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California

L.A. Home Prices Keep Rising

Median prices in all categories climb again in August, data show

September 13, 2003|Jerry Hirsch | Times Staff Writer

What should be good news for Downey real estate agent Frank Moreno is starting to make him very nervous.

Home prices in Los Angeles County continued their relentless rise in August, with the median price hitting a record $338,000, according to figures released Friday by DataQuick Information Systems. That was up 3% from $328,000 in July and a 26.6% gain from $267,000 in August 2002.

"We can't go on this way," said Moreno, an agent with Prudential 24 Hour Real Estate, because at some point, "people won't be able to afford homes." That would be bad news for the real estate business.

And if prices climb too high, Moreno added, there could be a repeat of the early 1990s, when Southern California home prices plummeted after a dramatic run-up.

"I don't want to go through a crunch like that again," he said.

The August median price data were strong for all categories of homes in Los Angeles County. The median price of existing single-family houses rose 26% from a year earlier, to $352,000. The median price of new homes also climbed 26%, to $410,000. And condominiums gained 30% to reach $266,000.

Data for the rest of Southern California won't be released until later this month, but DataQuick analyst John Karevoll said the same trends were affecting every region -- with the Inland Empire now showing the fastest home-price appreciation rates.

As Southern California's housing market posted its seventh consecutive month-to-month increase in median prices, "a lot of people are wondering how long it will last," Karevoll said.

He wouldn't speculate on how soon things might cool down, but said that when they do, the rate of home appreciation would probably head for a soft landing rather than a crash. "There are some indicators we are near the end of the cycle, but it is likely to be a leveling off," Karevoll said.

Last month, the paces of sales did anything but.

A total of 11,874 homes were sold in L.A. County in August, up 9.9% from the 10,808 sold in the same period last year. Though down 0.4% from July when 11,926 homes sold, last month's sales count was one of the highest since the late 1980s, according to DataQuick's figures.

The inventory of homes for sale remains meager. Only 10 are on the market in Santa Fe Springs, a fifth of what one would normally expect, Moreno said, and in the larger city of Downey, there are only 147 properties available compared with more than 700 "back in 1995 or so."

Countywide, there are enough homes for sale to last only 1.6 months, a record low, according to the California Assn. of Realtors. That lack of supply, along with factors such as low mortgage rates, plays a big part in the continued price run-up.

Moreno said he would like to see mortgage rates move above current levels to help act as a brake. Analysts expect rates to stay near current levels for the rest of this year.

The national rate for a 30-year-fixed mortgage hit a four-decade low of 5.21% in mid-June. The current rate in the Western United States was 6.14% as of Thursday, Freddie Mac said. That's lower than the 6.17% of a month ago, and just a bit higher than the 6.09% of a year ago.

Moreno might be better off keeping an eye on how many Southern Californians can afford to buy homes.

Speaking at a recent meeting of the Real Estate Research Council of Southern California, real estate analyst and investor Bruce Norris said the so-called affordability index has become the best indicator for the region's real estate market. The index factors in mortgage rates and home prices to figure how affordable homes are.

And based on that calculation, there's plenty of price appreciation left in Southern California's real estate market, Norris said.

The percentage of households in Los Angeles county able to afford a median-priced home is 26%, the California Assn. of Realtors reported Thursday, far above the record low of 14% in 1989 that marked the beginning of the last severe downturn.

Though rising home prices have slashed the index from 31% a year ago, Norris said, "we still have plenty of room to go before we hit that, probably at the end of 2004."

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