No such bubble trouble

STEVE SMITH

I made a mistake here a few days ago by declaring that the top local

story was the race to replace the soon-to-be Securities and Exchange

Commissioner Chris Cox.

The top story is, as it has been for months, the value of our

homes. Local homeowners are obsessed with property values. We delight

in comparing notes about our paper wealth and are quick to agree that

the good news will be good forever.

The Pilot got the top story call right two days ago with its “In

Business” story about property values and the speculation by some

so-called experts on whether we are floating in a housing bubble.

Sadly, there is always someone with a pin ready to burst it. After

all, good news doesn’t get on TV.

Fortunately, we have local real estate broker Bill Cote of the

aptly named Cote Realty Group in Corona del Mar. The Pilot story said

Cote does not believe there is a bubble. About the various housing

forecasts, Cote is quoted as saying, “People can’t tell unless

they’re sophisticated in economics.”

As much as I agree with Cote that there is no bubble, at least not

one that will cause any kind of crash, I do not agree that one has to

have an economics sophistication to understand what is going on now

or even to predict the future.

Most of the important clues are right before us. It’s simply a

matter of putting the pieces in place.

The first clue is mortgage rates, which are going down, not up.

The survey of 60 Southern California lenders compiled by National

Financial News Services shows a 30-year fixed jumbo loan (over

$359,650) was 5.56% six months ago. Today it is 5.53%. The gap is

even wider for smaller, conforming loans.

The second clue is actually a pair of clues. Recent economic

reports from UCLA and USC predict polar opposite trends. The Bruins

are convinced that the sky is falling -- their report warned that

“the market is at risk, largely because of the breakneck price

gains.”

The Trojans on the other hand, see “housing prices continuing

upward in major markets across the United States for the rest of

2005.”

Perhaps the pessimism of the Bruins and the optimism of the

Trojans is simply a reflection of which school has sent a football

team to play for the national championship in recent years.

Another clue is a review of prices all over the county, which is

published in the Los Angeles Times every third Sunday.

Only a few months ago, there were just two zip codes out of 85 in

the entire county that showed a decline in the median home price.

Both were in very upscale neighborhoods.

Last Sunday, 15 zip codes registered declines. Of the eight zip

codes in our area, which includes Balboa Island, Corona del Mar,

Newport Beach and Costa Mesa, only one registered a decline. That zip

code was 92625 in Corona del Mar, where the median price dropped 6%

compared to one year ago.

Corona del Mar’s neighbors on Balboa Island registered the

county’s highest increase from a year ago, a whopping 99.9% on the

median home price scale.

Overall, prices in the median home price in the county increased

an average of 8.7% from May 2004 to May 2005.

So far, our clues are giving mixed signals. On one hand, we’ve got

a reputable university survey and a local real estate professional

telling us all is well. On the other hand, we’ve got another

university and some interesting statistics that lean toward

announcing that the good times are ending.

To break the tie, I contacted Valerie Torelli, a Costa Mesa real

estate agent with more than 20 years of experience.

At the beginning of our conversation, Torelli reminded me of an

important perspective, one that should be repeated to those afraid of

interest-rate increases. “The first transaction I made as a real

estate agent was at a 14.5% interest rate,” Torelli said.

Of the current situation, Torelli said: “An unbelievable lack of

inventory has kept this market incredibly high. For the rest of the

year, I feel very strongly that the market will stay where it is. I

do not see it increasing except in a normal 5% range.”

I agree, and I do not see the need for any hand-wringing.

Besides, the local inventory may increase by one unit after Chris

Cox is confirmed as the new head of the Securities and Exchange

Commission and he no longer has an obligation to live here.

* STEVE SMITH is a Costa Mesa resident and a freelance writer.

Readers may leave a message for him on the Daily Pilot hotline at

(714) 966-4664 or send story ideas to [email protected].