By Evan Pondel California's median home price soared 15.6 percent in May to a record $369,290 thanks to the combined forces of low interest rates and strong demand, a trade group said Wednesday. Last month sales slipped 7.7 percent on an annualized basis, which means 572,537 single-family homes will be sold this year if the market continues at May's pace, according to the Los Angeles-based California Association of Realtors. "Mortgage rates are keeping demand high, allowing people to be more active with their buying. Meanwhile, supply in the California housing market is strained because we just don't build enough houses," said Leslie Appleton-Young, the association's chief economist. While low mortgage rates and strong demand are indicative of a healthy real estate market, some analysts fear that tight supplies will end up driving would-be homeowners away from the region. "If the supply becomes too tight, it will put more pressure on the market and that could make California less competitive in terms of job creation for potential employers," said Raphael Bostic, a professor and director of University of Southern California's Casden Real Estate Economic Forecast. Low inventory and robust demand are fueling the price run-up in most of the state's major markets, including Los Angeles County. During May, sales in the county slipped an annualized 3.5 percent while the median price, the point at which half the units sell for more and half for less, jumped 19.8 percent to $332,210. The county's median price has now made double-digit gains for 21 months in a row and the state's for 18 consecutive months. "The pricing increase we have been seeing is really a reflection of the imbalance between supply and demand," said analyst Nima Nattagh. "The concern is that the increases are getting out of whack with income levels. And I think we'll start seeing some substantial change by the end of the year." But mortgage rates have yet to show any signs of a shift in the market's direction. During May, the 30-year fixed rate mortgage averaged 5.48 percent, down from 6.81 percent in May 2002, according to Freddie Mac. Adjustable mortgage interest rates averaged 3.66 percent in May 2003 compared with 4.79 percent in May 2002. "And while we don't think sales will top last year's record level, 2003 looks to be the second best year for residential real estate on record," Appleton-Young said.
June 23, 2003