How Much for Your Home?

The Perfect Storm



When Cherie and Joeb Wozniak moved back to their native Coachella Valley after living in a Newport Beach apartment, the young couple sought to buy their first home within their projected, affordable price range: $300,000 to $400,000. Instead, they took a single-family rental in Rancho Mirage, with an option to buy.

Why the change in plans?

“We had a short amount of time in which to buy,” Cherie says. “The market was changing so fast that when we decided to get loan approval, our price range was going out from under us. We couldn’t act fast enough.”

Welcome to Coachella Valley at the dawn of the 21st century. The buying and selling frenzy of the past two years has waned, but the market remains arguably the most robust in California — an oasis in one of the state’s fastest-growing counties. In the year ending July 1, 2004, Riverside County grew at a rate of 4.45 percent, compared to a statewide average of 1.67 percent, according to the California Department of Finance. Moreover, the California Desert Association of Realtors’ annual report released in February reported a record average sales price increase of 33.4 percent, at $421,100 in the fourth quarter of 2004 (up from $ 315,700 in the fourth quarter of 2003), based on a Multiple Listing Service analysis.

For many, the booming real estate market begs the old saying, “Be careful what you wish for,” because a growing economy, escalating population (who hasn’t heard that “42 new people a day” stat?), and revitalized tourism have created a confluence of events that continues to elicit polarizing emotions — ranging from elation over soaring home equity to anguish about infringement on the environment.

Though growth may be stabilizing, it hardly appears to be letting up. Here’s a look at Coachella Valley residential real estate trends, as well as an approach for preserving value and quality of life in decades to come.

The Perfect Storm
“There are three parts to the residential market: the resort market, the second-home market, and the ‘I’m-going-to-live-here-all-year-long-and-raise-my-kids’ market,” says Greg Berkemer, executive vice president of California Desert Association of Realtors. “All three are doing so well occupying the same time and space.”

Add historically low interest rates and what Berkemer calls one of the “most aesthetically beautiful places on the planet,” and it comes as no surprise that the market remains hot. Although inventory of new homes expands steadily, demand continues to exceed supply. However, we are on course to reach Berkhemer’s estimated market equilibrium quota of between 3,500 and 4,000 unsold properties.

“The value of a home generally increases through demand, and demand has been high in the Coachella Valley,” says Ed Kibbey,  executive director of the Building Industry Association of Southern California’s Desert Chapter. “Even with fluctuating building costs, such as labor and materials, builders have had the assurance that they would be able to sell homes for a profit for at least the last two years.”

The Great Migration
Affordability (compared to prices in San Diego, Orange, and Los Angeles counties) sustains demand for desert homes. According to February figures released by Data Quick Information Systems, a real estate research firm based in La Jolla, the January median price for a home in the Coachella Valley rose to a record $345,500. In December, the median price for existing single-family homes sold statewide was $474,480, according to the California Department of Finance.

“Coachella Valley is still a significantly relative bargain in Southern California,” says Bob Marra, president of Wheeler’s Publishing, a firm that reports on valley economic and demographic trends. “People can get much more for the dollar here, [although] in the last couple of years, we have seen substantial increases, a lot of it fueled by retiring baby boomers who are getting incredible prices for homes on the coast and deciding to make Coachella Valley their permanent home.”

One of Realtor Alan Abell’s clients sold a 2,400-square-foot home on Balboa Island for more than $ 1.6 million and purchased a 3,900-square-foot desert residence on approximately one-third of an acre — with pool and spa — for $640,000. “Basically, we’ve been discovered for the total lifestyle, not only as a retirement community,” says Abell of Dyson and Dyson. “Compared to prices in San Diego, Orange, and Marin counties, we are a really good buy.”

Second homes are selling at a record pace, too. This can have an inflationary effect on median home prices, although Marra asserts that the valley remains a “relative bargain.”

Prospective home buyers — many transplants from coastal cities — are a varied lot. “We’re seeing second homes and vacation homes and people from New York to San Francisco buying for investment to have a foothold in our market,” says Andy Linsky, a Realtor with Windermere Real Estate in Palm Springs. Within 30 days of Jan. 1, more than half of his listings went into escrow — properties ranging from a $249,000 condo to an architecturally significant Palm Springs estate worth more than $3.5 million.

Homeowners who have lived in the desert for a while also reap rewards from the booming market. “They have amassed significant equity in their homes and, with the interest rate environment at record lows, young professionals, as well as up-and-coming business owners, have been able to step up significantly, getting into $600,000 to $800,000 homes,” Marra explains.

