Los AngelesLos Angeles County home sales continued their rebound in April as warmer weather and falling prices coaxed homebuyers back into the market.
Sales for the month rose about 15 percent over March as the median price slid 2 percent to $456,000, according to data provided to the Business Journal by Melville, N.Y.-based HomeData Corp.
That increase is more typical of spring sales volume than what occurred a year ago as the region’s housing boom began to sputter: March-to-April 2007 sales fell nearly 4 percent.
Steven Thomas, a regional president for RE/MAX Real Estate Services, said that the increased sales last month partly reflect more first time home buyers entering the market as prices fall.
“We’re seeing a first-time-home-buyer wave in both L.A. and Orange County,” said Thomas, who doesn’t believe prices will stop falling year-over-year until early next year. “I think we’ll be at a flat market for a couple of years price-wise, probably moving not more than the rate of inflation. But at least we’ll have a lot more transactions.”
Still, home sales are sharply down from a year ago when 5,096 homes were sold in April. In raw numbers there were 3,647 home sales last month, but that reflects a five-week HomeData reporting period. Adjusted to reflect the four-week period of a year ago, that number falls to 2,918 units – a 43 percent drop year-over-year.
While prospective buyers are leaving the sidelines, real estate observers believe it will take the market a few years or more to recover as foreclosures continue to muddy the market.
Foreclosures rose 130 percent in Los Angeles County in the first quarter year-over-year, with 20,339 homeowners receiving foreclosure notices, according to DataQuick Information Systems of La Jolla. And in places where foreclosures were hitting particularly hard, such as the Antelope Valley, sales were being supercharged as prices continued to fall.
In Lancaster’s 93536 ZIP code, sales fell 42 percent in March year-over-year, but in April jumped 28 percent year-over-year. At the same time, the April median price fell to $285,000 –$9,000 less than March and $90,000 less than a year ago.
Conversely, home sales in the county’s priciest neighborhoods were at a virtual dead standstill – the opposite of last year when luxury home sales were propping up the market. In Beverly Hills’ 90212 and 90210 Zip codes, where median prices top $2 million, there were a total of just 10 sales.
Falling too fast
Cal Poly Pomona finance and real estate professor Michael Carney said he is worried about the sharp drop in prices, especially when compared to the last real estate bubble that burst in the early 1990s. He believes it may mean the bottom is even further off than most people expect.
This time last year he was anticipating that prices might bottom out 15 percent lower than at the peak of the boom. He now fears that a fall of more than 20 percent could be possible. Carney tracks long-term price trends with a model that follows changes in appraised value of individual homes over time.
“That prices are falling faster than sales is not a good sign in terms that the bottom is near,” said Carney, noting that in the 1990s housing bust it took almost six years for prices to drop 20 percent. “You’ll start seeing year-to-year sales volume pick up long before we see a turnaround in prices.”
The median home price jumped off a cliff last October as the credit crunch, which started in the subprime category, spread to more affluent homebuyers. They became unable to obtain jumbo loans (exceeding the $417,000 conforming loan limit) at a time when the county median price topped the limit – and homes in desirable areas could easily double it.
Earlier this year Congress temporarily stretched the definition of a conforming loan to as much as $729,500 in high-cost areas like California, but the program has been slow getting off the ground. In San Pedro’s 90732 ZIP code – where a median-priced home last year would have required a jumbo loan – there were just 10 sales last month as the median price fell 40 percent to $475,000.
Rock bottom models
Conversely, some first-time homebuyers who have been waiting on the sidelines for years are now finding prices within their range.
In Covina’s 91722 ZIP code, sales volume rose 80 percent to 27 homes, as the median price fell 30 percent to $345,000. In Palmdale’s 93550 ZIP code, the median price fell 39 percent to $202,000 as sales rose to 62 homes, 35 percent higher than a year ago and 63 percent higher than March.
Even so, just three years ago a typical month in that once fast-growing Palmdale neighborhood might see more than 150 sales. That change in the market is causing particular challenges for sellers of new homes.
Typically, when a development is nearly sold out, the highly desirable model homes – fully landscaped and filled with upgrades like marble counters and granite floors – get sold at auction for premium prices. But not these days.
Rhett Winchell, president of Beverly Hills’ Kennedy Wilson Auction Group, has just such an auction scheduled June 1 to help builders in the Palmdale-Lancaster area dispose of 17 luxury model homes.
Winchell said that given the current market conditions, the starting price will range only between $125,000 and $250,000 – for homes that during the height of the boom would have sold for $289,000 to $605,000 on the open market.
That’s much lower than the discounted minimum starting bid Kennedy Wilson normally sets.
“There are properties in this area that have been on the market six months to a year,” Winchell said. “We don’t have that much time to sell these (model) homes. Our program works for builders because we price them below market, and let the buyers determine the market.”
