GROWING HOTTER
Southland home buyers face high demand and a short supply
When Elizabeth Rodriguez and her husband realized that the market was white-hot in the northeast Los Angeles burbs where they wanted to raise their three children, they devised a strategy.
The couple, who moved from the San Francisco Bay Area, began writing a “love letter” to sellers describing how much they wanted the house. And then they bid over the asking price — way over.
Rodriguez said it took them 11 offers before they finally purchased a three-bedroom home in the hills of Glassell Park listed at $799,900. To seal the deal, they bid about $100,000 over the asking price, before an open house was held.
“It was a crazy process,” Rodriguez said. “I’m glad we are on the other side of it.”
The spring home buying season is emerging as a pitched battle for buyers such as Rodriguez, a result of heavy demand and too few homes listed for sale.
A report out Tuesday
from CoreLogic provided the latest evidence of the frenzy, showing the Southern California median price jumped 7.1% in March from a year earlier, hitting $480,000 in the six-county area. Despite low inventory, sales rose 7.8%.
Economists say the boom in prices is because of an improving job market, low mortgage rates and too few homes on the market. In addition, agents say buyers are newly motivated to sign a deal, worried that the era of cheap money is ending after rates drifted upward after the presidential election.
All the craziness is causing some observers to call into question how long the bonanza can continue, especially if interest rates shoot up.
“At some point, people simply can’t afford to buy these houses,” said Svenja Gudell, chief economist at real estate website Zillow.
For developers, however, times are good — especially in areas where few new homes are being built.
Last weekend, builder Planet Home Living held a grand opening for a 10-home subdivision in Silver Lake built on small lots. Before any prospective buyers showed up, six of the $1-million houses were already in escrow after the Newport Beach firm contacted people who signed a list of interested buyers.
“Four hundred people on an interest list, that’s a lot for 10 homes,” said the company’s chief executive, Michael Marini. “Anything in L.A. that we build, it sells out immediately.”
The buying frenzy isn’t limited to Los Angeles.
Agents across the region reported heavy demand, even in the Inland Empire, which since the housing bust has recovered more slowly than areas near the coast.
Chino Hills agent Derek Oie said he and others are taking advantage by marketing open houses as a onetime-only event in a bid to create even more of an auction atmosphere.
At one house in Eastvale that Oie brought a client to this year, 100 people showed up.
“We showed up and literally cars were parked up and down the whole cul-de-sac,” he said.
But with prospective buyers crowding into open houses, Southern California mortgage broker Jeff Lazerson worries about the market’s stability.
He says people are increasingly acting out of fear, worried that if they don’t buy soon, they’ll never afford a home in the area. Even to do so now, they’re stretching it.
Lazerson said he’s using “glue and paper clips” to get clients qualified, having them pay down bills, get a co-signer or secure money from parents for a down payment
“They are all pushing and then they push some more,” he said. “I don’t think it’s sustainable at all.”
Dean Baker, co director of the Center for Economic and Policy Research, who had predicted last decade’s housing crash, said he’s “somewhat concerned” about rapid price increases at the lower end of the market but said this time seems different.
Baker noted that during the bubble, home prices rose at a far faster pace than rents, indicating that reckless lending, not economic fundamentals, was sending prices through the roof. Today, prices and rents in Southern California are largely rising in tandem.
“It really is a shortage of housing,” he said.
Christopher Thornberg, founding partner with Beacon Economics, also doesn’t see a bubble.
So far, there’s not a “crazy expansion” of credit, he said, and prices have consistently risen in the mid-single digits each year, rather than the double-digit levels seen last decade.
“None of what of we are seeing in the market today has the hallmarks of what I would call a bubble,” he said.
As long as the economy keeps improving, Thornberg said prices should keep climbing around the current pace.
Others are less bullish. Gudell of Zillow said a jump in mortgage rates could choke off the market.
“What likely would happen is home-value appreciation would slow down a bit and in some areas it could be flat,” she said.
Prices could even fall, but she predicted there wouldn’t be the “crazy declines” seen during the Great Recession.
Zachary Parrish is among those who believe the market is topping out. To “grab the equity” while he can, he is selling the Burbank house he purchased two years ago for $780,000.
Parrish, who works at Disney, is waiting on a buyer to close escrow on his twobedroom home for “well over” the $888,900 list price. Then he can close on a purchase of a nearby town house, for which he offered $635,000, though he is trying to negotiate down because of defects he said were found during the inspection.
If it all works out, he’ll make a nice profit. But Parrish wonders whether he should be renting instead of buying again.
“I know I am overpaying just to own this place,” the 31year-old said of the town home. “But how much am I overpaying? Is this like 2007, where I buy this for $635,000 and in a year it’s going to be worth $500,000? I hope not.”