The real estate market also benefits from a steady stream of employers, such as Merchants International and Environmech, seeking to either relocate or expand in an area that provides tax and business incentives, as well as affordable housing and a superb quality of life.

Hot Areas, Hot Locations
“Clearly, Indio is No. 1 in terms of residential development,” Marra says. “In 2004, [the city] issued 2,557 building permits for single-family dwellings at a total valuation of approximately $396 million; in some months, it recorded building permit valuations similar to the Coachella Valley as a whole in the mid-1990s when the market was flat.”

La Quinta comes in second at roughly $291 million. And, in terms of percentage increase, Marra notes that, Desert Hot Springs was up 146 percent in 2004 building permit valuations compared to 2003; Palm Desert has increased by 33 percent and will likely rise, now that the moratorium on building in the city’s northern sector has been lifted. Marra also cites Palm Springs as experiencing significant development. Despite limited land availability, it is developing a number of high-quality condos, town homes, and single-family residences, like those in Mountain Gate, a gated community in the north end of Palm Springs.

These figures represent what the nine valley cities are experiencing in residential and commercial development.

Many buyers will pay more — or, like the Wozniaks, wait out the market for the “right” location. “The most desirable locations are golf courses or [areas] with great views or vistas where you are high up,” Berkemer says. “Those remain prime locations. Other attractive areas include properties with minimal overhead sun exposure and low wind. “That said,” he adds, “[properties] that don’t share those  primary benefits have kept pace in appreciation. Last year showed a phenomenal 30 percent year-over-year appreciation.”

Now, indicators point to a slowdown in activity and a leveling of prices. Christine Marra, a Realtor with Dyson and Dyson in Indian Wells, notes that last year properties seemed to have sold more quickly and for higher prices. “Last year, homes were on the market for 15 to 30 days. Now, if they’re not priced properly, they’re on the market anywhere from 60 to 90 days.” Linsky emphasizes that proper pricing in the any market — weak or strong — is the key to selling.

The Big Squeeze
First-time and prospective buyers may want to heave a collective sigh of relief, for this news augurs well for those who, heretofore, have been priced out of the market. Yet, a primary concern remains: Coachella Valley has one of the worst housing affordability indexes in California, hovering at 13 percent (compared to a statewide average of 19 percent), according to the California Association of Realtors, and is still primarily driven by a service economy. And the index — the number of households in a given community who can afford the median-priced home — could be more dire than it looks, Bob Marra says, because “that assumes that the household has a 20 percent cash down payment and can get a standard 30-year, fixed-interest rate.” He credits the creativity of mortgage brokers and lenders who aggressively spur entry-level housing opportunities with many financing options.

One such individual is Chris Platamone, a mortgage account executive with Bank of America in Indian Wells. “A lot of programs allow people to get in for little or nothing down,” he says. “These include interest-only loans that allow people to qualify for a lot higher than they would have been able to in the past. The dilemma is that interest-only loans are fixed only in the short term and then they turn into adjustable loans. Creative financing is inherently riskier than a basic 30-year fixed [-rate mortgage], but as long as the market keeps appreciating, we’re going to be OK.”

Also alleviating this challenge are partnerships continually springing up between home builders and municipal governments. “The cities have joined with builders, through their redevelopment monies, to help subsidize low-cost housing,” Kibbey says. “Virtually every valley city has them, and it’s working well.” One residential prototype development is Desert Rose, 161 single-family, attached and detached units in Palm Desert.

The Changing Landscape
A fundamental issue that continues to elicit controversy is concern about the environment. Pending is the final Coachella Valley Multiple Species Habitat Conservation Plan/Natural Community Conservation Plan, a comprehensive proposal that seeks to balance conservation and development. The plan includes a strategy to ensure compliance with state and federal environmental protection laws, as well as a plan to streamline the approval process for public and private sector developments.

The Building Industry Association has been involved with the habitat conservation plan from the beginning, and Kibbey believes that, in terms of environmental sensitivity, local builders have been given a bad rap. “We have been a leader in low-water landscaping,” he says, “and we have been a leader in purchasing hillside properties to set aside for open space. Years ago, we encouraged cities to pass ordinances to limit what could be built on hillsides. We in the building industry have been on the forefront of environmental awareness for years.”

Berkemer echoes this sentiment. “The idea that real estate and development want to destroy [the environment] isn’t fair. The people who are committed to doing the bulk of building and development also live here. Like everybody else, we want to go out and see open space.” However, he adds, “We also need to understand that it’s never going to look like the 1950s. But we can balance growth, open space, and ambiance.”

