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Values Stay Buoyant

Despite economic forecasts, Southland home sales held strong in 2001, with first-time buyers the big winners. Low interest rates made the difference.

January 27, 2002|ALLISON B. COHEN | SPECIAL TO THE TIMES

Despite gloomy forecasts and the uncertain effects of Sept. 11 on the economy, the Southern California real estate market remained strong in 2001, while home values gained across the board, especially for entry-level homes.

Due in part to historically low mortgage interest rates, the number of homes sold in Southern California increased 0.5% from 301,894 in 2000 to 303,425 in 2001, according to DataQuick Information Systems, a La Jolla research firm. The median sales price for a home in Southern California, according to DataQuick, increased 11.1% compared with $208,000 a year ago, to a year-end record high of $231,000.

Condos appreciated 12.7%, the DataQuick report indicated, and new-home values were up 4.8%. Counties that fared well included Ventura, which posted a sales gain of 11.4% for resales of existing homes; San Bernardino, with a 13.2% gain in condo sales; and Riverside, with a 37.6% increase in new home sales.

Additionally, new building permits for single-family homes and multifamily units were up 2.8% for the six-county region, with marked gains of 23.5% in Riverside and 29.9% in San Bernardino counties, in part because of their relatively low-priced housing stock and higher percentage of entry-level homes.

"I think analysts were overly pessimistic last year," said John Karevoll, a DataQuick analyst. "It's real meat-and-potatoes activity. People are moving to the area and looking for homes."

While housing prices increased, mortgage interest rates declined in 2001 thanks to an unprecedented lowering of the bank lending rate 11 times by the Federal Reserve. The lowest point for interest rates was posted on Nov. 1 at 6.1%.

"I think we are going back to the 1950s or 1960s" for mortgage rates such as those in 2001, said Earl Peattie, president of Mortgage News, a research company in Morro Bay, Calif. The result was a market where first-time buyers could comfortably jump in--and they did.

Consequently, many new homeowners found mortgage payments lower now than those dating back 10 to 12 years ago. According to the DataQuick report, a typical mortgage payment on a median-priced Southern California home with a 30-year fixed mortgage with 20% down in 1989 was $1,271, compared with $1,178 in 2001.

Other good news for the entry-level market was the higher rate of appreciation of homes in that price range, a reversal from previous years when higher-end homes have seen more gain in value.

While home values went up "from Pacific Palisades to South-Central," Karevoll said, it was the entry-level price range that appreciated the most. According to DataQuick, entry-level homes ranging in price from $125,000 to $145,000 went up 14.4% in value last year, while homes ranging from $410,000 to $430,000 increased only 4.9%. And sales for the $1-million market varied in 2001, Karevoll said, dropping significantly in the last quarter.

"The slowdown in Southern California has been the high end," said Leslie Appleton-Young, vice president and chief economist with the California Assn. of Realtors. "Those homes have been impacted by the fortunes of those that are invested in the [stock] market."

Median home values in Littlerock--located about 50 miles northeast of Los Angeles--increased the most in Los Angeles County, up 37%, followed by Echo Park at 31.8% and Lancaster at 27.1%. Appreciation was less dramatic in Orange County, with gains of 19.9% in Stanton, 18.7% in Santa Ana and 18.5% in Fullerton.

"It was the normal guy that really, really benefited as far as home value going up," said Doug Perry with Countrywide Home Loans, headquartered in Calabasas. According to Karevoll, these gains were anticipated, as the entry-level market is now finally making its own comeback from the recession of the mid-1990s.

"First it was the move-up market, then the mid-market and now the entry level" that has seen gains, he said. "Mid- and entry level are seeing trends that were happening in the [higher-end homes] a few years ago."

The year was also record-breaking for the mortgage banking industry, which saw unprecedented business in 2001--especially for refinancing. According to DataQuick, refinancing applications skyrocketed to 699,860 in 2001, compared with 254,171 in 2000--an increase of 175%. The glut caused a backlog of paperwork, slowing new escrows closing in the latter part of the fourth quarter of the year, analysts said, even possibly deflating sales figures in November and December.

But the healthy showing of real estate, especially in the wake of Sept. 11, has surprised many experts, who called the terrorist attacks and the weeks of uncertainty that followed a postponement in the real estate market, not a force that stopped it.

"How strong the housing market has been despite Sept. 11--now, that's the real story," Appleton-Young said.

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