Home Prices Down in Southern California

March was another weak month for Southern California home sales, but several factors indicate the market wasn’t as bad as it has been in recent months. A surge …

March was another weak month for Southern California home sales, but several factors indicate the market wasn’t as bad as it has been in recent months. A surge in job creation or another round of price corrections could improve the situation. To learn more about this, read the full article from The Street.

Southern California home sales turned in another lackluster month in March, the result of a fussy mortgage market, slow job growth and a continued wait-and-see attitude among potential buyers and sellers. There were signs, however, that the market was a little less dysfunctional than in recent months, a real estate information service reported.

A total of 19,412 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 35.1% from 14,369 in February, and down 5.2% from 20,476 in March 2010, according to DataQuick. The San Diego firm tracks real estate trends nationally via public property records.

Sales always increase from February to March. Last month’s sales count was 21.4% below the 24,706 average for all the months of March since 1988. Sales so far this year are 20% below the norm. During the last half of 2010 sales were 25-30% below average.

Sales of newly built Southland homes totaled 1,144, the lowest March in DataQuick’s statistics, which go back to 1988. The peak March was in 2006 with 7,205 sales. The March new-home average is 3,661.

The median price paid for a Southland home last month was $280,500, up 2.0% from $275,000 in February, and down 1.6% from $285,000 for March a year ago.

The median’s low point for the current real estate cycle was $247,000 in April 2009, while the high point was $505,000 in mid 2007. The peak-to-trough drop was due to a decline in home values as well as a shift in sales toward low-cost homes, especially inland foreclosures.

"As an indicator of upcoming trends, the month of March is actually pretty reliable. We got off to a slow start with sales this year and it doesn’t look like that will change anytime soon. Two of the likely game changers in the short run would be a surge in job creation or another round of price corrections," said John Walsh, DataQuick president.

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"The foreclosure issue is going to be with us for a good while. But mortgage availability, or rather the lack thereof, is key. If a well-crafted home loan program comes down the pike, it’s going to make some lending institution the dominant player, at least for a while," he said.

Adjustable-rate mortgages (ARMs) accounted for 7.8% of last month’s Southland purchase loans, up from 7.7% in February and 4.9% a year ago. While still at a low level, last month’s ARM usage was the highest since 10.3% in August 2008. Over the past decade, a monthly average of about 42% of purchase loans were ARMs.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 15.9% of last month’s purchase lending, up from 15.6% in February and the same as a year earlier. In the months leading up to the credit crisis that struck in August 2007, jumbos accounted for 40% of the market.

Foreclosure resales – properties foreclosed on in the prior 12 months – made up 36.4% of resales last month, down from a revised 37.0% in February and down from 38.3% a year ago. Foreclosure resales hit a high of 56.7% in February 2009 and a low of 32.8% last June.

Short sales – transactions where the sale price fell short of what had been owed on the property – made up an estimated 18.5% of Southland resales last month. That was down from an estimated 19.6% in February but up from 18.0% a year earlier and 12.2% two years ago.

Absentee buyers – mostly investors and some second-home purchasers – bought 26.0% of the Southland homes sold in March, paying a median $205,000. The absentee share of the market reached a peak in February at 26.4%. Over the last decade, absentee buyers purchased a monthly average of 16.3% of homes.

Cash purchases accounted for 30.5% of March home sales, paying a median $205,250. The cash purchase share was down from 32.3% in February, the all-time high, but up from 27.9% a year earlier. The 10-year monthly average for Southland homes purchased with cash is 13.3%. Cash purchases are where there was no indication in the public record that a corresponding purchase loan was recorded.

Government-insured FHA loans, a popular low-down-payment choice among first-time buyers, accounted for 32.0% of all mortgages used to purchase homes in March – the lowest level since August 2008, when 26.8% of purchase loans were FHA. Last month’s FHA level was down from 32.2% in February and 36.5% in March 2010. Two years ago FHA loans made up 36.5% of the purchase loan market, while three years ago it was just 10.5%.

Last month 19.2% of all sales were for $500,000 or more, up from a revised 18.7% in February and down from 20.3% a year earlier. The low point for $500,000-plus sales was in January 2009, when only 13.8% of sales were above that threshold. Over the past decade, a monthly average of 26.9% of homes sold for $500,000 or more.

Viewed differently, Southland zip codes in the top one-third of the housing market, based on historical prices, accounted for 35.8% of total sales last month. That was up from 34.8% in February and up from 35.2% a year ago. Over the last decade, those higher-end areas contributed a monthly average of 37.0% of regional sales. Their contribution to overall sales hit a low of 26.2% in January 2009.

Last month the%age of Southland homes bought and re-sold on the open market within a six-month period was 3.2%, the same "flipping" rate as the month before but down slightly from 3.3% a year ago. Flipping varied last month from as little as 2.5% in Ventura County to as much as 3.5% in Orange County.

DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,185 last month, up from $1,174 in February and down from $1,220 in March 2010. Adjusted for inflation, current payments are 48.0% below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 57.4% below the current cycle’s peak in July 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick reported.

This article was republished with permission from The Street.


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