L.A. homebuyers in August shrugged off increasingly dire warnings of an overheated housing market, driving prices higher while stepping up the pace of purchases.
The median price of an existing single-family home in Los Angeles County in August was $520,000, according to data provided by Melville, N.Y.-based HomeData Corp. That compares with $425,000 for the like period a year earlier and $515,000 in the previous month.
Meanwhile, the number of L.A. County home resales rose to 12,107, a 9.1 percent jump from the 11,094 homes sold in August 2004. August's sales volume was up nearly one-third from the 9,294 homes that traded hands in July evidence that despite news reports warning of risky mortgages, overbuilding and speculation, buyers continue to be aggressive.
"People are quite anxious to take advantage of still-low interest rates," said Stanley Smith, a senior vice president with Sotheby's International Realty. "At the same time I wouldn't call it frantic behavior. The appearance of a frenzy is really just a large number of buyers bidding on a limited number of homes for sale."
Smith noted that interest rates on 30-year fixed mortgages continued to hold steady, and even fell compared to where they were last year. "Traditionally this is our slow time," Smith said. "The fact that there has been this huge strength in the market belies the traditional market trend of slow sales in the summer."
Assuming a 30-day escrow, most of the home sales that closed in August were based on buying decisions made in July. That's when an intense period of media coverage was predicting a looming correction. Further, a Credit Suisse First Boston analyst's report warned that public homebuilders were vulnerable to a bubble and raised concerns of overbuilding and the rising use of risky adjustable-rate loans.
Christopher Thornberg, a senior economist with UCLA's Anderson Forecast, said it will take more than repeated warnings from Federal Reserve Chairman Alan Greenspan and doom-and-gloom media coverage to change people's behavior.
"Look at the stock market in 2000," said Thornberg, who has warned of a housing bubble for nearly three years. "Economists were screaming from rooftops about a bubble and it didn't deter anyone."
While the median home price in L.A. County has shot up by $45,000 since May, some economists and real estate professionals say they can see signs of weakness. For example, the median home price for August rose just $5,000 from July, slightly less than 1 percent.
Mitch Ohlbaum, president of lender Legend Mortgage, said that with so many buyers in the market competing for a limited number of homes, that's a modest uptick. "You are seeing a lot of increased sales in fringe communities, which is driving up the overall sales numbers," he said.
There have been other hiccups during the housing boom and economists warn that trends must play out for months before they're certain. "One month does not a trend make," Thornberg said. "There's a certain amount of momentum in any market and that can be part of why prices continue to go up."
Thornberg also warned that extrapolating data could be useless in a market so sensitive to statistical glitches, such as a sudden drop in mortgage interest rates.
Some of the communities that saw the highest increases in sales volume in August were also among the region's most expensive neighborhoods.
There was a 95 percent spike in the number homes sold in the Calabasas ZIP code of 91302 during August, when 76 homes traded at a median price of $1.3 million. In Bel-Air's 90077, 24 homes a 166 percent increase from a year ago were sold at a median price of $1.8 million.
Other wealthy enclaves saw the number of homes sold increase sharply, while prices remained flat.
In Beverly Hills' 90210 ZIP code, 42 homes were sold compared with 19 a year ago, an increase of 121 percent. But the median price of a home in the district remained nearly flat, at $2.4 million.
And in Santa Monica's 90402, there was a 144 percent jump in the number of homes sold, but the median home price held steady at $2.4 million.
"I think the rate of appreciation for homes has certainly slowed, which is good for everyone," Smith said. "We don't want to price everyone of out of the market."
It may be too late for first-time homebuyers. Many find it difficult to save for a down payment at a rate fast enough to keep pace with rising values. Just as many first time buyers get close to having a traditional 10 percent or 20 percent down payment, home prices rise and they find themselves without enough funds to secure a mortgage.
The California Association of Realtors reported last week that the percentage of L.A. County households able to afford the median-priced home in July stood at 14 percent. That's down 3 percentage points from the year-ago period and down from 15 percent in June. Statewide, 16 percent of the population has the income necessary to afford the median priced home. Nationwide, the figure stands at 49 percent.
High prices have pushed many local buyers into the market for condominiums and town homes, which tend to be a cheaper alternative. However, values of those properties have also soared.
For August, the median resale price for an L.A. County condominium was $400,000, according to HomeData figures, up from $325,000 in August 2004. Condo resale volume for August rose to 2,768 units from 2,422 units in August 2004 and 2,096 units in July 2005.
Recent California single-family home values have outpaced all previous spikes in the state's housing prices, said Thornberg. California home values increased 55 percent during the mid-1970s and by 45 percent during the last-1980s. Meanwhile, in the last four years the statewide median home price has increased by more than 80 percent. "It's completely off the charts right now," he said.
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