HOME ECONOMICS DEMAND IS HIGH, INVENTORY IS LOW - GET OUT YOUR CHECKBOOKS IN THIS SELLER'S MARKET.

Byline: Jabulani Leffall Staff Writer

To buy or not to buy.

That's the question weighing heavily on the minds of individuals and families in the market for a new home in Southern California and the state as a whole.

In Southern California, the residential real estate market has reached critical mass and remains white hot for a variety of reasons that include high cost of living.

But the simplest explanation is based on the time-tested economic principle of supply and demand. When supply is down and demand is up high, price hikes naturally ensue.

In the Los Angeles area the low number of available homes on the market is reaching historic proportions. Subsequently, the same goes for prices, which are at record levels.

Prices in any given real estate market are measured by a market barometer coming in the form of the median price, which is the point at which half of the homes sold for more and the other half for less.

And with median prices reaching astronomical heights, lenders and real estate agents could be encouraging buyers to purchase more home than they can afford - not because real estate agents are necessarily trying to push fees higher, but because market conditions dictate price overshoots.

Industry observers contend that the high demand is driven by buyers who are so anxious to get a home before interest rates rise and supply dips further that they often offer to pay more than the asking price.

This creates stiff competition in an arena where first-time buyers are thrown into the fray with those buying second homes and investment properties as well as others with deeper pockets.

Those who are lucky enough to get in still face the prospect of paying more, according to Dataquick, the La Jolla-based market tracker. That's because adjustable-rate mortgages are on the rise, subjecting borrowers to higher interest payments if, as predicted, interest rates do rise.

Dataquick said 58 percent of recent purchasers in L.A. County took out adjustable-rate mortgages because of the rising prices.

``Adjustable rates were underused about a year ago because of a risk- averse financing environment,'' said Dataquick President Marshall Prentice. ``Most of the current usage has to do with these rising prices.''

Across California, lotteries and waiting lists are commonplace as the state needs approximately 250,000 new homes a year to match population growth - but the California Building Industry Association indicates that only 140,000 were built last year.

California's median housing price climbed 21.7 percent, to a record $353,000, in March. The national median sales price is currently $138,000.

The big problem is that median real estate prices in no way coincide with the state's median salary of $44,000 per year. According to experts, a family earning that salary needs about $35,000 more per year just to afford a $225,000 house, a price more than $100,000 below the median figure for the county and state.

Los Angeles County last month saw the largest year-to-year increase in nearly 15 years as the median price jumped 29 percent, to $375,000.

In the San Fernando Valley, home prices have skyrocketed by almost $99,000 since last year with a March median price of $442,000, up from $425,000 in January.

In fact, the six-county region of Los Angeles, Ventura, San Bernardino, Riverside, Orange and San Diego - where a total of 32,650 homes were sold last month - all showed near or above 20 percent gains in the median sales price.

Additionally, the typical monthly mortgage that Southland buyers committed to paying was $1,606 last month, up from $1,344 a year ago, making the cost of maintaining a home even higher.

Leslie Appleton-Young, chief economist for the California Association of Realtors, in a recent interview with the Daily News predicted that jobs could shift away from Los Angeles into cheaper regions such as Riverside, with a median price of $270,000, or San Bernardino, where the median comes in at $230,000.

Prentice said the region is in for a hectic summer season as there aren't enough homes to meet demand.

``Also the perception is that interest rates may edge up a bit, creating an added element of urgency.''

Lynn Rinker, president of the Southland Regional Association of Realtors, said recently that area homes below the median price are typically on the market for less than seven days, an environment that definitely makes it a seller's market instead of a buyer's market.

Jabulani Leffall, [phone]

jabulani.leffall(at)dailynews.com

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Drawing:

(color) no caption (Homes for sale, real estate agent)

Jorge Irribarren/Staff Artist