two years ago.
"I believe the median price is going to climb steadily. We're far enough away from the [Northridge quake] that the economy has definitely turned around," he said.
For all these hopeful signs, though, real estate analyst Nima Nattagh with Experian, an Anaheim real estate concern, says this is a modest, not explosive, housing recovery.
"It's the first time we've seen a price increase in Los Angeles since the recession of 1991. But much of the gain we're seeing is really catching up to what homeowners have already lost. If you bought in '90 or '91, chances are you've already lost 27% of your investment," he said.
For 1998, Nattagh said, "I expect values to start keeping pace with inflation, up 2% to 3%. A gradual improvement."