San FernandoDeveloper Rick Caruso’s Americana at Brand in Glendale has enjoyed nearly two weeks of immense publicity surrounding its May 2 opening – the long-awaited sequel to Caruso’s hugely successful Fairfax-area development The Grove.
But success of the so-called “lifestyle center” could come down to two issues – parking and the development’s residential element.
Back in 2002, high prices for parking had shoppers steering clear of the Hollywood and Highland project until rates were reduced.
At the Americana, shopping is free for the first hour, $3 for the second hour and increases by $2 for each subsequent hour up to a daily maximum of $9. Valet parking is available.
Moviegoers can receive a validation for four hours from Pacific Theaters; while the Cheesecake Factory and Katsuya restaurants, Barnes & Noble and three other retail stores offer two-hour validations.
Across the street, parking is free for Glendale Galleria patrons.
“Ample, convenient parking is always important for our customers and our retailers and our employees,” said Janet Lefevre, senior marketing director for the Galleria. “We’re very much watching what’s going on with parking and trying to monitor the situation.”
With just one entry point to the 3,000-space parking structure that is dedicated to retail customers, getting in may be challenging, especially during peak times. Residents in the Americana complex will have a separate parking entrance to an underground garage of their own.
“We know we’re going to have a problem with parking because we always do,” said the project’s developer Rick Caruso, “but it’s above the city code.”
The opulent parking lobby, with its marble floors, crystal chandelier and self-playing grand piano may soothe shoppers.
The second make-or-break issue is the project’s residential mix. These are tough times for those in the luxury living sector of the industry, with a large supply of both high-end apartments and condominiums recently opened or coming online soon between Pasadena, Downtown L.A. and Woodland Hills.
While Caruso has exhibited he knows what he’s doing when it comes to retail – the Commons in Calabasas; The Oaks in Thousand Oaks and the Grove in West Los Angeles are all very successful shopping centers by all accounts – the residential component is new to him.
“It’s been a very interesting learning experience for all of us,” said Caruso of dealing with this new component, “because what appears to be something that is simple and straightforward from a design standpoint becomes very complicated when you’re layering underground parking, then retail podium, and then residential.”
The Americana has two categories of residences: 238 luxury apartments aptly named The Residences were 20 percent leased prior to the grand opening, while 100 condominiums are expected to open later in the year.
When asked what his target market was for the residences, Caruso quipped, “Anybody with a buck.” Getting serious, he said that young professionals and empty nesters were their expected tenants, but that it was surprising that families with young children were also expressing an interest.
It’s not known if these people are aware that skateboards and bicycles will be off-limits on the Americana’s “streets.”
Rents for the apartments range from $2,000 to $5,500 per month, with one-bedroom, one-bath units starting at 675 square feet and the largest, townhome-style units as large as 1,928 square feet.
According to Glendale native and Realtor Phyllis Harb of Dickson Podley Realtors, those prices are going to be a tough sell. A typical one-bedroom in Glendale rents for about $1,100.
To come up with an apples-to-apples comparison, she suggested the Park Towers luxury high-rise condominium complex. Although these are privately owned, leases do come available from time to time. Most recently, Harb said, a 1,450-square-foot corner unit with two bedrooms and two baths was snapped up for $2,500 a month. Amenities are comparable with the Americana: a doorman and concierge service, swimming pool and barbecue area, private gym and spa, but the Towers also offers two tennis courts.
Harb said she has had people express an interest in the Americana residences, but after finding out what the prices were, that interest vanished. She hasn’t yet visited the project.
The only other truly comparable project local to Glendale, because it also has residential over retail, is Paseo Colorado in Pasadena.
Prices there are comparable, with studios starting at $1,755 and the largest two-bedroom units renting for as much as $3,485 per month.
The leasing manager for the complex did not return phone calls, but Jodi Taylor-Zens, director of marketing for the retail portion of the project, said the biggest challenge of the apartment-over-retail concept is noise.
“I think you have to be the kind of person who understands you’re living in a downtown environment where trash trucks come early and stores get deliveries early in the morning and at night restaurants and bars are open late with music and people,” she said.
The Paseo also has one thing the Americana doesn’t – its own grocery store. “It certainly makes it easier,” said Taylor-Zens, but it shouldn’t be a deal-breaker, she added.
The Americana does have a Rite-Aid where staples are available. Plus, residents can always run over to the three-story Target at the Galleria for some foodstuffs.
With the tough residential market, only time will tell if Caruso’s bet was a good one. “You don’t build an airplane for calm weather alone,” Caruso said, apologizing for the corny analogy, “The economy will have its ups and downs, but we’re investing $400 million for the long-term.”
The retail side is 98 percent leased, outperforming the pro form, he added. “The apartments don’t worry me at all and neither do the condos.”
