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Betting that home prices will cool off

Some buyers are holding out for a drop in values. Experts say don't hold your breath.

October 13, 2002|Julie Bawden Davis | Special to The Times

Several times a week, Kimberly Locke scans the real estate ads, reads articles about home buying and checks interest rates. Then she waits.

Locke and her 7-year-old son, David, live in Lakewood. Locke would like to buy a home in Redondo Beach, near her job and her son's private school, but she doesn't want to pay what she feels are inflated prices. So the pair drive 50 miles round-trip each weekday.

"Everything is cyclical, especially the housing market," said Locke, a widow who plans to keep her Lakewood home as an investment property. "This is a long-term investment for me, so I want to make the right decision."

After a brisk year in real estate, with record-high home prices and rock-bottom interest rates, many people are still waiting on the sidelines in the hope that the housing "bubble" will burst and that better buys are in the offing. Experts, on the other hand, say don't hold your breath.

Prices may flatten out a bit but they're not going to go down, especially on homes in the $300,000 range, according to Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. "We have a housing shortage here. In 2000 and 2001, 306,000 people moved to L.A. County, but we only added 35,000 more housing units."

In the early 1990s, Southern California home prices did drop for a short time. In June 1991, the median home price was at a high of $189,000. A year later it had dropped 3.3%, finally bottoming out four years later in 1995 after it had dropped 12.1%. From there, however, it took just three years to surpass the 1991 high.

Analysts are not seeing similarities between the early 1990s and now.

"There is no indication whatsoever of an impending decline in home prices," said real estate analyst John Karevoll of DataQuick Information Systems. "We may see the rate of appreciation level off, but prices aren't going to drop. The [housing] market is at a state of spectacular equilibrium."

One difference now is that interest rates are at a 40-year low and homeowners have lower mortgage payments. "What people are committing themselves to pay today is lower than it was in the spring of 1989, which isn't taking into account the 42% inflation since then," Karevoll said.

Sabrina Anderson and her husband, Wade, are also holding off.

"We have high expectations of what we want in a home, which includes four bedrooms, a family room and a living room," said Anderson, who has lived in an apartment above her parent's Placentia home since she married more than four years ago. "We've been saving for as big a down payment as possible, so we can get into the kind of home we want."

But with the median home appreciation rate at 20.1% in Orange County for the last year and 60.9% over the last four years, according to DataQuick, the Andersons may have trouble saving enough, fast enough to ever get into their dream home.

It's not that potential home buyers are ignoring the real estate market.

"I keep a close eye on what's selling, and I think it's just too expensive to buy in Southern California right now," said Tustin hair designer Kathi Cray. "What you pay is not worth what you get. I think prices are going to drop, though, and then I'll reconsider."

Looking at trends

Not all buyers-in-waiting are holding out for a substantial price drop, however. Some only have been waiting until the fall and winter when the home-buying market is generally less competitive. Such is the case of Suzanne Landon. She has decided to buy in the winter months after studying real estate trends over the last several years.

"I've monitored the market and seen that prices are lower in the fall and winter months, and there's less activity overall," said Landon, who lives in Redondo Beach with her husband, Steven, and their four children. They are looking for property in the South Bay. "Our plan is to find a house in the next couple of months and move when the kids are on Christmas break."

Landon's plan is a sound one, according to real estate broker Dan Slater, who owns Orange Realty in Orange. A buying frenzy builds in the spring and summer months, but things slow down considerably in October, November and December, Slater said.

"In the fall and winter, the buyer has a greater chance of being able to negotiate and there's less competition," he said. "Sellers also tend to be highly motivated. Things like divorce, death, financial difficulties and job transfers often can't wait until after the holidays."

Though the market may be better for buyers at this time of year, don't expect a miracle, said Marlene Silva, a Realtor with Pacific Shores Realty in Redondo Beach.

"A deal is when five people aren't competing for the same property," she said. "There's more room for negotiation on the part of the buyer."

The market is not as strong as it was three months ago, agreed John L. Williams, a manager at Remax Real Estate Services in Monarch Beach. "We're seeing an increasing inventory, homes on the market a little longer and more open houses."

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