by Lou Hirsh
The Desert Sun 2005
When it comes to real estate, how hot is too hot? Recent figures released by the National Association of Realtors placed the Riverside/San Bernardino County region among the nation's fastest-rising real estate markets.
The inland county housing market ranked fourth among 136 metro areas in the first quarter of 2005, posting a 32.6 percent increase in its median sales price over a year ago. The association said the region's median price during the quarter was $343,000. The only regions topping Riverside/San Bernardino in price growth were three Florida markets: Bradenton, Sarasota and West Palm Beach.
Coachella Valley home prices continued heading up in March, with the median selling price hitting a record $364,000 - up 23 percent from a year ago, according to DataQuick Information Systems, which tracks regional real estate trends. The previous record was $345,500, seen in January. Continued home price increases in California and elsewhere have sparked concerns among some economists that a national housing bubble - marked by unsustainable price increases - is in the making.
But local experts contend that the Coachella Valley real estate market is in no immediate danger of creating or breaking a housing bubble. They note that the valley still has room to grow, with several factors in place that existed a year ago, even if the local market is not rising at the frenzied pace of early 2004.
"Even if you had signs of a bubble, there's no needle here. There's no pop," said Ed Kibbey, executive director of the Building Industry Association's Desert Chapter. "It's just not happening right now."
Compared with the coast...
Kibbey noted that local housing supplies are still tight relative to demand. Valley prices for land and homes remain two to four times lower than those for similar-sized properties in southern coastal and Northern California communities. The valley remains popular with home buyers from those other communities. Like several local real estate experts queried recently, John Young, manager of Prudential California Realty's La Quinta office, said nearly 75 percent of his office's prospective buyers come from outside Riverside County. "They're still seeing that they can get so much more for their money than they can on the coast," Young said.
That's exactly the reason why a group of friends from the San Diego area ventured east to the valley Saturday. Angie Lopez and three of her friends spent the morning circling residential real estate ads in Saturday's Desert Sun while grabbing a quick breakfast at McDonald's in La Quinta.
"Housing costs are just an out-of-this-world experience in San Diego," said Lopez, who drove over with three other friends who said they couldn't afford to buy a home in that city. "You don't have the ocean here, but your homes are a lot cheaper. We wanted to see if it made sense economically to find a house here and maybe commute back and forth to San Diego."
Young noted that the local resale home supply is moderating compared with a year ago, though it remains in favor of sellers. Unsold valley inventory is currently around 3,300 homes - more than twice the 1,400 level seen in April 2004; however, the pace of that inventory rise has been slowing over the past two months.
Experts also note that if long-term predictions for in-migration into the state of California hold true, most of the newcomers will be drawn to areas like the valley where housing is comparatively inexpensive. Overall, the relative low pricing, combined with the valley's traditional strengths like sun, scenery and weather, are keeping local demand strong.
Boomers and employers
Rick Daniels, president and CEO of the Coachella Valley Economic Partnership, said a valley influx continues to be fueled by retiring baby boomers looking for second homes. They are coming from outside as well as inside California. "You have a lot of people selling their homes in those places like Los Angeles or Ventura counties, cashing out their equity, and investing some of it here."
In addition, there is evidence the region is attracting California companies seeking relatively lower-cost housing in order to attract and retain employees. Daniels pointed to the most high-profile recent example, Ernie Ball Inc. That firm is moving its guitar string manufacturing operations out of San Luis Obispo and constructing a new plant in Coachella that will eventually employ 250. At the plant's recent groundbreaking, attended by several Ball employees, CEO Sterling Ball said a top reason for choosing the valley was its lower housing costs for workers.
Trends to watch
For the rest of 2005, economists will be watching several factors to see how the valley's housing market fares. Chapman University economist Esmael Adibi, who each quarter compiles The Desert Sun Economic Index, said the valley could conceivably see year-over-year appreciation in the low double digits, perhaps 10 percent or 11 percent, by the end of 2005, provided the Riverside/San Bernardino County region as a whole is able to achieve at least 5 percent or 6 percent appreciation.
Adibi noted mortgage rates bear watching. Many of the most recent home loan applications in Southern California - around 78 percent in Orange County, for instance - are for adjustable rate mortgages, and the current climate of rising rates could affect housing sales. "As the mortgage rates continue to go up, affordability is going to be an issue," Adibi said.
According to the California Association of Realtors, only 18 percent of households statewide were able to afford the median-priced home in March. March figures are not yet available for the valley, but only 12 percent of households in the region could afford the median-priced home. That makes the valley one of California's least affordable regions relative to household working income. The valley's median annual income is around $43,000.
Overheated nationally?
Experts nationally are at odds over where the home-pricing climate is heading. In an April USA Today poll of 55 top national economists, three-fourths called housing overheated, although they differed on whether they expect a gradual cool-down or a sharp drop in sales and prices. Those forecasting a soft landing expect robust job creation to offset negative effects of recent interest rate increases by the Federal Reserve.
The U.S. government's recent April jobs report showed stronger-than-expected job creation. Valley job figures for April won't be released until May 20, but the region has recently been seeing rising payroll employment and dropping jobless rates, reflecting trends for Riverside County as a whole.
Most economists in the USA Today survey noted that local housing and job markets vary so much that a nationwide downturn is unlikely. But there is concern about signs of speculative buying. For instance, home sale prices are rising faster than rents, when the two usually rise more closely in sync. And price inflation cannot be fully justified by low housing supplies or mortgage interest rates.
Earlier this week, David Lereah, the National Association of Realtors' chief economist, said speculation is not dominating the national real estate market, although it is on the rise. For the most part, Lereah said, high prices are being driven more by demographics and lean supply than by speculation.
Pushed to sidelines
A national survey by the association shows affordability still in a healthy range. But in several cities, soaring prices are pushing lower-income workers and middle-class families to the sidelines:
In Montgomery County, Md., a suburb of Washington, officials say people making the county median income of $84,446 could still afford median-priced existing townhouses and condos. But new townhouses and existing homes are already out of reach.
In Minneapolis, which has more modest appreciation, the nonprofit Family Housing Fund says lower-paid employees such as cashiers and child-care workers can't afford a typical $189,000 home.
In Phoenix and Los Angeles, real estate agents say speculators snapping up lower-priced homes that have more appreciation potential are hurting buyers trying to break into the market. Some home builders are trying to curb speculative buying by writing contract clauses letting them cancel a sale if an owner does not live in a home or take a share of the profit if a house is resold quickly.
- NUMBER1EXPERT™ 
