Bay Area Property Prices Fall As Demand Shifts To Foreclosed Homes

Home sales in the Bay Area fell more than usual in January, combined with a pricing reduction due largely to increased interest in the purchase of foreclosures and …

Home sales in the Bay Area fell more than usual in January, combined with a pricing reduction due largely to increased interest in the purchase of foreclosures and inland homes. Interest in lower-end homes continued to be the primary source of demand in the Bay Area, fueled by the combination of tax credits and attractive financing. See the following article from DQNews for more on this.

The number of Bay Area homes sold in January fell more than usual from December and dropped below the year-ago level for the first time in 17 months. The median sale price rose above last year for the fourth straight month but dipped 8 percent from December as demand shifted more toward foreclosures and less-expensive inland homes, a real estate information service reported.

A total of 4,853 new and resale houses and condos closed escrow in the nine-county Bay Area last month. That was down 38.0 percent from 7,828 sales in December and down 3.9 percent from 5,050 sales in January 2009, according to MDA DataQuick of San Diego.

A decline in sales between December and January is normal for the season. On average, sales have dropped 28 percent between those two months since 1988, when DataQuick’s statistics begin.

Last month was the first since August 2008 in which sales fell on a year-over-year basis. January’s 4,853 sales total was 22.5 percent short of the average January tally – 6,261 – since 1988. Sales last month were also the second-lowest for a January since 1995, behind 3,586 sales in January 2007. The peak sales total for a January was in 2005, when 8,298 homes sold.

“The January figures show the market lost some of the momentum it had built up in the second half of ’09, when home buyers rushed to ensure they could take advantage of a tax credit, ultra-low mortgage rates and lower prices,” said John Walsh, MDA DataQuick president.

“It’s difficult to gauge how much of the slowdown stems from a thinner inventory of homes for sale in some areas as opposed to lower demand,” he said. “Whether last month’s relatively weak performance portends any substantial, lasting changes in the market is unclear. One month doesn’t make a trend and, in the past, January hasn’t proven to be very predictive.”

The January sales figures are based largely on deals that were struck during the holidays (late November through early January) and that closed escrow in January. In the Bay Area and across California, the sales data indicate that investors and first-time buyers remained the most committed home shoppers, and that helped skew the sales toward foreclosures and other lower-cost properties.

The median price paid for all new and resale houses and condos in the nine-county Bay Area last month was $350,000. That was down 7.9 percent from $380,000 in December but up 16.7 percent from $300,000 in January 2009.

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Last month’s median was 20.7 percent higher than the lowest point reached in the housing downturn – $290,000 last March – but it was still 47.4 percent lower than the $665,000 peak median reached in June and July of 2007.

It’s not unusual for the Bay Area’s median sale price to fall between December and January. The average change between those two months over the past 22 years is a decline of 2.4 percent.

Last month’s median dipped more sharply from December as the portion of sales involving foreclosures and homes in lower-cost areas rose relative to December. However, the median remained higher than in January 2009 because a year ago low-cost foreclosures were far more plentiful, lower-cost inland areas represented a substantially larger portion of total sales, and high-end sales were extremely slow. All of that made for an unusually low January 2009 median of $300,000.

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – rose to 36.6 percent of all homes resold last month, marking the second consecutive month in which foreclosure resales increased. Foreclosure resales peaked at 52 percent of resales in February 2009, then gradually fell and, in the fall, leveled off near 32 percent, rising slightly in December over November.

Though distress has certainly migrated up the price ladder, many foreclosed properties are still located in lower-cost inland suburbs and urban areas, where they spur resale activity. Total home sales in Contra Costa, Solano, Sonoma and Napa counties combined rose to 59.7 percent of total Bay Area sales last month, up from 57.6 percent in December but down from 67.1 percent a year ago.

Among all homes sold last month, transactions under $300,000 made up 40.4 percent of sales, up from 34.5 percent in December but down from 47.9 percent in January 2009.

Meanwhile, homes selling for over $500,000 made up 31.1 percent of sales last month, down from 35.7 percent in December but up from 22.7 percent a year ago.

The availability of financing for pricier homes improved modestly in recent months, but such “jumbo” loans remain relatively expensive and hard to obtain.

Mortgages above $417,000 – formerly the definition of a jumbo loan – made up 27.8 percent of all home purchase loans last month. That was down from 29.9 percent in December but up from 17.1 percent a year ago. More than 60 percent of purchase loans were over $417,000 before the August 2007 credit crunch hit.

Another critical form of financing for higher-cost homes – adjustable-rate mortgages (ARMs) – continues to be used far less than what’s been normal historically. In January, 7.5 percent of Bay Area purchase loans were ARMs, down from 7.9 in December but up from a record low of 3 percent a year ago. ARMs averaged 61 percent of purchase loans between January 2000 and August 2007.

Financing has flowed more freely for low- to mid-priced homes. Federally-insured, low-down-payment FHA loans, a popular choice among first-time buyers, made up 27.1 percent of Bay Area purchase loans last month. That was up from 25.6 percent in December, 24.7 percent a year ago and 0.7 percent two years ago.

Last month absentee buyers purchased 19.1 percent of all Bay Area homes sold, up from 17.3 percent in December but down from 19.3 percent a year ago. Buyers who appeared to have paid all cash – meaning there was no corresponding purchase loan – accounted for 24.8 percent of January sales, up from 23.6 percent in December and 24.4 percent a year ago, based on an analysis of public records.

Home flipping has trended a bit higher, too. Last month 2.9 percent of the homes sold had previously been sold between three weeks and six months prior. January’s flipping rate varied from as little as 1.8 percent of sales in Sonoma County to as much as 3.5 percent in Solano County.

San Diego-based MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Because of late data availability, sales were estimated in Alameda and San Mateo counties.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $1,508 last month, down from $1,619 the previous month, and up from $1,297 a year ago. Adjusted for inflation, current payments are 42.7 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 57.6 percent below the current cycle’s peak in July 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity is off its recent peak but remains high by historical standards, with mortgage default notices flattening or trending lower in some areas, but edging higher in others. Financing with multiple mortgages is low and down payment sizes are stable, MDA DataQuick reported.

This article has been republished from DQNews. You can also view this article at
DQNews, a real estate research and news site.


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