Alex Veiga
LOS ANGELES -- Home sales in California closed out 2004 on a high note, as buyers continued to seize on low interest rates to snap up homes, helping to drive prices to record levels, a real estate analyst said Wednesday.
The median price of a home in December was $405,000, a 20.9 percent increase from $335,000 the same month a year ago and up 1.8 percent from $398,000 in November, according to DataQuick Information Systems.
For the month, a total of 58,500 new and resale houses and condos were sold statewide, a 9.9 percent increase from 53,250 in November and up 1.3 percent from 57,750 in December 2003, DataQuick said.
An increase from November to December is normal for the season. Last month was the strongest December in DataQuick's records, which go back to 1988.
"We didn't expect to see 2004 end as strongly as it did," said Marshall Prentice, DataQuick's president. "Certainly demand has remained stronger than anticipated."
While some signs of a cool-down emerged in the market toward the end of the year, particularly in areas like Orange County, which saw sales slow as median home prices blew past the half-million-dollar mark, mortgage interest rates remain at historic lows and demand for housing still outstrips supply - a combination that has helped keep home sales strong.
"We had a great market, then a little nervousness, although some of it is consistent with prior years, too, where you have a little tapering off," said Stan Ross, chairman of the Lusk Center for Real Estate at the University of Southern Californiacolor>.
Many economists had expected to see mortgage interest rates exceed 7 percent or 8 percent by the end of 2004, but despite a series of rate increases on the federal funds rate by the Federal Reserve last year, the average rate for a 30-year fixed mortgage loan continued to hover at or below 6 percent in the latter half of the year.
In December, it averaged at 5.75 percent, and this week, it averaged 5.74 percent, according to Freddie Mac.
The typical mortgage payment that home buyers committed to paying last month was $1,785, up from $1,755 in November and up from $1,496 in December last year, DataQuick said.
Low-cost borrowing has helped to sustain year-over-year double-digit appreciation levels.
"Most people thought, we've had several years of very high increases, it has to slow down a little bit," said Michael Carney, professor of finance and real estate at California State Polytechnic University, Pomona. "But it hasn't, it has accelerated."
Last month, the value of homes in the Southern California counties of San Bernardino and Riverside both appreciated 30 percent or more, the highest increases in the state.
Overall, the value of the region's residential homes rose 22.5 percent.
Home prices in a nine-county region around San Francisco Bay rose 16.4 percent overall. San Francisco, Napa and Solano counties saw the biggest appreciation rates by far in the region, all at or above 20 percent.
Carney said it's difficult to predict what will happen with the market and suggested that as long as long-term borrowing rates remain low and the U.S. and California's economy continue to improve, the home-buying market should remain healthy.
However, he believes mortgage interest rates will likely increase to around 8 percent or 9 percent by the end of the year.
"There will be a slowdown in home prices because long-term rates will go up," Carney said. "All this will do is to slow the rate of increase; prices are not going to drop."
Ross also forecasts appreciation rates will fall below double-digits by the end of the year, but he also suggests condominium sales should pick up as more units are built and as rising rents pressure people into taking the plunge into home-buying.
"The pipeline of our builders is strong. They have the inventory and the demand side is there," Ross said. "With that kind of a demand side, I think it's pretty much going to carry most of the year if not all of it."
Patrick Lashinsky, vice president of marketing for Emeryville-based ZipRealty Inc., said demand for homes is still healthy and bodes well for the market.
Still, some buyers are expressing concern over prices and have become more cautious, which may explain why many homes, particularly high-end houses, tended to stay on the market longer in recent months.
"They're being more careful in their bidding," Lashinsky said of buyers, who early in 2004 would often bid thousands of dollars above the listed price of a home to wrest it from competing buyers. "We'll see a little bit more conservative 2005."