After ‘Overheated’ Run-Up, Home Prices Cool

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The median price of homes sold in Laguna Beach during 2015 fell to $1.7 million, a 5 percent decline over a year ago and the first price drop in four years of escalating values.

1 real estate LBMedianPriceGraphThe total volume of home sales also declined for the year, to 384 transactions, a 6 percent drop compared to 2014’s levels, according to Multiple Listing Service data compiled by Frank Hufnagel, past president of the Laguna Board of Realtors.

Given that historically price-swings in real estate move in six-year cycles, Hufnagel remains optimistic about the year ahead. “We are in year five in a run-up. I still think there will be upward appreciation,” predicted Hufnagel, a broker associate with Surterre Properties in Laguna Beach.

Locally, the median price, defined as the dividing line where half the homes sell above that level and half below, has now descended to the previous peak price reached a decade ago. In terms of sales, though, no year since has eclipsed the volume of 2003, when 543 homes changed hands in Laguna Beach, 7 percent of the city’s housing stock of 7,500 structures.

Hufnagel described the 2015 price decline as an “expected correction” given the “overheated” escalation in the three previous years, where median home prices locally rose at double-digit rates year over year.

Sherrie Larsen greets fellow agent Monica Andersen during a brokers’ open house in Laguna Beach this week. Larsen’s client cut $400,000 from the asking price on a Crescent Bay Drive home, now listed at $3.5 million.
Sherrie Larsen greets fellow agent Monica Andersen during a brokers’ open house in Laguna Beach this week. Larsen’s client cut $400,000 from the asking price on a Crescent Bay Drive home, now listed at $3.5 million.

And while a flurry of higher-priced $5 million homes found buyers last year, a sea change cooled the market at mid-year. Fewer prospective buyers traipsed through open houses and top-end homes began to languish. Last year, 22 homes priced at $5 million or more sold in Laguna Beach; today, 46 in that price range – or two year’s worth of inventory — are on the market, Hufnagel said. “The market is much healthier at the lower level,” he said. Altogether, 155 homes are currently for sale within the city limits, with 39 priced below $1.5 million.

The strong real estate market locally generated nearly $1 million in higher than estimated property taxes for the city of Laguna Beach in the year ended June 30. Property tax revenue of $30 million is by far the city’s biggest revenue source.

new 1 real estate LBMedianPriceGraphSince property tax payments lag behind home sales, the slowdown in home transactions – when property taxes are reset based on the sale price — means the city will likely not see a similar unexpected bump in the coming June.

Often another change that corresponds with a rising market is an influx of new agents. Market conditions, though, had little to do with Kendall Clark’s motivation to start a new career when she obtained her license last December.

Over 30 years, Clark and her husband, a former contractor turned lawyer, have lived in and revamped several homes, which they later sold. The process proved creatively satisfying, said Clark, who decided the time was right to redirect her home-revamping expertise when her fourth child entered high school last fall.

As prospective home-buyers in Laguna often envision remodeling when home shopping, Clark figures she can help clients with practical experience, especially navigating the approval process at City Hall. “It gives me an advantage, for sure,” said Clark, who held her first open house last week and continues to take script-writing assignments for television producers. “That’s my night job,” she said.

Other post-recession shifts are also helping buoy real estate sales.

Mortgage brokers held just 10 percent of the market in 2009, while in 2015 they made half the nation’s mortgage loans, said Richard T. Cirelli, who 15 years ago established RTC Mortgage Corp. in Laguna Beach.

While operating with fewer regulations than banks, mortgage brokers have lured customers by offering a greater array of loans, often at more competitive rates and typically with better service, Cirelli said.

The cost of mortgage insurance, issued by private and federal authorities, also dropped last year, making loans more affordable, he said.

Another wrinkle in the mortgage business may help explain why fewer homes are on the market. Cirelli is seeing an upswing in reverse mortgages, available to people 62 and older, whose terms no longer allow owners to take out all their equity upfront or build up negative equity.

Cirelli said he helped a retired 63-year-old Laguna Niguel man, scrimping by on his social security payments, to take out a reverse mortgage on his paid off home, valued at $950,000. It gave him a $300,000 payout that pays 4.25 percent interest on the unused balance, a better rate of return than the stock market.

“Financial advisers are starting to recommend it,” Cirelli said.

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3 COMMENTS

  1. My question is, are there more available new homes on the market now than in the past 10 or so years, or with some of the new money coming into Orange County, have the number of available new homes dropped?

  2. I’d suggest consulting with folks who collect those stats: Frank Hufnagel at Surterre Properties and Bob Chapman at Teles Properties have their own data bases.

  3. Thank you. The OC Register did a story a while back about the large influx of people leaving LA and moving to Orange County, I was curious to know if the new constuction and available existing homes were meeting the demands. I’ll check your suggestions. 🙂

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