The Growth Conundrum
So how do we achieve this balance while continuing to maintain value — not only in terms of home equity, but also as a long-term investment in an optimal quality of life? The challenges are surmountable. Increasingly, valley cities and a growing number of real estate professionals are turning to development paradigms designed to mitigate negative byproducts of uncontrolled expansion: traffic congestion, air pollution, and water quality and availability, among them.

We need to consider more development along the lines of ‘smart growth’ principles,” Bob Marra says. “We need to have more places that are mixed-use — residential and commercial — and that are pedestrian-friendly, and we need to get more dense and more vertical, within reason.”

One example of the smart growth strategy in action is the redeveloping downtown Cathedral City corridor. “To me, a smart growth approach includes construction of facilities along [public] transit lines,” says Keith Scott, Cathedral City redevelopment project manager. “It also includes a mixture of uses within a relatively confined area.”

Residential and commercial development is being implemented within a four-block area of East Palm Canyon Drive; it includes the construction of two apartment buildings, totaling 211 rental units, as well as a new senior center. Plans also encompass an unnamed mixed-use development, slated to break ground in late 2005, with 25,000 square feet of commercial space, as well as 75 residential units for sale, a substantial proportion being town homes.

In Indio, plans are under way for Northgate Crossing, an 83-acre, mixed-use project from Madison Development and The Shovlin Cos., both based in La Quinta. The project is in the entitlement phase, with construction projected to begin later this year. It will include approximately 100 detached, affordable, single-family homes and 385 multifamily apartments. The plans allot for roughly seven acres of open space and the balance for commercial use — primarily community-oriented shops.

“Northgate will be extremely pedestrian-friendly,” says Rick Wilkerson, a managing partner of Madison Development. “We are spending a lot of time planning, examining how to encourage residents to flow from one place to another without a car.”

Additionally, University Park in Palm Desert’s burgeoning northern quadrant is slated to include The Village, a retail/office complex and vertical housing options in an adjacent parcel. Pedestrian walkways and bike trails will link the areas.

From an immediate perspective, smart growth, infrastructure improvements, and strategic municipal planning remain our most vital pursuits.

“The long-term health of an integrated community depends on beginning jobs and great jobs, beginning homes and great homes,” Berkemer says. “It takes a range of the spectrum to build a vibrant community over the long haul.”

Ultimately, what constitutes “home value” extends beyond appreciating property and the boundaries of our own front yards, and it requires constant vigilance and ingenuity.

What’s Your Home Worth Now?

Whether you are a buyer, seller, or interested in refinancing, assessing the value of your home in a fluctuating market might seem like a formidable task. But it is actually easier than you think.

“In new construction, determining value is based on the cost of land and the cost of individual components of the home in the building process; the approach is done off the plans,” says Bob Dyson, president of Dyson & Dyson Real Estate Associates of California. “When a home is sold, it goes into a pre-owners category, and that recorded price is documented through the county recorders in Riverside; that creates a price of record, and that price becomes a comparable for any like property.”

Comparables, or “comps,” are properties used as comparisons to determine the value of similar properties — key indicators to help determine home value. “Most people have a friend in the [real estate] business and can get comparables,” Dyson says. “Appraisers also use them to justify values. Keep in mind that if you do seek an appraisal, which is also part of the refinancing process, the information is applicable for only four to six months, because market and economic conditions always change. Also, title companies and mortgage lenders are usually prepared to provide information on comps to the public.”

Several other variables factor into a home’s value — especially the location and amenities. “The location, as well as the community you live in, is important,” Dyson adds. “For example, Indio is contemplating a major makeover. New features in an area can provide a significant positive impact on the entire community.”

 Amenities and upgrades affect values and may significantly impact the worth of your home. These can range from a pool, spa, and exceptional landscaping features to a newly renovated kitchen, new window coverings and carpeting, optimal light exposure, prime views, and top-grade exterior façade materials.

Homeowner association fees — and how they are administered — also factor into the value for both buyers and sellers. “In some areas, between homeowners’ association [fees] and country club dues, you are sometimes paying $1,000 before you put a key in the door,” Dyson says. “Baby boomers, especially, are looking at fixed overhead.”

Dyson suggests reading newspapers and magazines to keep abreast of market conditions: “They usually give you an indication of trends.” Individuals may also be able to obtain information and statistics through local, regional, and national real estate associations.

In short, do your homework and you’ll soon have a handle on the value of your home.  n

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