Sean Kim was so confident he’d be able to unload his two-bedroom condo in Glendale that he moved his family into their new home in La Crescenta before finding a buyer for the old one.
Ten weeks later, the condo was still on the market, priced at $369,000. Kim, a Los Angeles police officer, is stuck paying two mortgages. “It’s been a huge burden,” he said. “I never expected it to take this long.”
Kim is far from alone. After rising for years, the median price of a single-family home in L.A. County hasn’t budged since hitting $425,000 in July. While certain areas remain strong, others are beginning to see prices fall. That’s left some homebuyers caught in a reverse game of musical chairs: The music has stopped, but instead of having no place to sit down, they’re saddled with two.
“The curtain has fallen,” said Chuck Hershson, president and founder of Fidelity Mortgage Lenders Inc., an L.A.-based residential and commercial equity lender. “Anyone putting their home on the market today is four to six months too late.”
While the data doesn’t yet portend an imminent collapse of the housing market, there are signs of weakness so much so that Federal Reserve Board Chairman Alan Greenspan had to reassure public markets last week that he was not concerned about a speculative bubble tied to high homeowner debt.
Real estate agents say homes are sitting on the market for longer, whether from jitters over the upcoming presidential election, interest rate concerns or the fear among buyers that homes they purchase now will not rise in value. Some potential buyers, they say, are speculating that the bubble will burst, and are simply waiting to purchase foreclosures at a discount.
Pockets of weakness, strength
A Business Journal analysis of home sales tracked by DataQuick Information Systems finds about one-third of the ZIP codes in L.A. County have seen home prices decline since May. The data is mixed, however, showing prices continue to rise in some ZIP codes right next door to areas that have declined.
More time is needed for a definitive picture to emerge. But among the examples of weakness are a spine of Westside neighborhoods along the Santa Monica (10) Freeway: Santa Monica’s 90403, down 20.1 percent since May to $1.3 million in September; West L.A.’s 90025, down 32.7 percent to $652,000; and Culver City’s 90232, down 25 percent to $450,000. All three areas are among the handful of ZIP codes in L.A. County where home prices have also declined since September 2003.
“Clearly housing prices are coming back to earth,” said Stuart Gabriel, director of the USC Lusk Center for Real Estate, who looked over the Business Journal’s analysis. “I think many of us who follow the housing market have been looking for an adjustment for quite some time and it’s finally upon us.”
In other areas, the evidence is not so clear.
West Hollywood’s 90069 and 90048, at September median prices of $1.2 million and $895,000 respectively, have both declined since May. But nearby 90028 and 90038, slightly to the east and somewhat less expensive, are some of the region’s best performers up 44.9 and 67.1 percent in the same time frame.
Similar crosscurrents are under way in Pasadena and Glendale where prices in the ZIP code of Kim’s condo, 91208, have dropped by 11.5 percent since May. Meanwhile, prices in adjacent 91206 and nearby 91204 have surged by more than 40 percent.
DataQuick analyst John Karevoll said he’s seeing sellers bring their homes on the market because they believe it’s their last chance to get peak prices for their property.
But they are probably already too late. Some are complaining that they can’t get their asking price, but they’re still realizing strong appreciations.
“The prices they are getting are still pretty good, it’s just they are asking for too much,” he said. “There are a lot of high expectations out there. Inevitably, the market does what it does and it pulls unrealistic prices down.”
Location, location
Which has left an unlucky homeowner like Kim feeling like the odd man out. He says other homeowners in his old neighborhood are also having trouble selling.
“It’s not just my condo,” he said. “It seems like every condo in the community isn’t being sold. It’s rare to see that and I don’t know what the reason for it is.”
Nearby, real estate agent Marie Espina hasn’t been able to find a buyer for a two-bedroom, one-bathroom house. After the house sat on the market for a month, the selling couple asked her to lower the price by $20,000, to $330,000.
The reason: banking on a good return on their home, they already closed escrow in a move up.
“They need to sell fast,” Espina said. “They moved to the same area, they are staying in the neighborhood, but they bought a much bigger house.”
Elsewhere, agents confirm that houses are staying on the market longer. But they’re finding resistance from sellers who insist on netting a high price.
Sam Solaimani with Coldwell Banker Beverly Hills said he’s has several Westwood listings that have sat on the market for close to two months. He said there’s been somewhat of a stalemate between buyers and sellers.
“When I listed these homes, I presumed I would sell them within a week,” he said. “But the situation is that sellers don’t want to come down and buyers don’t want to pay the price.”
Taria Lewis, a real estate consultant with brokerage CREE (The Sales Group), has had a two-bedroom, three-bath listing in Pasadena’s 91103 ZIP code priced at $495,000 on the market for nearly a month.
During her most recent open house, only two people showed up and neither wrote an offer. “It’s no longer a seller’s market,” she said. “I wouldn’t necessarily call it a buyer’s market either because they don’t have a lot of power. But that’s because it’s still sinking in with sellers.”
Stubborn sellers
Lewis said sellers might have forgotten that property values can decline. And since 1997, it’s true that they have done nothing but go up. That’s when median home prices in L.A. County rose 20 percent (ending the year at $170,000), launching a meteoric rise that only now is showing signs of a stall.
During the recession of the early 1990s, Lewis remembers, it wasn’t until the foreclosures took hold that the median price of homes began falling.
“Last time it took foreclosures to show up as comparable sales before people stopped their insanely high pricing,” she said. “Then we had a whole decade of decreasing, decreasing, decreasing. Nothing went up.”
While the foreclosure rate has remained low during the last five months, declining home prices could put pressure on homeowners that could then reverberate through the economy.
In situations where buyers put down only 10 percent of a purchase price, a drop in a home’s value of 5 percent can make the deal insolvent, USC’s Gabriel said.
“At that point, the value of mortgage is worth more than the home,” he said.
The biggest fear is a sharp rise in interest rates, which would push up the monthly payments on adjustable rate mortgages, Gabriel said.
Buyers like Kim are already feeling the pain.
The expense of paying two mortgages is wearing on his family, he said, and he’s considering dropping the price on his condominium or possibly taking it off the market to advertise for a tenant.
“If I rent it out,” Kim said, “I can wait until the market starts up again and buyers realize the real estate market in Southern California won’t go down anytime soon.”
