Something funny is going on in L.A.'s housing market: the number of homes being sold is declining, but prices continue to rise.
Economists explain it by saying that the supply of new and existing homes is down, leading to higher prices even while there are fewer homes to sell.
But many Realtors have a different explanation: They believe that L.A. homeowners are simply getting greedy and inflating their asking prices well past what the market will bear. This creates a scenario in which there is an ample supply of homes on the market, but fewer are selling because prices have gone too high.
The number of existing homes sold in L.A. County fell 13 percent in May from a year ago, according to the California Association of Realtors, but the median price of a single-family, detached home went up 8.6 percent.
Leslie Appleton-Young, chief economist with the CAR, says the current shortage is partly due to the fact that homeowners, who waited many years for the market to recover before selling, have sold by now. With pent-up demand satisfied, fewer homes are being put on the market.
"It is definitely a supply and not a demand issue," said Appleton-Young. "As local job growth and personal income continue to increase and consumer confidence stays high, we will continue to see price appreciation."
Realtors say there are plenty of existing homes available their owners are simply pricing them beyond what most buyers are willing to pay.
"It is not so much that there is a shortage of inventory as it is shortage of competitively priced homes," said Linda Berg, executive vice president with Coldwell Banker Southern California. "More people are putting class-B and C homes on the market and asking class-A prices. As a result, the perception is created in people's mind that there is a shortage of inventory because they see many houses that are priced considerably over where they should be."
Coldwell Banker, says Berg, had 13 percent more listings in L.A. County for the first five months of this year than for the like period a year ago. Many of these listings are by sellers looking to benefit from the hot market and who list their property at inflated prices. Very few homes are actually sold at those prices.
"The market is not as hot as it was last year, or two years ago, when it was a great time to buy," said Leo Nordine, owner of Leo Nordine Realtors in Redondo Beach. "What is happening now is reminiscent of what happened in 1990. After three great years, asking prices just went up too much and buyers said, 'Screw this, we're not going to buy at these prices.' "
The price inflation reported by Realtors is most acute on the Westside, which has a wide disparity between the number of homes sold and the rise in price.
The number of Westside homes sold fell by 19 percent during the first quarter of 1999 compared with the like period a year ago. But median prices in some of the most sought-after communities, such as Beverly Hills, Pacific Palisades, and Santa Monica, soared in May, by 25.8 percent, 16.4 percent, and 18.7 percent, respectively.
Despite such escalating prices, there are regions of L.A. County where the connection between rising prices and lack of supply is more clear-cut. One example is Pasadena, where prices are rising because there aren't nearly enough homes to satisfy demand.
"What we're seeing is a lack of inventory that is pushing prices up," said Bill Podley, president of Podley Cahgey Doan in Pasadena. "Last week, we listed a house that got seven offers and sold at 18 percent above the asking price. That's the market and not the seller setting the price."
Pasadena, and adjacent South Pasadena and San Marino, were among the hottest local markets this spring. The median price in South Pasadena went up 41 percent in May compared with the previous year, and Pasadena and San Marino saw increases of 12.6 percent and 17.5 percent, respectively, in average home prices.
None of these communities saw a slowdown in the number of transactions during the first quarter. Sales in Pasadena were up 2.1 percent during the period over first-quarter 1998, while sales in the much smaller South Pasadena market were up 15.2 percent.
Other markets are lagging. Lancaster and Palmdale in the Antelope Valley saw substantial price drops during May, of 7.7 percent and 15.5 percent, respectively. Other communities that saw a sharp decline in home prices over a 12-month period include Agoura, with a 22 percent drop, and Tarzana, which saw the median price fall by 40.5 percent.
"Some of these corrections may be a reality check," said James Wecker, vice president for marketing with Prudential/John Aaroe & Associates. "When markets have hit bottom, they sometimes surge too high as they recover. The current price may be more reflective of their actual value."
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