LA’s Home Buying Craze –
How High, How Long?
Condos: Market for Low-End Properties Pushes Ahead
By CONOR DOUGHERTY
When L.A.’s housing prices go through the roof, condos are sure to follow. But even by the usual measurements, June’s $207,500 median price of a condominium stands out.
The activity in the condo market, like its single-family cousin, is being driven by the appeal of low interest rates and fears raised by the withering stock market. And for the moment, prices show no signs of leveling off. Stories abound of condominium owners whose units are being sold for twice the purchase price of just a few years ago.
The recent boom has been advantageous for Alex Amin, an executive vice president at FilmTracker in Santa Monica. Amin and his fianc & #233;e recently traded their Santa Monica condo for a bigger one down the street, going to escrow in April and closing in July.
“In May, June and July you saw a real bump in demand because people were trying to find someplace to put their money,” Amin said. “By the time we closed it seemed like condo prices had gone up 30 percent.”
Amin said the condo was bought in the mid-$400,000 range, but he is confident that the two-bedroom space could fetch at least $100,000 more today.
That’s not good news for Noelle Will and her husband, Joseph. Will, an executive assistant at the Elizabeth Glaser Pediatric AIDS Foundation, has been looking for a condo since January. She was initially bent on staying on the Westside but has since broadened her search to the San Fernando Valley.
“Whenever we hear about something 20 offers have been put down and we can’t even take a look at it,” she said. “We cannot find a condo on this side of the hill that is acceptable.”
How long all this might last is a matter of debate. Only a decade ago, condominiums were also considered a lower-cost alternative to getting into Southern California’s real estate boom. But when the market went bust in the early 1990s, condominium prices sank farther faster leaving owners with a home that was worth less than what they paid for it.
This time could be different, given that the area is better insulated from a deep recession that would lead to massive foreclosures and price declines. But even area brokers warn that current, super-heated market has its limits.
“I can’t tell you where we are in the cycle,” said Kathy Gura, an associate at Coldwell Banker’s Hollywood Hills office. “But we’re certainly not at the bottom and prices are not going to go up forever.”
Amin said he does not fear a bubble because he is situated in Santa Monica and his condo was, relatively speaking, reasonably priced.
“There are certain areas and prices ranges that are bubble proof,” he said. “One of those is beachfront Santa Monica. If I were buying a million dollar house, then I might be worried.”
For now, prices are unlikely to come down. “Worst case scenario we’ll stick where we are for a while, and housing prices will start to go up 3 or 4 percent a year,” said Christian Redfearn, a professor at USC’s Lusk Center for Real Estate.
But that’s predicated on the local economy remaining fundamentally strong. Should that change, all bets are off. “If we have a major recession home prices will go down,” said Stephen Cauley, associate director of the Ziman Center for Real Estate at UCLA’s Anderson School. “But that’s not a bubble. If we have recession I’d expect everything to be adversely affected.”
While a crippling pop is considered unlikely, prices cannot expand at current rates for much longer. “Housing prices will have to go up at a slower rate,” said Sung Won Sohn, chief economist and executive vice president at Wells Fargo & Co.
Chris Thornberg, a senior economist at the UCLA Anderson Forecast, expressed concern over the psychological effects of rising home prices and cautioned buyers not to be trigger-happy.
“What I hope is people don’t get wrapped up in seeing increasing housing prices and only focus on that,” he said. “A home is an asset, and an asset (valuation) has to be based on fundamentals. If people only look at increasing price, that’s exactly the kind of condition that creates a bubble.”
Gura said that psychology is at play in the current market.
“These days we’re disappointed if we don’t get a full price offer,” she said. “The buyers who get aced out in the multiple offers are not too happy, because that means the next go around they’re going to have to dig deeper into their pockets.”