Homes sales in Southern California jumped up from May to June, approaching figures not seen since 2010’s tax credits expired. The surge was driven by sales in many price brackets, although a majority of the sales made were for resale homes rather than new builds. Builders are still struggling due to unbeatable competition in the market from the sale of distressed properties. Most of the market movement in June was driven by first-time buyers and absentee investors, despite the continued difficulty for some to qualify for loans and the fact that home prices, while low, have not reached historical lows. For more on this continue reading the following article from The Street.
Southern California home sales last month shot up more than usual from May to the highest level for any month since June 2010, when the market got its last big boost from homebuyer tax credits.
Sales of lower-cost homes, driven by investors and first-time buyers, and even high-end sales continued to outshine traditional move-up activity in middle price ranges, a real estate information service reported.
A total of 20,532 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in June. That was up 11.6% from 18,394 in May but down 14.0% from 23,871 in June 2010, according to San Diego-based DataQuick.
On average, sales between May and June have risen 6.2% since 1988, when DataQuick’s statistics begin. June sales have varied from a low of 18,032 in 2008 to a high of 40,156 in 2005. Last month’s sales count was 26.1% below the June average of 27,772. Among all months, June has had the highest number of sales most often – in eight of the past 23 years.
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In June last year, which logged the most transactions in 2010, sales were bolstered by state and federal efforts to stimulate the housing market via homebuyer tax credits. Those credits had expired or been largely depleted by July 2010, when sales plunged about 21% from both the month before and a year earlier. Southland sales have fallen short of the year-ago level every month since then.
"The housing market remains dysfunctional and lopsided, just somewhat less so than it was a few months or a year ago. The market mix indicates that a lot of potential buyers are either stuck, for lack of equity, or spooked and are waiting things out. Another large, lingering problem is the fussy mortgage market. Qualifying for a mortgage remains difficult for many, and the use of adjustable-rate and "jumbo" home purchase loans remains far below the historical norm," said John Walsh, DataQuick president.
The median price paid for all new and resale Southland houses and condos purchased last month was $285,000. That was up 1.8% from $280,000 in May and the highest since $290,000 last December, but still down 5.0% from $300,000 in June 2010.
The median has declined year-over-year for the past four months. It has been unchanged or lower than a year earlier each month since last December, when it posted a 0.3% annual increase.
Last month’s median was 15.4% higher than the median’s low point in the current real estate cycle – $247,000 in April 2009 – but was 43.6% lower than the peak $505,000 median in mid 2007. The peak-to-trough drop was due to a decline in home values and a shift in sales toward low-cost homes, especially inland foreclosures.
Today’s median is also suppressed somewhat by abnormally low sales of newly built homes, which typically sell for more than resale homes. Builders continue to suffer on a scale not seen in decades: The 1,395 newly built houses and condos sold last month marked a 36% drop from a year earlier and the lowest new-home total for a June in DataQuick’s records.
In the overall market, new and resale properties combined, sales behaved differently last month depending on the price segment. Sales rose 6.3% from May for homes priced below $200,000 and were virtually unchanged month-to-month in the $800,000-plus range. But June sales fell 4.9% from May in the $300,000 to $800,000 range, where many move-up transactions occur.
Move-up buying has been subdued by, among other things, the decline in home values in recent years that’s left many homeowners "upside down," owing more than their homes are worth.
On a year-over-year basis, home sales fell across virtually all price categories last month. But declines were greatest in the $300,000 to $800,000 range, which saw sales drop 25.5% from June 2010. Activity in that price band benefitted a year ago from homebuyer tax credits that spurred more move-up activity. Last month’s sales of homes priced below $200,000 fell 11.4% from a year earlier, while $800,000-plus sales dropped 17.6%.
Distressed property sales accounted for just over half of the Southland resale market last month. Roughly one out of three homes resold was a foreclosure, while almost one in five was a "short sale."
Foreclosure resales – properties foreclosed on in the prior 12 months – made up 33.0% of the Southland resale market in June, down from 33.2% in May but up from 32.8% a year earlier. Foreclosure resales peaked at 56.7% in February 2009.
Short sales, where the sale price fell short of what was owed on the property, made up an estimated 17.7% of Southland resales last month. That was the same as in May but down from 20.5% a year ago. Two years ago the estimate was 13.5%.
Tight credit conditions continue to hamper sales in mid- to high-end markets that had long relied on adjustable-rate and "jumbo" home loans.
Last month adjustable-rate mortgages (ARMs) accounted for 8.8% of all Southland purchase loans, the same as in May and up from 6.7% a year ago. While still low by historical standards, the May and June ARM share was the highest since 10.3% of purchase loans were ARMs in August 2008. Until a few years ago, ARMs were nothing unusual: Over the past 10 years, a monthly average of about 38% of purchase loans were ARMs.
Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 17.4% of last month’s purchase lending, up from 17.1% in May but down from 17.6% a year earlier. In the current cycle, jumbos fell in early 2009 to less than 10% of the purchase market. In the months leading up to the credit crisis that struck in August 2007, jumbos accounted for 40% of the market.
In lower-cost neighborhoods, many buyers – especially investors –
continued to purchase homes without a loan.
Southland buyers paying cash accounted for 28.0% of June home sales, paying a median $210,000. Last month’s cash buyer level was down from 29.9% in May but up from 24.2% a year earlier. Cash purchases hit a high of 32.1% of sales this February, while the 10-year monthly average is 13.8%. Cash purchases are where there was no indication in the public record that a corresponding purchase loan was recorded.
Many who pay cash are absentee buyers, who are mainly investors. Absentee buyers purchased 23.6% of the Southland homes sold in June, paying a median $205,000. Absentee buyers made up 25.1% of sales in May and 19.9% in June 2010. The absentee share of the market peaked this February at 26.4%. Over the last 10 years, absentee buyers purchased a monthly average of 16.7% of all homes sold.
Last month 20.7% of total sales were for $500,000 or more, down a tad from 21.0% in May and down from 21.7% 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 10 years, a monthly average of 27.5% of homes sold for $500,000 or more.
However, an alternative method of tracking mid- to high-end activity suggests those neighborhoods now account for a fairly normal level of sales relative to overall regional activity. Southland zip codes in the top one-third of the housing market, based on historical prices, accounted for 37.1% of total sales last month, compared with a 10-year monthly average of 36.9%. Last month’s figure was down slightly from 37.6% in May but up from 35.7% a year ago. These higher-cost zips codes’ contribution to overall sales hit a low of 26.8% in January 2009.
Government-insured FHA loans, a popular low-down-payment choice among first-time buyers, accounted for 31.3% of all mortgages used to purchase homes in June – the lowest level since 28.8% in August 2008. Last month’s FHA figure was down from 33.5% in May and 37.5% a year earlier. Two years ago FHA loans made up 35.0% of the purchase loan market, while three years ago it was 22.4%.
The%age of Southland homes that were "flipped" – bought and re-sold on the open market within a six-month period – rose slightly last month to 3.4% of all sales. That was up from 3.1% in May and the same as a year earlier. Flipping varied last month from as little as 2.4% of sales in Ventura County to as much as 3.6% in San Diego 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 $1,169 last month, up 1.3% from $1,154 in May but down 5.9% from $1,251 in June 2010. Adjusted for inflation, current payments are 49.5% below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 58.7% 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 few 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.