Hot California market daunts first-time buyers

Keitaro Matsuda, senior economist at the Union Bank of California, agreed, saying the market appears to be stabilizing after a surge last year driven by a drop in mortgage interest rates. “Activity that was frantic last year has gotten a bit more manageable,” he said.

But if price appreciation is slowing, it probably doesn’t feel that way to a lot of house hunters.  Price gains have slowed to the single digits or low double-digits in areas including Los Angeles, Orange County and San Diego, where prices have surged in the past three years, according to the Realtors’ figures, which exclude new homes.

Elsewhere in California prices are still surging at a rate of 25 percent or more, including the rapidly growing Central Valley and Riverside regions, where prices are far lower than in areas closer to the coast.

“I do think the rate of appreciation is not sustainable in the long term,” said Appleton-Young, of the Realtors. “What is happening gradually over time is that people are getting priced out of the California market.”

Robert Bowen, a 32-year-old technical editor in Los Angeles, counts himself among that group. He and his wife, a film editor, have been looking for a house since even before they were married in November and feel like the ground has been shifting under their feet.

“I’ve lost count of how many places we've gone to look at — probably 40 to 50,” he said. Bowen and his wife are trying to find something in the $320,000 price range, an amount that must have seemed reasonable when they began thinking about a house but now seems laughably small.

“We started out looking at small, stand-alone houses, and we realized we really couldn’t afford any,” he said. “At this point even condos are out of our price range. The areas we started looking at were on the fringes of acceptable. They were up and coming, and now they have up and come.”

He is becoming resigned to the notion that he and his wife probably will remain renters for some time to come.

While debate rages over whether the national housing market is in a dangerous bubble, California is one place where the memory of a housing bust is still a fresh one. In the 1990s housing prices fell 20 percent in southern California as the defense industry shrank after the Cold War ended. In other parts of the state housing values flattened, and sales dried up as homeowners grew more reluctant to sell.

Still, economists say the state’s economy has diversified since then, and they can point to the rapid rebound in the northern California housing market after the collapse of the dot-com boom.

And the current inventory of unsold homes, about three months’ worth, is a bit higher than a year ago, but still less than half the average level of the late 1990s. “I haven’t met an agent in three years who has complained about extra inventory,” said Appleton-Young.

MORE FROM EYE ON THE ECONOMY

Eye on the Economy Section Front

Is your bank in trouble? More report bad loans Inflation stays in check as housing starts rise Economy gets tidings of hope for holidays One year later, Madoff case is far from over NYT: U.S. forecasts smaller loss from bank bailout Battle lines forming over TARP extension Obama talks of jobs plan in weekly address Productivity rises by largest amount in 6 years Bleak job scene poses challenge for Obama 'Problem' banks at highest level in 16 years Eye on the Economy Section Front   Add Eye on the Economy headlines to your news reader: