Southern California Property Faces Void In Demand Without Tax Credits

Southern California home sales are experiencing a market lull following the end of the tax credits – which led to the worst August home sales numbers in three …

Southern California home sales are experiencing a market lull following the end of the tax credits – which led to the worst August home sales numbers in three years. Lack of job growth, fears over job security and lack of incentives to buy also added to the poor results in August. See the following article from DQNews for more on this.

Southern California home sales continue to face a market lull following the end of the tax credits as it experienced the worst August in three years. Lack of job growth and fears over job security also added to the poor results in August. See the following article from DQNews for more on this.

Southland home sales fell last month to the lowest level for an August in three years and the second-lowest in 18, the result of a worrisome job market and a lost sense of urgency among home shoppers. The median price paid remained higher than a year ago but continued to erode on a month-to-month basis, a real estate information service reported.

A total of 18,541 new and resale houses and condos closed escrow last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was down 2.1 percent from 18,946 sales in July, and down 13.8 percent from 21,502 sales in August 2009, according to MDA DataQuick of San Diego.

Last month’s sales didn’t fall as sharply as in July, when the market lost most of the boost that had been provided by federal home buyer tax credits. July sales fell 20.6 percent from June and fell 21.4 percent from a year earlier. The now-expired credits spurred many buyers to purchase homes sooner than they otherwise would have, creating a market lull in their wake.

Last month’s sales were the lowest for the month of August since 2007, when 17,755 homes sold, and the second-lowest since August 1992, when 16,379 sold. Last month’s sales were 31.5 percent lower than the August average of 27,070 sales since 1988, when DataQuick’s statistics begin. The average change in sales between July and August is a gain of 3.9 percent, compared with last month’s 2.1 percent decline from July.

“The loss of home buyer tax credits explains much of the sales weakness over the past two months. But other factors are suppressing sales, too, such as the lack of meaningful job growth and potential buyers’ concerns about job security. Also, for many out home shopping now, there’s little beyond ultra-low mortgage rates to pressure them to buy sooner rather than later, especially in areas where the number of homes for sale is climbing,” said John Walsh, MDA DataQuick president.

“Over the next couple of months it will be interesting to see how many home shoppers opt for the sure thing, a spectacularly low mortgage rate, and how many hold off in hopes prices fall significantly. The latter group will have to keep a close eye on rates. If they jump much it could wipe out the advantage of a modest price drop.”

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The median price paid for a Southland home fell last month to $288,000, down 2.4 percent from $295,000 in July but up 4.7 percent from $275,000 in August 2009. The median has declined on a month-to-month basis for the past three months, since hitting a high for this year of $305,000 in May.

The median has risen on a year-over-year basis for nine consecutive months. However, the 4.7 percent gain in August was the lowest since that string of annual gains began last December with a 4.0 percent increase.

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

Last month, foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 34.7 percent of the resale market, up from 34.2 percent in July but down from 41.7 percent a year ago. The all-time high was February 2009 at 56.7 percent, DataQuick reported.

Government-insured FHA loans, a popular choice among first-time buyers, accounted for 36.6 percent of all home purchase loans in August, up from 36.0 percent in July but down from 39.5 percent in August 2009.

Last month 20.3 percent of all sales were for $500,000 or more, down from 22.3 percent in July but up from 19.4 percent a year ago. The low point for $500,000-plus sales was February 2009, when 13.6 percent of sales crossed that threshold. Over the past decade, a monthly average of 25.4 percent 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 29.4 percent of existing single-family house sales last month, down from 30.4 percent in July but up from 27.8 percent a year ago. Over the last decade those higher-end areas have contributed a monthly average of about 33 percent of regional sales. Their contribution to overall sales hit a low of 21.0 percent in January 2009.

High-end sales continue to be hampered by the credit crunch that struck three years ago, making adjustable-rate mortgages (ARMs) and “jumbo” loans more difficult to obtain.

Last month ARMs represented 5.5 percent of all purchase loans, down from 6.1 percent in July but up from 3.9 percent in August 2009. Over the past decade, a monthly average of nearly 40 percent of all home purchase loans were ARMs.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 17.9 percent of last month’s purchase lending, down from 18.5 percent in July but up from 15.7 percent in August 2009. Before the August 2007 credit crisis, jumbos accounted for 40 percent of the market.

Absentee buyers – mostly investors and some second-home purchasers – bought 22.0 percent of the Southland homes sold in August, paying a median $208,000. Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 25.6 percent of August sales, paying a median $200,000. In February this year cash sales peaked at 30.1 percent. The 22-year monthly average for Southland homes purchased with cash is 14.2 percent.

The “flipping” of homes has trended higher over the past year. Last month the percentage of Southland homes bought and re-sold within a six-month period was 3.5 percent, compared with 3.6 percent in July and 2.3 percent a year ago. Last month flipping varied from as little as 3.1 percent of total sales in San Diego County to as much as 4.2 percent in San Bernardino County.

MDA DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, 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 $1,158 last month, down from $1,204 in July, and down from $1,207 in August 2009. Adjusted for inflation, last month’s payment was 48.3 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 57.6 percent below the current cycle’s peak in August 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 low, down payment sizes are stable, and non-owner occupied buying is above-average, 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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