Rain, bankruptcy chill home sales
REAL ESTATE: The county bond debt is partially to blame for a decline, experts say. Higher mortgage rates and rainy weather are also cited.
May 3, 1995
<p>Byline: JONATHAN LANSNER
<p>After a buying spurt in early 1994, higher mortgage rates, rainy weather and Orange County's bankruptcy are being blamed for a 40 percent drop in home sales compared to a year ago. </p>
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As a result, prices are falling and selling strategies are being retooled by both the real estate industry and individuals.
"Anyone who says the bankruptcy isn't a problem is lying," said Jason Hartman, a real estate broker with ReMax of Irvine. "It was certainly one more thing we didn't need in 1995."
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The bottom line, experts say, is that the consumer confidence that promptshomebuying is sorely lacking. And a quick resolution to the government's financial woes _ no matter how pricey or unpopular the method _ is key to restarting the <strong>housing</strong> market, real estate executives contend.
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As a result, the local <strong>housing</strong> industry is throwing its political muscle _ and its hopes for its financial future _ behind passage of the June 27 vote on a half-cent sales-tax-hike, what many call the linchpin to the county's financial recovery from the $1.7 billion financial debacle.
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"We need to take massive amounts of vitamins, six weeks of therapy _ you won't like it but you need it," said Morgan Harris, a franchise consultant with Irvine-based Century 21, of the tax hike. "The consumer needs a solution to this bankruptcy."
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Opponents of the ballot issue disagree, however. "In a word, that's balderdash," said Bill Ward, a member of the anti-tax Committees of Correspondence, which is opposing Measure R. "It's typical of the rhetoric we get _ there's no logic to it.
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"The thing that's most important to understand here is that the effect of taxes on the economy is well-documented. When you increase taxes _ any taxes _ you're pulling money out of the economy, and that money isn't going to go toward buying houses."
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Regardless of the merits of the sales tax, Larry Webb, president of Greystone Homes, said he is nervous that the uncertainty created by the county's bankruptcy could be a long-term drain on the local economy. He fears that, in the end, his homebuilding business will be hurt.
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Orange County is a great place to live, Webb says, but without a concrete plan to fix its financial woes the county may be a problematic place to do business. Webb says he's betting _ business-wise, at least _ that the sales-tax increase will be defeated by voters and that the county's financial restructuring will remain in turmoil.
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Webb is rethinking his Orange County strategy and spending less on undeveloped land during the rest of this year. He's also toying with selling 63 ready-to-build lots his company is developing in Placentia.
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"For a Midwest manufacturer looking to relocate to someplace warm, we're off the list right now," Webb said. "If we don't see some closure to this mess, we are going to see some real problems here soon."
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Roland Osgood, president of Kaufman & Broad's local home-selling operations, is using aggressive marketing to revive his business.
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First, K&B offered to pay the first six months of mortgage payments for buyers of new homes. Now it's offering no-money-down deals. Those incentives are on top of pared-back prices.
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And while the sales sizzle brought buyers back to Osgood's <strong>housing</strong> projects in recent weeks, profits have remained elusive, Osgood admitted.
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"Interest rates. The weather. The bankruptcy. It's added up to a deadly combination," Osgood said.
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Consider:
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Sales activity countywide in the first three months was off 23 percent from a year ago, according to Dataquick Information Services of La Jolla.
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In the first three weeks of April, the latest for which figures are available, closings were off 40 percent from the same period one year ago.
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Prices are down, too, as the monthly median price of a home sold in the county fell to $197,000 in February, the lowest since August 1988.
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Manuchehr Yazdi understands those figure all too well. For two months his Irvine home has sat on the market. No offers.
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Yazdi needs to sell the house to pay his bills. He's out of work, a victim of government staffing cuts following the county's bankruptcy filing. But finding a new job at age 62 is tough, he admits. So he's cut the asking price by $10,000 to $255,000 _ and he's thinking about taking out a third mortgage to stay afloat financially.
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"It does not look good," the former county research analyst said. "Maybe I'll get the third and wait for a better future. But some people say the future could be worse."
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The poor 1995 start for home sales is in stark contrast to last year. After four depressing years of sagging sales, 1994 appeared to be a turning point for the <strong>housing</strong> market.
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The same interest-rate rise that eventually sank the county's doomed investment pool spurred buyers into action. The move to catch elusive cheap financing motivated first-time buyers, who were 56 percent of last year's market, estimated Dynamic Marketing Resources' Pat Veling, a <strong>housing</strong> analyst.
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The economy was also a plus in 1994. For the first time this decade, the local economy overall added 11,200 new jobs _ another key engine for home sales.
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With those factors as a backdrop, selling fever caught on throughout the county for the first time since 1989. Activity was brisk from new tracts in south county to older communities to the north. In 1994's first nine months, 1,000 more homes were sold countywide than in all of 1992, the <strong>housing</strong> recession's nadir.
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But by late last fall, there were signs that the local real-estate market was peaking.
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The Federal Reserve had raised interest rates six times _ and as a result mortgage rates had spiked. According to an affordability index by Dataquick that mixes mortgage rates and home prices, the cost of buying a typical Orange County single-family home jumped 20 percent in a year.
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A lower number of qualified buyers was not the only problem. Home prices did not rise with the increased sales activity; rather, the price of a typical Orange County home fell 3.4 percent in 1994. So homeowners who paid top dollar during the <strong>housing</strong> mania of the late 1980s were still stuck with homes they couldn't afford to unload.
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"Frankly, there's not enough <strong>inventory</strong>," Veling said. "And buyers are being very picky."
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So when the county revealed its deep investment loss and then filed for bankruptcy protection in December, the market was already in trouble, local experts said. Fourth-quarter countywide home sales were off 1 percent from 1993's last three months, the first year-to-year drop in two years.
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The problem expanded this year.
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Expensive mortgages cut out some buyers. Retired contractor Gary White of Garden Grove says that in the past six months he lost two deals to sell his Anaheim investment property because buyers couldn't afford the higher rates.
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"It's the worst I've ever seen things," said White, who as an investor has been buying a selling homes locally for 25 years. "And the bankruptcy, it's certainly on everybody's mind."
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Then there was the IRS crackdown on tax-filing fraud. It slowed refund checks this spring, hurting low-income buyers' ability to gather a down payment, said Jerry Varner, owners of Century 21/Chuck Stevens in La Habra.
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Orange County, however, is not alone when it comes to the <strong>housing</strong> slump. San Diego sales are off even more than in Orange County. Los Angeles, San Bernardino, Riverside and Ventura counties are also sluggish, but their sales drops are much smaller than in Orange County.
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"To say that the bankruptcy does not hurt areas outside Orange County is wrong," said Keith Johnson, president of San Diego-based Fieldstone Homes. "San Diego (County) had (investment) losses, too. It's just another reason to be cautious. People are just tentative right now."</p>
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The Orange County Register
