Southland Housing Market's Vital Signs Remain Weak

August 15, 2011

La Jolla, CA---Southern California home sales fell last month to the lowest level for a July in four years, though the decline from a year earlier was the smallest in 13 months. The drop in sales from June was more pronounced, especially for $500,000-plus homes, as the job market sputtered, economic uncertainty intensified and some potential homebuyers got cold feet, a real estate information service reported.

A total of 18,090 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in July. That was down 11.9 percent from 20,532 in June and down 4.5 percent from 18,946 in July 2010, according to San Diego-based DataQuick.

On average, sales between June and July have fallen 4.8 percent since 1988, when DataQuick's statistics begin. July sales have varied from a low of 16,225 in 1995 to a high of 38,996 in 2003. Last month's sales count was the third-lowest on record for a July, and was 29.8 percent below the July average of 25,752 sales.

Among all months, June has had the highest number of sales most often -- in eight of the past 23 years in DataQuick's records --while July has had the highest sales twice in that period.

The decline in sales last month from both June and a year earlier isn't as great when viewed in terms of the average number of homes sold daily. Last month had 20 business days on which sales were recorded, compared with 22 business days in June and 21 in July 2010. Average daily sales last month fell 3.7 percent from June and fell 1.0 percent from a year earlier.

"The latest sales figures look a bit worse than they really are, given this July was a fairly short month, but they still suggest some potential homebuyers got spooked. Reports on the economy became increasingly downbeat and, no doubt, some people fretted over the possibility the country would default on its obligations," said John Walsh, DataQuick president.

"If there's a shred of good news in the data it's that last month's sales weren't much worse than a year earlier. For the first time in many months, we get an apples-to-apples comparison to year-ago sales, given that in July 2010 the market lost its crutch -- federal homebuyer tax credits."

The median price paid for all new and resale Southland houses and condos purchased last month was $283,000. That was down 0.7 percent from $285,000 in June and down 4.1 percent from $295,000 in July 2010.

The median has declined year-over-year for the past five months. It has been unchanged or lower than a year earlier each month since last December, when it posted a 0.3 percent annual increase.

Last month's median was 14.6 percent higher than the median's low point in the current real estate cycle -- $247,000 in April 2009 -- but was 44.0 percent 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 lower-cost homes, especially inland foreclosures.

Today's median is suppressed somewhat by incredibly low sales of new homes, which typically sell for more than resale homes. Southland builders sold 1,022 newly built houses and condos last month, down 26.7 percent from June and down 7.3 percent from a year earlier. It was the lowest number of new-home sales for a July in DataQuick's records back to 1988.

Overall home sales in July fell across all price categories compared with June. Sales declined 11.2 percent from June for homes priced below $200,000, while they fell 13.3 percent month-to-month for $300,000-to-$800,000 homes and fell 20.5 percent for homes over $800,000.

Sales also fell across the price spectrum on a year-over-year basis. While they declined just 1.7 percent for homes priced below $200,000, they dropped 11.2 percent year-over-year in the $300,000-$800,000 range and 15.0 percent in the $800,000-plus segment.

Distressed property sales continued to account for around half of the Southland resale market in July. Roughly one out of three homes resold was a foreclosure, while close to one in five was a "short sale."

Foreclosure resales -- properties foreclosed on in the prior 12 months -- made up 32.5 percent of the Southland resale market in July, down from 32.9 percent in June and 34.2 percent a year earlier. Foreclosure resales peaked at 56.7 percent in February 2009.

Short sales, where the sale price fell short of what was owed on the property, made up an estimated 17.3 percent of Southland resales last month. That was down from 17.7 percent in June and 19.4 percent a year ago. Two years ago the estimate was 14.3 percent.

Tight credit conditions continue to hamper sales in mid- to high-end markets that have long relied on adjustable-rate and "jumbo" home loans.

Last month adjustable-rate mortgages (ARMs) accounted for 8.9 percent of all Southland purchase loans, up from 8.8 percent in June and up from 6.1 percent a year ago. While still low by historical standards, the July ARM share was the highest since 10.3 percent of purchase loans were ARMs in August 2008. Until a few years ago, ARMs were nothing special: Over the past 10 years, a monthly average of about 38 percent of purchase loans were ARMs.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 17.8 percent of last month's purchase lending, down from 18.2 percent in June and 18.5 percent a year earlier. In the current cycle, jumbos fell in early 2009 to less than 10 percent of the purchase market. In the months leading up to the credit crisis that struck in August 2007, jumbos accounted for 40 percent of the Southland market.

In many lower-cost neighborhoods, many buyers -- especially investors -- continue to buy homes without a loan.

Southland buyers paying cash accounted for 28.2 percent of total July home sales, paying a median $214,000. Last month's cash buyer level was down slightly from 28.6 percent in June but up from 27.5 percent a year earlier. Cash purchases hit a high of 32.1 percent of sales this February, while the 10-year monthly average is 13.3 percent. 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 23.8 percent of the Southland homes sold in July, paying a median $212,000. Absentee buyers made up 24.1 percent of sales in June and 22.3 percent in July 2010. The absentee share of the market peaked this February at 26.4 percent. Over the last 10 years, absentee buyers purchased a monthly average of 16.7 percent of all homes sold.

Last month 20.2 percent of all sales were for $500,000 or more, down a tad from 21.6 percent in June and down from 22.4 percent a year earlier. The low point for $500,000-plus sales in this cycle was in January 2009, when only 13.8 percent of sales were above that threshold. Over the past 10 years, a monthly average of 27.5 percent of homes sold for $500,000-plus.

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 activity. Southland zip codes in the top one-third of the housing market, based on historical prices, accounted for 37.0 percent of total sales last month, compared with a 10-year monthly average of 36.9 percent. Last month's figure was down slightly from 38.2 percent in June but up from 36.6 percent a year ago. These higher-cost zips codes' contribution to overall sales hit a low of 26.8 percent in January 2009.

Government-insured FHA loans, a popular low-down-payment choice among first-time homebuyers, accounted for 31.5 percent of purchase mortgages in July. Last month's FHA figure was up slightly from 31.1 percent in June but down from 34.7 percent a year earlier. Two years ago FHA loans made up 35.2 percent of all purchase loans, while three years ago it was 24.4 percent.

The percentage of Southland homes that were "flipped" -- bought and re-sold on the open market within a six-month period -- rose last month to 3.5 percent of all sales. That was up from 3.0 percent in June but down from 3.6 a year earlier. Flipping varied last month from as little as 2.9 percent of sales in Ventura and Orange counties to as much as 4.1 percent 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 $1,154 last month, down 0.2 percent from $1,157 in June and down 4.2 percent from $1,204 in July 2010. Adjusted for inflation, current payments are 50.1 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 59.2 percent 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 much 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.



Sales Volume Median Price
All homes Jul-10 Jul-11 %Chng Jul-10 Jul-11 %Chng
Los Angeles    6,515 6,193 -4.90% $339,000 $320,000 -5.60%
Orange         2,527 2,455 -2.80% $450,000 $437,500 -2.80%
Riverside      3,529 3,288 -6.80% $200,000 $190,000 -5.00%
San Bernardino 2,556 2,378 -7.00% $155,000 $151,000 -2.60%
San Diego      3,070 3,041 -0.90% $338,000 $325,000 -3.80%
Ventura        749 735 -1.90% $370,000 $360,000 -2.70%
SoCal          18,946 18,090 -4.50% $295,000 $283,000 -4.10%

 


Source: DQNews.com Media calls: Andrew LePage (916) 456-7157

Copyright 2011 DataQuick. All rights reserved.

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