Home Sales Slowdown Could Settle In for a Stay
Reflecting the mushrooming crop of “for sale” signs popping up in the region, Southern California home sales in May fell to their lowest level for that month in seven years while prices flattened.
The region’s median home price of $485,000 in May was virtually the same as in March and April and only 6.4% above the level a year earlier, according to DataQuick Information Systems, a La Jolla-based research firm. That was the smallest year-over-year price gain since July 2000, coming during a month that normally is one of the busiest for home sales.
The data portray a region in which the housing slowdown has become more pronounced. But a widely watched report suggested that there was no reason to panic -- at least for now.
The UCLA Anderson Forecast said in its latest quarterly outlook to be released today that home prices probably would not fall much from current levels.
“Absent a recession, the price of a home five years from now is not likely to be substantially lower than it is today,” UCLA economist Ryan Ratcliff said.
The UCLA forecast said the cooling housing market was more likely to lead to slower growth for California’s economy, but not a recession.
Nonetheless, the latest DataQuick data was the strongest indication yet of how the balance of power in the region’s real estate market has shifted from sellers to buyers in recent months.
“The pendulum is now swinging the other way,” said David Burger, an Encino-based real estate agent. “A year ago there were lots of offers. Now we have more homes and fewer deals.”
He should know. For the last five weeks, Burger has been trying to sell a three-bedroom, Spanish-style house for a client in Burbank for a recently reduced price of $875,000. Located close to television and movie studios, the house on Olive Street is competing with 94 other listings in the vicinity, about four times what was for sale there a year earlier.
“This house a year ago would have sold in about two weeks,” he said. “Two years ago, in a day.”
One reason for the slowdown: rising supply and shrinking demand. There are plenty of homes on the market as sellers, worried that prices may fall, seek to cash out the gains they’ve made in recent years. But demand has fallen, in part because there are fewer speculators who -- as they did during the peak of the boom a couple of years ago -- are snapping up houses only to sell them quickly for a profit, a practice known as “flipping.”
Also hurting demand is rising mortgage rates, which have made the cost of financing a home purchase higher today than a year ago.
Wes and Brooke-Sidney Gavins have been shopping for a home for the last six months but are reluctant to make an offer. Prices seem too high, they say, and with more homes to choose from, there’s no pressure to act hastily.
“But it’s still tough to find deals,” said Wes, a network engineer. “You don’t want to be the one to overpay.”
Analysts say the caution of buyers like the Gavins is normal but had been forgotten amid the frenzied buying and selling of the six-year boom. And because the region’s economy is still strong, there is no significant panic selling by people losing their jobs, as was the case in the housing downturn of the early 1990s.
“This is not a bad market. What we have is a normalized market,” said Tom Iovenitti, manager of brokerage Coldwell Banker in Irvine. “Inventory is going up, but only those with a need to buy are actually buying.”
This year 50% more homes have come on the market regionwide versus the same time a year ago, according to local listing services. The number of transactions that closed in May fell 11.7% from a year earlier, to 27,278 -- the slowest May since 1999. It was the sixth consecutive month that sales volume declined, DataQuick said.
All but one county saw a drop in sales last month, with Orange County posting the biggest year-over-year decline at 31.6%. San Bernardino County, considered the region’s most affordable market, was the only area to see sales rise from a year earlier, up 2.6%. It also was the biggest gainer in terms of appreciation, as the median price rose 17.2% to $361,000.
The region’s median price was the same last month as it was in April and was a tick below March’s record-high median of $486,000.
The markets that were first to see their prices skyrocket six years ago are now showing the weakest price gains. San Diego County, for example, gave up a year’s worth of gains in May, as its median price barely rose 0.4% to $490,000, a smidge above the year-earlier median of $488,000. Ventura County’s rose 3% to $586,000.
But three counties posted new record-high medians in May, including Los Angeles, which rose 10.9% year-over-year to $509,000. Orange County gained 7.6% to $635,000, and Riverside County jumped 9.4% to $417,000.
The median is the price at which half of all homes sold for more, half for less.
Tiprin Follett knew the housing market was downshifting when she put her South Pasadena home on the market nearly three weeks ago. So she listed her meticulously maintained four-bedroom house at $1 million, which was below the neighborhood’s average price. She figured that tactic would attract loads of prospects.
It did. More than 150 people have streamed through Follett’s home since it was listed. But not one offer.
“It’s as if they’re waiting for something better or less expensive to come up,” Follett said.
To many, a cooling real estate market is preferable to the home-buying frenzy of the last six years that pushed up prices well above inflation. The economists at UCLA Anderson Forecast, nationally recognized for having predicted the 2001 U.S. recession, have long argued that real estate prices in California and the U.S. are unsustainable, partly because property values have climbed faster than personal incomes.
Plus, they contend, the vast number of jobs created by the real estate boom will recede as the market slows, leading to unhealthy levels of unemployment.
The slowing housing sector has placed California’s economy “at a tipping point,” UCLA economist Ratcliff said. Because real estate has been a major driver of economic growth, its retrenchment is bound to have some consequences.
But, he noted, there are few signs that the slowdown is spilling over into the wider economy. The creation of jobs in construction, sales, mortgage financing and other real estate-related fields has slowed. But other sectors, such as leisure and hospitality, trade and professional and business services, have gained steam, offsetting the housing-related job squeeze.
“It is a hopeful sign for the California economy that the non-real estate economy has weathered a slowdown in real estate employment with little ill effect -- so far,” Ratcliff said.
Ratcliff also offered a bit of real estate advice: “Selling your home with the idea of buying it back for less next year is not a historically sound investment strategy.”
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Wilting in May
Median price and number of new and previously owned homes sold in May, by county and overall in Southern California
*--* % change Median % change Number of from price from Area homes sold year ago (thousands) year ago Orange 3,113 -31.6% $635 +7.6% Ventura 1,078 -24.3 586 +3.0 San Diego 4,217 -18.0 490 +0.4 Riverside 5,468 -8.6 417 +9.4 Los Angeles 9,654 -4.7 509 +10.9 San Bernardino 3,756 +2.6 361 +17.2 Southern 27,286 -11.7 485 +6.4 California
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Source: DataQuick Information Systems
