California's steadily escalating home prices reached new heights in April, according to a report released Tuesday, continuing to confound economists who expected the red-hot market to cool off months ago.
A mid-priced home sold for $424,000 last month, setting a new record in a state where real estate has become a gold mine. April's price is $63,000, or 17.5 percent, higher than the same time last year, continuing a long streak of double-digit increases throughout the state, according to DataQuick Information Systems, a La Jolla-based research firm.
The run-up in home prices has been widespread, from the most expensive areas such as Marin County, where a mid-priced home sold for $779,000, to rapidly growing inland areas such as San Bernardino County, where the mid-priced home price of $304,000 is now viewed as a relative bargain.
In the six Southern California counties tracked by DataQuick, a mid-priced home sold for $445,000, up 15 percent from a year ago. In the nine-county San Francisco Bay area, a mid-priced home sold for $586,000, a 19 percent increase from last year.
Those sorts of gains have been piling up for several years, turning California homes into one of the biggest moneymakers since Internet stocks generated staggering returns in the stock market during the late 1990s.
California home values have more than doubled in the past five years, according to DataQuick, which said a mid-priced home in the state sold for $200,000 in April 2000. The Dow Jones industrial average — the stock market's best-known barometer — has declined by 5 percent during the same period while the tech-laden Nasdaq composite index has plunged by 50 percent.
The rapid appreciation of California homes is raising fears that the state's housing market could be jolted by same kind of financial shocks that rippled through the stock market after the dot-com bust.
"The big question everyone is asking is what is going to happen when this cycle ends," said John Karevoll, a DataQuick analyst. "Are prices going to drop off a cliff or are they going to have a soft landing?"
April offered early signs of a slowdown as the number of houses and condominiums sold in the state declined by 5.7 percent from last year.
A drop-off in sales frequently foreshadows decelerating home prices, but last month might not be the best bellwether. That's because 2004 produced the highest sales volume of any April since DataQuick started tracking the market in 1988. Last month's sales total marked the second busiest April.
One of the biggest concerns looming over the market is whether too many people are overextending themselves to buy a home before prices climb even higher.
Adjustable rate mortgages, which charge less interest initially than fixed rate loans, have been financing three-fourths of California home purchases in recent months, Karevoll said. Because they require lower initial payments, adjustable rate mortgages, or ARMs, make it easier for home buyers to qualify for a loan.
The heavy reliance on ARMs increases the odds that homeowners will have trouble making their monthly payments if interest rates continue to rise as they have during the past year. Most ARMs fluctuate with the prime lending rate, which has climbed 4.25 percent to 6 percent during the past 10 months.
If they can't make their payments, more homeowners might sell under duress — a phenomenon that typically drives down prices.
Many borrowers are protecting themselves by obtaining ARMS that maintain a fixed rate for five to seven years, Karevoll said.
California's typical monthly mortgage payment stood at $1,924 in April, up from $1,642 a year ago.
Adjusted for inflation, California's monthly mortgage payment is still 6 percent below the peak reached in 1989 when fixed-rate mortgages were hovering between 10 percent and 11 percent. Fixed rate mortgages today remain below 6 percent, giving buyers the financial wiggle room to pay more for homes.