19 Nov 08 Southern California Home Sale Prices Decline But Sales Level Increase from Foreclosures
With the median price of Southern California homes down more than 40% from its peak, the housing market has now slid further than most economists expected. The median sales price for homes in the region fell to $300,000 in October, a level not seen since 2003 and a 41% drop from the peak price set in the spring and summer of 2007, according to San Diego-based DataQuick. Los Angeles County’s median home sales price was $355,000, down 29% from a year ago. Home sales prices declined because of the California short sales and foreclosed homes that flooded the market. For the first time since the crisis began, repossessed properties in October accounted for more than half of residences sold. Low home prices did drive sales up 56% from a year ago.
In a recent article, Peter Y. Hong shows how the unemployment is rising and consumer spending is sputtering and of course this adds more to the foreclosure crisis equation because it becomes even more difficult to finance or refinance home loans. Just last year, several market analysts interviewed by The LA Times predicted that Southern California home prices would drop 15% to 25% from their peak. It took only until July for the median price to fall 25% below its 2007 peak of $505,000, and it has kept falling since.
The California governor continues to promote home foreclosure prevention by encourages lenders to offer better financing with loan modifications that enable the homeowners to keep the homes.
Barring a dramatic economic reversal, the median sales price is on track to slip below $300,000 when November sales are calculated next month. Thomas Davidoff, a UC Berkeley economist, said he and others underestimated the drop in value because it was tougher a year ago to know just how many people had mortgaged their homes for more than they could really afford. Those earlier forecasts proved off because “it was hard for people to get their arms around just how bad mortgage lending standards had gotten,” Davidoff said.
During the real estate bubble, banks and mortgage brokers offered mortgage loans that required little or no money down, minimal proof of income and “teaser” mortgage rates that lowered initial monthly payments but later jumped to a much higher rate. Last year, it was unclear how many of those loans would default. But much of that mystery has been solved by now, as massive numbers of homes have been repossessed. In October 2007, 16% of the homes sold in Southern California had been foreclosed, compared with 51% last month. Mounting foreclosures flooded the real estate market with discounted repossessed properties, further decreasing home values. The ripple effect from that put even more homeowners’ upside-down because in many cases their mortgage balances are greater than their home is actually worth. The declining house values continue to lead to more foreclosures. Now, “we’re probably seeing an over-correction” in the most depressed inland areas, Davidoff said. In communities overrun by foreclosures, “you couldn’t build a house for less than what [existing homes] are selling for,” he said.
Christopher Thornberg, principal of Los Angeles consulting firm Beacon Economics, is among those who predicted a 25% price decline last November, making him one of the more bearish forecasters at the time. By March, he was estimating a 40% decline. Now he predicts that prices will keep dropping throughout 2009, until they’ve fallen 55% from their peak. Owners of higher-priced homes may put off selling during the early phases of a downturn, causing more expensive homes to decline in value at a slower rate. But eventually many high-end owners have to sell at prices well below peak levels, Thornberg said. Last month’s Case-Shiller Home Price Index, which tracks home sales by price tiers, showed that Los Angeles-area homes priced in the bottom third of the market had fallen 42% from their peak prices by late last summer — but those in the top third had dropped 21%.
In Southern California, Orange County posted the smallest price decline, with October prices 27% below a year ago. San Bernardino County’s 39% decline in October from October 2007 was the largest price decline, MDA DataQuick reported. Nationwide, the National Assn. of Realtors reported Tuesday that home sales prices fell in 80% of U.S. metropolitan areas in the third quarter. Foreclosures accounted for 35% to 40% of homes sold in the quarter. The National Assn. of Home Builders also reported Tuesday that its index of builder confidence hit its lowest level since its 1985 creation. The index is based on a survey of builders’ views on sales conditions for new homes.
Tags: California short sales
