Southern California home prices hit four-year high

October 12, 2012 11:17am
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•  But as prices rise, sales fall

•  “The latest stats suggest unbelievably low mortgage rates”

The median price paid for a Southern California home rose in September to a 49-month high, the result of affordability-driven demand meeting a modest supply of homes for sale, and a big change in market mix, according to a report Friday from realty information company DataQuick of San Diego, a unit of privately held Decision Insight Information Group.

For the first time in nine months sales declined compared with a year earlier as low-end deals fell and foreclosure resales hit a nearly five-year low, the real estate information company says.

The median price paid for a home in the six-county Southland climbed to $315,000 last month. That was up 1.9 percent from $309,000 in August and up 12.5 percent from $280,000 in September 2011, according to DataQuick.

Last month’s median price was the highest since the median was $330,000 in August 2008. The Southland median has risen month-to-month for eight consecutive months and has increased year-over-year for the past six months.

The median sale price has risen mainly for two reasons, the report says. First, higher demand, triggered largely by ultra-low mortgage rates, has coincided with a dwindling supply of homes for sale. Second, there’s been a big change in the types of homes selling this year. Far fewer are heavily discounted foreclosures, and many more are mid- to high-end move-up properties.

It appears that not quite half of the 12.5 percent year-over-year gain in last month’s median sale price can be attributed to a shift in the types of homes selling, says DataQuick. In September, price levels for the lowest-cost third of Southern California's housing stock rose 13.2 percent year-over-year, while they rose 7.7 percent in the middle and 3.5 percent in the top third.

In September, a total of 17,859 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties, according to DataQuick’s figures. That was down 20.4 percent from 22,438 sales in August, and down 1.6 percent from 18,149 sales in September 2011.

The steep August-to-September sales decline stems at least partially from the relatively high number of business days (23) on which home sales could be recorded in August and the relatively low number (19) in September, says DataQuick. September 2011 had 21 business days. When measured by the average number of sales to close escrow daily, this September’s sales fell 6.3 percent from August and rose 8.1 percent from September last year, it says.

Last month’s sales were 25.7 percent lower than the average sales tally of 24,052 for all the months of September since 1988, when DataQuick’s statistics begin. The low for September sales was 12,455 in 2007, while the high was 37,771 in 2003.

“The latest stats suggest unbelievably low mortgage rates and modestly higher consumer confidence continue to put pressure on a supply-starved housing market,” says John Walsh, DataQuick president.

“We can’t stress enough, though, that the median sale price and other price measures reflect more than just rising home values. There’s been a major change in market mix, meaning fewer low-priced sales, fewer foreclosures re-selling, and more sales in middle and upscale markets,” Mr. Walsh says.

“Assuming this year’s modest upward trend in pricing holds,” he says, “we’ll eventually see the market begin to re-balance with more supply, though that could take many months. More and more potential move-up buyers who do have equity will be thinking about timing their next purchase to maximize the advantage of super-low rates and relatively low prices. As more potential sellers get off the fence, or no longer owe more than their homes are worth, we’ll see the inventory of homes for sale rise. That’s going to limit price appreciation.”

DataQuick says many lower-cost neighborhoods have seen the number of homes for sale drop sharply this year, mainly for two reasons: Foreclosure activity is way down, meaning fewer foreclosed homes are listed for sale, and many who live in these areas owe more than the homes are worth and therefore cannot afford to sell their homes and move.

This restraint on the supply of homes for sale helps explain the 24.3 percent year-over-year drop in the number of Southland homes that sold last month for less than $200,000, the report says. Sales below $300,000 fell 11.5 percent.

Meanwhile, sales have picked up in many mid- to-higher-cost markets this year. The number of homes that sold for between $300,000 and $800,000 – a range that would include many move-up buyers – increased 11.5 percent year-over-year. Sales over $500,000 rose 9.6 percent year-over-year, while sales over $800,000 rose 5.2 percent compared with September 2011, says DataQuick.

Last month 23.5 percent of all Southland sales were for $500,000 or more – the highest in four years. That was up from 23.3 percent the month before and 20.4 percent a year earlier.

The report says that foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 16.4 percent of the Southland resale market last month, down from 19.2 percent the month before and 32.3 percent a year earlier. September’s level was the lowest since foreclosure resales were 16.0 percent in October 2007. In the current cycle, the figure hit a high of 56.7 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 26.5 percent of Southland resales last month. That was up slightly from an estimated 26.2 percent the month before and up from 23.8 percent a year earlier.

In September there were still no signs of a major easing of credit conditions, though the share of purchase loans that were “jumbo” inched up.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 21.1 percent of last month’s purchase lending, up from 20.3 percent the prior month and 17.8 percent a year earlier, according to the DataQuick report. In recent months the jumbo share has been the highest since December 2007, when jumbos made up 21.7 percent of the purchase loan market. In the months leading up to the credit crunch that struck in August 2007, jumbos made up close to 40 percent of the market.

The use of adjustable-rate mortgages (ARMs) held steady last month at 5.9 percent of Southland home purchase loans, the same as in August and down from 7.3 percent a year earlier. Since 2000, a monthly average of about 33.5 percent of Southland purchase loans were ARMs.

The most active lenders to Southland homebuyers last month were Wells Fargo with 9.0 percent of the market, Prospect Mortgage with 2.8 percent and Bank of America with 2.8 percent, says the report.

Absentee buyers – mostly investors and some second-home purchasers – bought 27.3 percent of the Southland homes sold last month. That was up a hair from 27.2 percent the prior month and up from 24.6 percent from a year earlier. The record was 29.9 percent in February this year, while the monthly average since 2000 is 17.5 percent. Last month’s absentee buyers paid a median $235,000, up 14.6 percent from a year earlier.

Buyers paying with cash accounted for 31.5 percent of September home sales, down from 32.3 percent the month before and up from 29.2 percent a year earlier. Cash purchases peaked at 33.7 percent of all sales this February, and since 2000 the monthly average is 15.2 percent. Cash buyers paid a median $245,000 last month, up 16.7 percent from a year ago.

Home flipping has picked up this year, adds DataQuick. The number of Southland homes that sold twice on the open market within a six-month period rose to 5.5 percent of all homes sold in September. That was up from a flipping rate of 5.2 percent in August and up from 3.3 percent a year earlier.

Government-insured FHA loans, a popular low-down-payment choice among first-time buyers, accounted for 25.2 percent of all purchase mortgages last month. September’s FHA level was down from 26.9 percent the month before and 32.4 percent a year earlier. The September FHA share was the lowest since July 2008, when it was 24.4 percent.

The typical monthly mortgage payment Southland buyers committed themselves to paying last month was $1,127, up from $1,124 the month before and $1,084 a year earlier. Adjusted for inflation, last month’s typical payment was 52.3 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 60.9 percent below the current cycle’s peak in July 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity, while above long-term averages, continues to trend downward and is far below peak levels. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick says.

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