The white-hot Westside housing market has suddenly cooled, and the fire driving L.A. home prices is spreading to some surprising places.

Think Downey, Canoga Park, even Palmdale.

“The highest rates of appreciation are going to be in the lower-price range,” said Scott Gibson, executive vice president and general manager for Southern California with Coldwell Banker, the largest residential brokerage firm in L.A. County.

Meanwhile, prices have gone flat in higher-priced markets.

The median Westside home price, after soaring in recent years, was down by 0.3 percent in the third quarter from a year ago. In Santa Monica, one of the hottest pockets, the median price was up by just 0.4 percent.

“The higher price range will start to stabilize because those prices were fueled more by dot-com wealth,” said Gibson. “But as long as there is no inventory of new homes, prices will go up in the lower range if interest rates come down next year.”

Indeed, several real estate experts said that, as the U.S. economy slows next year and the specter of inflation fades, the Federal Reserve Bank may lower interest rates. To the extent that translates into lower mortgage rates, the move could boost the local housing market.

Already, prices in L.A.’s least-expensive housing market, the Antelope Valley, have taken off after years of lingering in the doldrums.

In Palmdale, the median home price was $115,250 during the third quarter, up 35.6 percent from the same period last year, according to the California Association of Realtors.

In Lancaster, the median home price was $97,000, an increase of 23.2 percent from a year ago. For all of L.A. County, the median home price rose by 9.9 percent to $220,430 over that period.

Even if the Fed doesn’t lower interest rates next year, which is a possibility given that Alan Greenspan still voiced concern about looming inflation as recently as last week, the resilience of the local economy may continue to drive up home prices.

“We expect that the U.S. economy will slow down, from 5 percent growth this year to about 3 percent next year,” said Tom Lieser, senior economist with the UCLA Anderson Forecast. “But there is really no evidence that things are slowing down here.”

Many real estate professionals point to job growth as the best gauge for the future of the local housing market. One of the effects of this robust job market is that home prices have started to go up in communities that have taken the longest to recover from the downturn of the early ’90s.

Pockets of appreciation

It’s not just happening in the Antelope Valley. The Western San Fernando Valley, for example, is seeing a sharp rebound in home prices, particularly in the less-expensive communities.

In Canoga Park, the median home price went up to $160,000 during the third quarter, an increase of 20.8 percent from a year earlier, and in Chatsworth, the median price rose to $244,250, a 16.9 percent increase.

These communities seem to be benefiting from their proximity to the Ventura (101) Freeway Corridor, along which many new high-tech companies have sprung up in recent years. These companies, because they employ many high-paid workers, have stimulated the housing markets in the western Valley, first predominantly in the wealthy suburbs, such as Calabasas and Woodland Hills, but now increasingly in the surrounding, less-affluent communities.

Likewise, in the San Gabriel Valley, the city of West Covina has seen the median home jump by 12.5 percent from last year, to $193,000. And in the Mid-Cities area, the median home price in Downey was up by 13.4 percent to $216,000.

All this activity in some of L.A.’s least fashionable communities stands in sharp contrast to the expensive Westside, which a few years ago was the hottest market in the county but has now cooled off almost completely.

“You’re seeing more buyers’ resistance,” said Fred Sands, chairman of Fred Sands Realtors. “It’s a question of affordability; people are not willing to pay just any price.”

With the median home price on the Westside now close to $700,000, many prospective buyers are eyeing the South Bay, which has become the most active market for upscale homes. That may not be surprising given that more high-tech startups have been migrating to the South Bay, after being priced out of the sky-high office rents in Santa Monica and Marina del Rey.

As a result, the median home price in El Segundo went up by 28.1 percent in the third quarter, vs. the third quarter of 1999, and Hermosa Beach rose by 25.3 percent over that same period. Manhattan Beach and Redondo Beach likewise saw substantial increases, if not of the same magnitude.

Such huge annual price increases are not likely to continue indefinitely, however, and it is to be expected that, like the Westside, home prices in the South Bay will reach a point beyond which buyers will simply refuse to pay.

“It can’t last forever, and I expect that prices will start to stabilize next year,” said Bob Todd, founder of Re/Max Beach Cities in Manhattan Beach. “But there seems to be an awful lot of money around still, and we’re also getting our share of so-called Silicon Valley dollars.”

Beach-front property

Anecdotal evidence suggests that it has become more and more common for wealthy Silicon Valley entrepreneurs to buy a home in Southern California rather than in the Bay Area.

“A million dollars still buys you a very nice piece of beach-front property here, whereas in the Bay Area it may get you just an average house,” said Lieser. “You see this more on an individual basis, with people who like the Southern California lifestyle and who can telecommute from here, than with whole companies that, if they want to leave Silicon Valley, probably end up moving out of California altogether.”

Whether or not prices in the expensive beach cities continue to rise, real estate observers expect there will be a ripple effect in the surrounding cities and communities, similar to that in the West San Fernando Valley, as a result of continuing strong job growth in the South Bay.

“We may see some good appreciation in the South Bay still, all the way down to Torrance and Long Beach,” said John Burns, a principal with The Meyers Group, a real estate consulting firm. “The market in Long Beach, because of the local importance of the defense industry, was particularly hard hit by the downturn in the early 1990s and still has not fully recovered.”